Rise of Private-Label Products: Meeting the Demands of Agnostic Shoppers
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Retailers’ aisles have long been stocked with private-label products, but consumers seem particularly open to them now. Various market-research firms have in recent years sketched a picture of what they call “agnostic shoppers”—informed, savvy consumers who are less loyal to specific brands and stores than to getting a good deal, whether that deal is considered good because of low prices, high quality, or both. Private-label products seem a perfect fit for this trend, being both cheaper than brand-name products and comparable to them in quality. Indeed, a report last year from Gartner, a research and consulting firm, found that roughly half of Millennial shoppers said that they were indifferent to whether a product is brand-name or private-label, and that they would buy more private-label goods if the market provided them.
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Retailers like private-label products too—they often have higher profit margins for stores than brand-name goods do. The national grocery chain Kroger has taken a particular liking to them. According to an article from Reuters earlier this year, Kroger has a team of 400 employees who develop its private-label products, poring over sales data to pounce on new trends. Each Kroger store, on average, has more than 15,000 house-brand products, and, the sales of these products accounted for about 27 percent of the chain’s grocery sales last year. Private-label products currently account for much larger shares of sales for brick-and-mortar stores than they do for online retailers. According to the market-research firm Nielsen, $17 out of every $100 spent in American brick-and-mortar stores goes to private-label brands, while online, private-label products make up only 3 percent of sales of packaged goods…
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A spokesperson for Amazon told me that its private-label products “only account for about 1 percent of our total retail sales.” The company does sell a range of products under Amazon-owned brands, but lately it has been focusing on assembling an arsenal of goods that are made by other companies but can’t be purchased anywhere except on Amazon. Forming exclusive brand partnerships allows Amazon to add unique products and plug assortment gaps in high-demand categories without having to spend the resources to develop, manufacture and sell them. The market-research firm IRI has found that the prices of private-label products are on average 20 percent lower than those of brand-name products, but there’s apparently such a thing as too good of a deal. Christopher Durham, the private-label consultant, told me a story about working with a retailer on a pack of private-label batteries. Their price was about 60 percent cheaper than what the brand-name version was selling for, but even though Durham said they were of comparable quality, sales were “very, very slow on them.” He and his team experimented with different prices, and arrived at a somewhat amazing conclusion: “We could move the price up to about 25 percent less than the national brand, and the [sales] volume went up about seven times. Which is crazy, right? But [the customer was thinking], These are so cheap—I don’t trust them.” …
