Is Your Private Label Underperforming?
Private label sales growth outpaced branded products in recent years. This disparity will widen further with the downturn in the economy. FTI has observed that companies often manage private brands sub-optimally, leading to increased costs and an inefficient process.
Given the economic impacts of COVID-19, this must change. A recent survey1 found that 75% of consumers had tried new brands from new places, or otherwise changed how they shopped since the pandemic. Retailers and CPG companies must improve their response to changing consumer needs, as 97% of manufacturers believe that the retailer/CPG – manufacturer relationship should be more agile adjusting to product demands.
We believe the following:
- Private label is growing, with companies investing in the category to drive sales and margin
- Companies often setup an inefficient private label organization, which increases costs and inefficiencies
- Cost savings are real, anywhere from 10% to 60% depending on the product component
- Savings realization will be fast, if you manage vendor relationships and internal expectations
The sharp rise of private label has been well documented through past research and articles. Consumers, drawn to cost savings of private label products, have also been swayed by the continued improvements in product quality. Private label sales2 grew 3.7 percent YoY in 2019, compared to 1.9 percent growth for branded products.
Private label also compares favorably over the longer term, with a 2.5 percent, four-year CAGR versus 1.0 percent for branded. We expect this trend to continue, given the current economic downturn. A recent FTI consumer survey3 revealed price as a primary driver for shoppers, both during and after COVID-19. With price being a critical consumer consideration, private label will benefit.
1: McKinsey & Company, What Consumer-Goods Sales Leaders Must Do to Emerge Stronger from The Pandemic, 2020
2: Nielsen, Total Consumer Report 2019
3: FTI Consulting, Consumer Preferences During COVID-19, 2020