New Tool: ProSource
Check out our packaging and processing solutions finder, ProSource.

$55 billion in sales might be at stake. Is your packaging strategy ready to grab the gusto?

If the authors of a new report are correct, as much as $55 billion in annual product sales could be up for grabs over the next 10 years. If you want a piece of this pie, pay close attention to the continuing evolution of private-label brands.

Pw 7582 Chart 1 Copy

Private-label brands could reap the benefits of this massive shift in dollar volume—at the expense of national brands—if retailers emulate en masse the successful private-label strategies of several large U.S. chains, and if national brands continue the status quo.

If that happens, McKinsey & Co., a consultancy, says in its report, private label’s dollar share would be 24% within a decade. At most retailers today, retailer-brand share varies between 11% and 15%.

McKinsey laid out those projections in a new report called “Competing in the New World of Brands: The Next Wave of Private Label” after studying the private-label capabilities of more than 70 retailers and interviewing trading partners for both national and retailer brands. McKinsey summarized its findings at the Private Label Manufacturers Association’s 2007 Private Label Trade Show in November in Rosemont, IL.

The success of European retailers’ private-label programs—share of market exceeds 50% in several countries—has already inspired a few U.S. retailers to introduce more sophisticated retailer-brand programs. The McKinsey report cites Safeway, Wegmans, and Kroger among the top-tier retailers that are driving the highest levels of private-label dollar share—22% of their total sales, on average. That compares with 15.6% for the bulk of the other retailers. However, McKinsey identifies a bottom tier of retailers that focuses extensively on national brands. This group’s private-label share barely exceeds 10%.

Retailers in the top tier have mastered using private label as a key differentiator to build consumer loyalty. They report higher levels of private-label growth (5.3%) than other retailers (3.4%) during the past three years.

For Safeway, the breakthrough started by understanding that products aren’t necessarily brands, and they don’t automatically make a retailer’s stores a destination. True brands must have meaning and relevance for shoppers. So Safeway has reduced its 70 private-label brands to 10, and packaging is a crucial tool in growing each of them. One of Safeway’s newest brands, Eating Right, was born out of shoppers’ desire to see a “better for you” line of products that taste good. The brand’s healthful message, supported by a green-and-white color scheme and simple product photography, greets Safeway shoppers in food categories around the store.

McKinsey’s report says retailers will grow private label through the next 10 years through either the base growth or aggressive growth scenarios described in the chart above.

“The role that private label plays depends on manufacturers, consumers, and increasingly, the retailers,” Kari Alldredge, McKinsey principal, said in presenting the report’s findings at the PLMA Show. “We believe that if other retailers take a similar approach to the leaders, there is a lot of value-at-stake to capture,” Alldredge said.

Alldredge listed two takeaways for brand managers and packaging teams at national brands.

• Be continually innovative in products and packaging. Private-label dollar share is likely
to be low in categories where national brands, marketing strategies, and the pace of innovation are high.

• Look at the “big picture” by reviewing the economics behind your brand. Are you creating value for the consumer?

Discover Our Content Hub
Access Packaging World's free educational content library!
Read More
Discover Our Content Hub
Rethinking Packaging Robotics to Prioritize Flexibility
In this ebook, you’ll learn how to guard against the traps that CPGs sometimes inadvertently set for themselves when implementing robotics that lead to automation “brittleness.”
Read More
Rethinking Packaging Robotics to Prioritize Flexibility