As one might expect, consumer demand for less expensive private label products has been on the rise and retailers have responded by offering their own private label brands. Not only have food retailers seen higher demand for store brand products in the past four years, but so have department stores, electronics stores and office supply retailers. Examples of successful private label brands include: Safeway’s o-Organics, Best Buy’s Insignia and Nordstrom’s BP. However, the trend has not reached its peak. Investors should be looking out for growth opportunities in private label manufacturing.
Between late 2007 and early 2008, the time frame in which most observers believed that the “Great Recession” began in the United States, name brand products captured 79.5% of retail market share while store brand products held the remaining 20.5%. By the beginning of 2009, the market share for store brand products had risen two full percentage points – a major jump in just one year – and this new 22.5% market share for private label products has held fairly steady in the three years that followed. As The Nielsen Company said in a March 2012 report, “the not-so-Great Recession turned into a windfall for private label,” as consumers paid closer attention to the value of store brands and retailers responded.
What does this mean for potential investors? While private label producers have come a long way toward meeting the increasing demand for store brand food products, surveys show that the large majority of consumers hope that stores will widen the range and selection of private label products on their shelves – particularly in health & beauty products. Furthermore, surveys show that after consumers move to a private label brand, a large majority of those consumers plan to stick with the new brand, even when the economy improves and their spending power rises. For these reasons, my recommendation to financial and strategic buyers is to take a look at private label manufacturers… the sooner the better.