Although dollar and unit share growth has stalled for most private label food and beverages, a report from market research firm IRI indicates that private label functional and better-for-you drinks are making modest gains, with potential for even stronger growth in the future.
According to IRI’s November 2016 report titled “Private Label: The Journey to Growth Along Roads Less Traveled,” private label brands are showing signs of a slight decline over the last 24 months after outpacing industry average dollar sale growth for several years. From 2012 through 2016, private label’s dollar share in multi-outlet plus convenience retailers peaked at 14.8 percent in 2015, falling to 14.5 percent in last year. Unit share has been decreasing at a rate of about 0.1 percent per year since 2012, dropping from 17.4 percent to 17.1 in 2016.
Yet within the private label space, beverages, which account for only 9 percent of overall sales, are one of the few areas enjoying some growth, thanks to an increased demand for healthy and functional drink products. “By delivering against sought-after benefits, such as nutritional enhancement,” the report reads, “emerging private label beverage categories — liquid drink enhancers, bottled water and coffee — have seen private label share jump.”
In an interview with BevNET, Susan Viamari, vice president of thought leadership at IRI, explained that embracing functional and better-for-you beverages is a way for private label brands to move away from “me-too” types of innovation and carve out more specialized niches.
“The more macro-level development [of private label products] is not as exciting as it has been,” Viamari said. “Now it’s about looking at things with a much more granular lens. Bottled water as a whole is blasé, but if you look at sparkling or enhanced water, there’s a lot more excitement there. For sparkling water, we feel that’s taking some of the momentum that carbonated soft drinks used to have. Healthier, on-the-go, energy enhancing — all of those kinds of trends are very ripe for beverage private label development.”
While chains such as Trader Joe’s and Whole Foods have made private label brands a centerpiece of their competitive strategies for years, large conventional grocery, club and convenience store retailers are gradually expanding their private label beverage offerings with functional and healthy products.
Kroger, for example, has introduced a private label kombucha, available in four fruit-flavored SKUs in 15.2 oz. bottles, through its Simple Truth brand. During the company’s Q3 earnings call in December, chairman and CEO Rodney McMullen specifically credited the kombucha and Kroger’s other private label functional beverages, such as its electrolyte-enhanced bottled water, for helping the brand maintain double-digit momentum.
Conventional grocery chain Safeway also began selling kombucha through its O Organics line in 2015.
The IRI report reveals strong gains for private label brands within the club channel. Costco, the second-largest retailer in the world as of 2015, has also expanded its penetration of private label products to 37 percent, up from 25 percent, through its Kirkland Signature brand.
Target has also expanded its private label offerings. Speaking with BevNET, Errol Schweizer, former vice president of grocery at Whole Foods, praised Target for investing time in researching and tracking consumer trends and preferences before choosing which products to develop as private label offerings.
“They are leveraging their brand equity to put these trends in front of a very loyal consumer base whose spending habits are changing, especially by age,” Schwetzer said. “With their consumer insights data, they are able to make those decisions and manage them by category. There’s a lot of found money by launching new product and trading out stuff that didn’t sell as fast.”
Looking ahead, Viamari said companies working with private label brands would need to further examine their competitive sets, because more consumers are thinking beyond specific categories and focusing on overall product value proposition.
“We are no longer locked in to competing in within our categories,” she said. “We are competing for ‘share of throat’ in beverages. So you need to look at that more broadly. Shoppers don’t look at categories; they think ‘I’m thirsty right now.’ That’s the way marketers need to examine their competitive set and also the way they are creating their stories and value propositions.”