BIZMOLOGY — Market research firm Nielsen is out with a list of the top 10 US store-brand retailers and the reasons for their success. Indeed, while private-label brands (aka store brands) have grown to account for 17% of the $643 billion in total retail sales in 2013, the 10 companies identified by Nielsen boast an average private-label dollar share of 35% and outperform their peers in terms of store-brand share.
Not surprisingly, supermarket chains claimed eight of the 10 spots on the list, with warehouse club Costco Wholesale and dollar-store operator Dollar General representing the club and dollar-store retail channels. Topping the list is ALDI, a deep-discount, limited-assortment chain where private-label brands account for a whopping 70% of total store sales. To be fair, ALDI’s business model is built around store brands, although it has begun offering more national brands to draw new customers. (The same is more or less true for second-place Save-A-Lot, another deep-discount, limited-assortment grocery retailer.) Of the conventional supermarket chains on the Nielsen list, including Texas-based giant H-E-B, Kroger, and Safeway, regional Wegmans is on top. Wegmans pursues an aggressive private-label strategy that includes frequent product updates and innovation.
What do the top 10 chains have in common? All look to private-label products for a competitive advantage, rather than as a bottom-shelf afterthought. Indeed, ALDI is a magnet for shoppers predisposed to purchasing store-brand dry grocery goods. H-E-B is tops when it comes to getting shoppers to buy private-label goods across multiple departments. Costco is well known for its private-label wines under the Kirkland Signature label. Trader Joe’s (which curiously isn’t on the list despite the fact that the majority of its sales come from private label) has also met success with its Charles Shaw wine brand (better known as “Two-buck Chuck”).
Also, many invest heavily in marketing, merchandising, and analytics to support their store brands and display them prominently in their stores and on their websites. As First Research notes in its Grocery Stores & Supermarkets profile, some supermarkets have taken a multitiered approach to private labels to reach different audiences. Examples include Safeway and H-E-B, which each have premium and core private-label products across a multitude of categories. And while most of the top 10 outsource the production of their store brands to manufacturers, Kroger and Safeway both invest heavily in making their own store brands.
Because store brands are a win-win for shoppers and retailers — providing value to consumers and higher margins for merchants — they’ve experienced tremendous growth. (There’s an upside for manufacturers too. Nielsen suggests that makers of branded products consider putting excess production capacity toward meeting the growing demand for store brands.) Still, there’s plenty of room to grow. Indeed, sales in the private-label segment increased just 1 share point between 2009 and 2013, according to Nielsen.
What are some of Bizmology readers’ favorite store brands? I give H-E-B’s Organics brand a thumbs up. What gets your vote?