Our U.S. Retail Analyst Simeon Gutman discusses shoppers’ embrace
of a private labels super cycle and how changing consumer
behavior could fundamentally change grocery and discount
retailers.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Simeon Gutman, Morgan
Stanley’s US Hardlines, Broadlines and Food Retail Analyst.
Today, we’ll talk about a fascinating shift in the retail
landscape: the rise of private label products and what this could
mean for the future of grocery and discount retailers.
It’s Thursday, December 12, at 10am in New York.
Think about your recent trip to your favorite grocery store. As
you reached towards the shelves for your preferred brand of
mayonnaise, frozen pizza, or bread, you may have noticed that
more and more shelves are stocked with store-brand products.
Products that not only match the quality of national brands but
often exceed it. This isn't just a minor trend. We estimate
private label sales growth will accelerate by 40 per cent to
reach $462 billion by 2030. An expansion that will redefine
market dynamics significantly.
In essence, we think the private label grocery market is on the
cusp of a super cycle. This super cycle is a by-product of
COVID-era shifts in the way that customers shop and how retailers
invest into this trend. At the same time, private label groceries
reflect the rise of mega platforms, which are taking ever greater
consumer wallet share and are innovating more than ever before.
When you look at macro drivers, US consumers have been navigating
a difficult post-COVID environment. While inflation is currently
moderating, overall food prices remain 30-34 per cent above their
2018 levels. Most consumers are spending more on food at home vs.
food away from home, which is a positive catalyst for private
label acceleration. Further, consumers are willing to substitute
lower priced goods, especially groceries, and these categories
present a growth opportunity for private labels. This is the
tipping point that we’re talking about. High costs, recent
innovation, and innovation like we’ve never seen before – with
the rise of these mega platforms, this industry looks like it’s
ripe for disruption.
The market views private label penetration as a slow, gradual,
and ongoing event. But our work challenges this premise. We
believe the rate of change in private label growth will
accelerate substantially over the next few years. We think
private label products will grow at double the rate of the
overall grocery market bringing private label market penetration
from about 19 per cent in 2023 to about 23 per cent by 2030.
This growth is not just about stocking up the shelves. It's about
changing consumer perceptions and behavior. Consumers
increasingly see private labels as viable alternatives to
national brands because they often offer better value and
innovation. From healthier ingredients, like no more seed oils,
to organic products that you had no idea they can produce, to
premium products like frozen lobster ravioli to mushroom and
truffle pizza. There are a couple of retailers in the US that are
all private label and they are among the fastest growing ones,
taking away the stigma of what private label products could mean.
So what does this mean for the broader retail and consumer
packaged good industries? For grocers and discounters with
already strong private label offerings, this shift presents a
significant opportunity for growth. It’s also accretive to
margins. On the flip side, traditional food companies might face
increased competition. These companies have historically relied
on brand superiority. But as private label gains market share –
particularly in food categories – these national brands could see
a hit to their gross profit growth, which could fall from 3 per
cent historically to about 2 per cent. And while household and
personal care categories have seen some resilience against
private label encroachment, the ongoing economic pressures and
shifts in consumer spending habits could challenge the status
quo.
Looking ahead, the rise of private labels could lead to a
reevaluation of what brands mean to consumers. As private label
becomes synonymous with quality and value, we may see a new era
in which traditional brand loyalty becomes less significant
compared to product quality and cost-effectiveness.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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