The consumer packaged goods (CPG) industry is struggling to jump-start growth. After outpacing industry averages for several years, private label dollar sales growth declined during the past two years and unit sales are also lagging behind industry averages, according to IRi market data.
Total store sales grew in 2015 to a total of $780 billion, and private label captured the majority of the 3.3% increase in total sales. But 2016 was a different story. Sales are expected to top $795 billion, up just 1.9% with private label showing no growth over last year. In fact, units of private label goods are down 0.2% through the first eight months of this year, according to the IRi data.
Private label brands now account for 14.5% of CPG dollar sales and 17.1% of unit sales, figures which have been stagnant over a five-year period. The recent IRi report predicts the next wave of private label growth will come through diversification.
“Retailers must rewire their private label strategies and begin to compete as true brands rather than ‘me too’ players,” the IRi report notes.
Walmart U.S. CEO Greg Foran has said the retailer will look for gaps in the market where brands are missing opportunities and fill in with private labels across the box. Sometimes that will be at opening price points, other times it will be with premium items.
Refrigerated food is one of the more common categories for private label. The IRi report indicates share losses in this category topped $34 billion during the past year. Since the margin reaped from private label sales is bigger than that on national brands the impact of the losses are more distressing to retailers’ balance sheets, the report stated. Healthcare items saw a $3.7 billion share loss, while general foods lost $5 billion, according to the IRi report.
The report said a critical first step to growth is refocusing on areas where private label share is high but following a downward trend, noting these are battleground categories.
Avoiding the “me too” syndrome, IRi suggests that retailers look at milk and beverages for instances where prices have deteriorated in private label and search for innovative alternatives such as plant-based milks and perhaps premium private label beers and spirits to earn back lost share and revenue.
Walmart U.S. is working on both of the areas with a milk processing facility in Fort Wayne, Ind., expected to come online late next year. The retailer also is selling private label craft beers supplied by Trouble Brewery in Rochester, N.Y.
IRi sees opportunities for growth in private label foods such as natural cheeses with 49.5% share of the market growing at 1% annually. Frozen seafood has a 33.3% share and is growing at a 2.3% annual clip. Frozen meat is also doing well with a 31.3% share growing at 3.4%, while frozen pizza is growing at 1.4% with 13.7% of the market.
In the non-food categories, private label gastrointestinal tablets have a 56.8% share with a 1.3% growth rate over last year. Vitamins are up fractionally as are adult incontinence products and paper towels.
These are growth areas for suppliers and retailers, according to IRi.