Brands are facing an uphill battle.Reuters/Brendan McDermid
Retailers are putting their weight behind “private label” store brands more than ever.
- This is bad news for brands who rely on these stores to move product. Cheaper store brand alternatives can undercut name brands.
- The move to private label is creating what Barclays calls a “sphere of despair” for brands.
For retailers, private label is all the rage.
Retailers from Whole Foods to Walmart are making big bets that consumers are more willing to buy goods without a name brand on them.
A new consumer packaged goods start-up, Brandless, has hinged its entire business model on the concept: it sells common household items devoid of brand labeling that always cost less than $3.
Retailers are now “more willing to invest in ‘store brands,'” because the stigma of “generic” goods has lifted, according to a note by Barclays.
It recently revealed that Amazon is sitting on a slew of private label brands that its developing in-house to compete with existing offerings. Target also has seen success with its private label brands, which UBS recently called a “bright spot” for the brand.
Whole Foods’ new 365 stores are strictly private label.Whole Foods
But if it’s good for retailers, it’s bad for the storied name brands that stock their shelves and compete directly with the private label product.
Consumers are increasingly apathetic to brands, creating what the Barclays calls a “sphere of despair” for food brands like Mondelez and Nestle, and consumer conglomerates like Unilever and Procter and Gamble.
The rise of store brands has “greatly diminished manufacturers’ pricing power,” according to Barclays. More consumers are now choosing the lower-priced brands, and there’s more of them, meaning brands can no longer set the bar for the price of goods like they once did.
Other factors creating challenges for the big players are a “greater mistrust of iconic brands,” customers who are more likely than ever to choose a “local” brand, and “lower barriers to entry”forcompanies to create big brands through social media.
The private-label craze — and resulting issues for established brands — is clearly illustrated by what’s happening in the battery market.
Amazon holds about 90% of the online battery market with its AmazonBasics battery line. The batteries are cheaper than comparable brands, and in the eyes of regular Amazon customers, they perform just as well. That has spelled trouble for the name brand Energizer, according to UBS.
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