Private label manufacturers have grown by an average of 3.4 percent in recent years, while hybrid companies have only achieved an average growth of 1.9 percent in the same period and branded companies have only grown by 0.7 percent. These are the findings of the study “Brand, Private Label or Both?” (Title translated by Fachpack 360°) by Munich Strategy, a management consultancy specializing in the food industry. The experts led by study co-author Werner Motyka examined the economic performance and business models of 123 brand and private label suppliers and conducted interviews with CEOs and market participants, reports the Lebensmittelzeitung.
The data is based on published consolidated and annual financial statements of medium-sized food retail suppliers and discussions with entrepreneurs and managers from industry and retail.
Private label players have recently achieved greater economies of scale through successful contracts with increasing concentration on the supplier side, while branded companies have had to fight for every centimeter on the shelf, is one reason given by the study as to why the growth of private label companies has recently increased significantly more than that of branded companies.
In 2022, the sales of brands, but also private labels, rose sharply as a result of food inflation being passed on to the market. There is a clear gap in profitability: While the retailers’ own brands are able to hold their own thanks to price adjustments, the brands suffer from the unwillingness of retailers to accept them.
Private Labels Set the Pace
All of the CEOs surveyed by Munich Strategy see the current upturn in private label as a temporary effect due to the wave of inflation that started in 2022 and expect the trend to level off by 2025 at the latest. Despite this, most expect along-term shift in share towards private labels.
They cite the persistently limited real purchasing power of consumers and positive experiences with private labels as reasons for this. The study experts also interpret the increasing professionalization of suppliers as a driving force: “Leading private label manufacturers conduct consumer research, the findings of which they then implement quickly and cooperatively with retail partners in new concepts,” they say. “In the case of trend topics such as animal welfare, this can lead to the private label setting the pace and the brands being forced to follow suit,” says the study.
Professionally positioned private label management by retailers in conjunction with specialized suppliers means they are increasingly capable of shaping entire product groups. These include, among others the organic segments and plant-based alternatives.
According to Munich Strategy, new product groups such as alternative proteins can only be anchored in the market with strong private label initiatives in future. Even established brand manufacturers will have to move into private label production in order to participate in growth.
The “sandwiched position” between rising costs and retailers’ rejection of price increases has increasingly led to producers withdrawing from the business, either voluntarily or involuntarily. With the reduced number of potential suppliers and a shrinking of production capacities, retailers’ negotiating position and ability to secure the availability of goods deteriorates – on the other hand, this improves the position of suppliers in the medium term. The study authors conclude that brands and private labels are becoming increasingly similar – in their management approach, in the quality and control of the supply chain and, therefore, also in the eyes of consumers. The authors derive the following recommendations for food manufacturers: Brand owners are well advised to focus with all strategic consistency on the uniqueness of their brands, to weed out brands and businesses that cannot be defended and to optimize their value chains and processes accordingly.
