Who Wins the Private Label Battle?

Who Wins the Private Label Battle?

Where Private Label Is King

I was in London late last year and made a trip up north to stay with friends for the weekend. We stopped at a Marks & Spencer convenience store, and I was blown away. It was an elegant little shop filled with beautifully-packaged private label products.
Europe is way ahead of the US market where private label is concerned. Theirs are not low end, cheap knock-offs of national brands. They are better or best in the category. Only Target in the US seems to be anywhere close to this level of sophistication.

But will that really matter? Because what seems to be coming is a massive shift that is going to leave mid-tier brands wondering what happened. The only options in the future will be the leading brand in a category with all of the name recognition, truly superior product differentiation, and the Walmart or Amazon knock-off version of it for sale.

  • The audience leverage enjoyed by Walmart and Amazon gives their private label brands a significant advantage over national brands.
  • Early trends in Voice with Alexa and Google Home give a peek into the future of shopping and list-making—and doesn’t bode well for national brands.
  • Insights from a recent Field Agent report indicate that shoppers in the US are starting to reach for private label more often than national brands—even though they know that the quality is better with brands.
  • The Audience for Private Label

    Walmart’s 140 million people per week and Amazon’s 170 million plus unique visitors per month give them significant leverage in the marketplace. We’ve talked before about this and what having an audience means to a business today. One of the areas we’ve not discussed is how that impacts the brands who are selling through these two channels.

    Both Walmart and Amazon sell a significant percentage of any CPG company’s portfolio. Both retailers also sell their own private label versions of most national brands. This conflict of interest is just part of the landscape in modern retail. It’s great for shoppers, great for retailers, not so good for the brands. But that’s just problem #1.

    More and more shopping in food, drug, mass and club (FDMC) channels is becoming routine, automated, mobile, and delivered. This means that shoppers are not shopping these channels, they are simply buying in them. As the retailers’ websites and apps help to automate more of the buying, their audiences shop less even as they buy more.
    If the private label brand works its way into the buying routine, then it is easy for it to become the only product bought in the category. Right now, 30% of batteries purchased on Amazon are AmazonBasics batteries. This is not good news if you are Energizer or Duracell. There’s not enough pink bunny or coppertop ads in the world to fix that problem.

    The Private Label Voice

    Right now, only about 25% of homes have smart speakers, but that number will hit 66% by 2022 (according to Forrester). With Amazon’s Echo leading the way and Google Home not far behind, this means more shoppers using their voices to make lists and order everyday items. This makes the buying routine even more routine — and leaves even less time devoted to shopping FDMC.
    If you’ve not tried ordering via voice on either Amazon or Google Home, then you should. It is a revelation. Neither of the devices will give you an exhaustive list of products to choose from — for obvious reasons. If you don’t suggest a brand name or have not purchased a brand from Amazon before, then quite often you’ll just get the AmazonBasics brand sent to you. For example, saying, “Alexa, order paper towels” will get you AmazonBasics paper towels. For anything else, you have to call out the brand.
    This means that brands living on past awareness or in-store promotions are not going to win this voice-driven battle. How many people are going to buy everything with voice? No one knows. It certainly won’t be 100%, but even 20% would be material to a brand’s business.

    The Mixed-Up Future

    What is likely to happen is that people will continue to develop their very sophisticated, personalized algorithms for shopping. As we’ve talked to women about their shopping habits, it is amazing to hear what they do and why they do it.
    Here’s a snapshot of what we’ve found:

  • They shop across devices seamlessly.
  • They know exactly what is okay to buy on their mobile phone and what needs a bigger screen
  • They know what is okay for home delivery, what is best for store pickup, and what needs a trip in-store.
  • Finally, they know what they just want to buy and what they enjoy shopping for—and when and why.
  • The future will not be one channel. The future will not be one method of delivery or pickup. The future will not be one retailer—but it might be two (Walmart & Amazon), and then everyone else is a distant third-plus. This means that the future might be one store brand and one national brand per category in these two retailers. Or more likely, two brands at the head and then a very insignificant, long tail.

    What is certain is that if brands do not develop audiences of their own, they are going to have an expensive challenge building awareness. For brands used to rolling out a steady pipeline of innovation year after year as a way to keep both sales and margins high, this is not good news.

    Future-Proof Your Brand

    There’s not a certain future outcome on either the retail or the media front. This means that brands should prepare for multiple different outcomes. Here’s a shortlist of ideas to help future-proof your brand.

  • Start building an audience of your own—this typically means emails, not social media followers.
  • Start hiring e-commerce talent inside your company—this means people who understand the modern e-com supply chain and customer acquisition.
  • Start producing content that your audience loves—this is not just shots of your packaging, this is content that has value to people.
  • Start developing your rapid experimentation culture—this means testing daily, learning weekly and improving monthly, not annual plans with quarterly touchbases.
  • Start finding partners who can help you win in this future—this means media and marketing companies who have an audience-building mindset.
  • We are bullish on the future, and there are so many brands who are already winning across a range of categories in the Audience Economy. Next week, we’ll share a few of them for inspiration.