According to a recent report by Rabobank, the market share of private label products in the U.S. could reach 30% by 2033. In 2023, private label accounted for 19% of grocery sales in the country, a modest increase of just two percentage points since 2014. However, several factors may catalyze this growth potential.
One significant factor is the trend of consumers “trading down” in their grocery purchases. Rabobank highlights that financial strains and a lack of consumer confidence are impacting spending habits, with wage growth projected at only 1% for 2024, alongside record-high credit card debt in the second quarter of the year.
Private label goods in the U.S. are typically priced 25% to 65% lower than their branded counterparts. For example, while branded coffee products average around $9, private-label alternatives can be found at roughly $7.
Additionally, the ongoing consolidation of the retail market is expected to increase the availability of private label offerings. If Kroger’s merger with Albertsons gains approval, Rabobank predicts the consolidation will elevate retailer concentration from 4% to 5%.
Simultaneously, the market can expect “A-brand consolidation.” For instance, Mars’ proposed acquisition of Kellanova could lead to a stronger stance against A-brands, likely resulting in more quality private label offerings entering the market.
The rise of “hard discounters” in the U.S. is another factor poised to enhance the market share of private labels. Aldi is set to expand its footprint to about 2,500 locations by 2028, while Lidl and Trader Joe’s are also planning further developments.
According to Rabobank, improving the quality of private label products is crucial for the segment’s resurgence in the U.S. Retailers must focus their investments on their own brands and adopt “vertical integration” strategies to compete with larger national brands effectively.
Rabobank anticipates an increase in domestic private-label suppliers, supported by investments in new manufacturing facilities and consolidation of assets. The ongoing cost pressures may even lead smaller brands to consider private label contract manufacturing, enhancing the pool of specialized suppliers in the U.S.
Although the entry of international private-label suppliers has been notable, Rabobank expects further growth through acquisitions, partnerships, and new ventures. Nevertheless, it’s essential to consider that if specific conditions—such as retailer consolidation or an uptick in domestic private label supply—do not materialize, growth could slow.
Moreover, the national distribution patterns of private labels—historically a bottleneck for the sector—might persist. Rabobank suggests that if these patterns remain unchanged, private label might still experience growth but be confined to specific regions within the U.S., such as the Midwest, West Coast, and East Coast.
Finally, the performance of private label products in the U.S. may hinge on trends in Europe. Rabobank notes the potential for recent asset disposals by private-label manufacturers like ARYZTA and Richelieu Foods to foreshadow more divestments by European suppliers operating in the U.S. market, particularly as they navigate local challenges.
In conclusion, while the food and beverage industry trends point towards an increase in private label market share, various external factors—including consumer behavior, retail consolidation, and international market dynamics—will significantly influence this trajectory.
