Brands who ignore the surging growth of private label are doing so at their own peril.
In this newsletter, I outline 5 strategies to address the growing prominence of private label – reallocate resources to Amazon, invest more in Thrive Market, seek additional distribution channels, do not underestimate private label’s innovation, and be unique.
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When it comes to the private label landscape, there are a few notable developments that have received a good deal of attention lately.
* Whole Foods is continuing its SKU rationalization, is adopting policies less friendly to smaller brands, and is still signing leases and plans to open up 5 more 365 stores this year. During a recent visit to the 365 store in Brooklyn, there were not multiple options for items such as mustard, ketchup and some oils. It was only 365 private label.
* Kroger recorded 2017 revenues of $2 billion for its Simple Truth natural and organic private label.
* Amazon has racked up $10 million in sales for 365 products in three months during 2017 and will continue to push this brand on its site.
With private label having such success with consumers, brands need to make sure that they are positioning themselves for this changing market dynamic. Here are five things to consider:
According to a study conducted by marketing firm Kenshoo,
* In the U.S., Germany, UK and France, 72% of shoppers now use Amazon to find products.
* 56% of these shoppers indicate that they usually look on Amazon first before looking at other sites.
* 51% of respondents indicate that if they see an interesting product on another site, they also look on Amazon to find alternative ideas and to compare prices.
Combine that with the fact that 365 Everyday Value brand and AmazonBasics are the two top-selling grocery items on Amazon, brands need to be dedicating resources to Amazon, in terms of search optimization, reviews, pictures. Everything.
These statistics from Kenshoo are absolutely staggering and show just how dominant Amazon has become for online shopping.
While Thrive Market may not have the size or scale of an Amazon, it is building an incredibly loyal and growing customer base because of its commitment to high quality organic and Non-GMO items and its shared values with organic consumers. Furthermore, Thrive Market’s position in the e-commerce world is only going to get stronger.
While Thrive Market’s private label products may compete directly with other branded products on the site, which may appear to put them in an adversarial position, this is not necessarily the case.
“It’s always a little tenuous working with brands but for us, it’s all about transparency and honesty. We reach out to brands when launching a private label to see if they want to bid on the private label business, to work together in the supply chain, to share on volume to help farmers, or to discuss other ways that we can help differentiate their brand, such as coming up with a new snack item. Ultimately, our goal is to broaden access for everyone,” said Jeremiah McElwee, SVP of Merchandising and Product Development at Thrive Market.
“Interestingly, when we launch private label, it has been incremental, and we have not seen a tremendous amount of cannibalization. Private label sales do outpace branded sales, but branded sales don’t fall off the cliff. The brands aren’t getting crushed. Some are even rising,” he continued.
It is essential to no longer soley rely on traditional distribution channels.
While everyone understands the importance of e-commerce, some savvy brands are thinking outside the box to get their products to consumers. Back to the Roots has been wildly successful selling into schools, Cargo is now selling snacks in Uber cars, and as I have written about in a previous Organic Insider newsletter, I believe there is a major opportunity at gas stations.
If you think that private label is only going to stick to commodity items, such as coconut oil, chia seeds and peanut butter, and that you don’t need to be too concerned, that is a mistake.
Whole Foods offers its own line of sparkling drinking vinegars, which demonstrates just how on-trend this private label is attempting to become.
The reality is that private label is going to get more innovative and sophisticated as time goes on, and no one should be surprised to see private label Biodynamic in the near future.
At the end of the day, consumers are going to develop loyalty because the brand stands for something they believe in and is offering a unique or superior product.
“New brands more than ever need to offer something proprietary AND transformative that the private label folks can’t do well. GT’s Kombucha is a great example. They created a category and make a high-quality product that is difficult to replicate. Trader Joe’s recognized this and made the move to carry them over their own brand. It’s a good case study for other emerging companies to learn from. Be transformative, proprietary, and build out an obsessed consumer following. Firing on all three of those cylinders is the pathway to total world domination – much easier said than done,” said Greg Fleishman, CEO and Co-Founder of Purely Righteous Brands.
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While private label is definitely great for consumers, in terms of getting organic into more people’s hands, it also has the unnerving potential to diminish the integrity of organic because of the tremendous pressure to cut costs. This is a reality that we cannot forget.
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“We’re determined to make healthy and organic food affordable for everyone,” said Jeff Wilke, CEO of Amazon worldwide consumer. “Everybody should be able to eat Whole Foods Market quality. We will lower prices without compromising Whole Foods Market’s long-held commitment to the highest standards.”
Let’s remember this.
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