In keeping with many other parts of the world, the US has a steadily expanding market for private label foods and drinks. Although it has been slower to gain a foothold compared with European nations such as the UK, more US consumers are now turning towards private label foods in the face of the economic downturn. This chapter of just-drinks' July/August management briefing is an exclusive extract from the just-food report: The US private label food market – forecasts to 2013.

Demand for private label has risen as a result of factors such as increasing food-price inflation and the wider availability of a greater range of private label foods. 

Since 2003, the US private label market has expanded by almost 60%, compared with around 23% for the US retail food and drinks industry as a whole. 

As a result, private label now accounts for over 19% of market value, up from less than 15% in 2003. In volume terms, private label has increased its share of the overall market to almost a quarter (24%), up from around 20% in 2003. 

By retail format, private label products are much more prevalent in larger grocery channels such as supermarkets, although other formats such as convenience stores and discount and dollar stores represent areas of potential future growth.

More US consumers are now less inclined to view private label goods as inferior to their branded equivalents. Most studies indicate that more people are now buying into the category on a frequent basis, while more than 70% of US shoppers feel that private labels are as good as, if not better than, branded products. Other consumer studies undertaken recently indicate that fewer shoppers associate private label with cheap-looking packaging, while a declining number believe that branded products are worth paying extra money for. 

Private label is increasingly significant to the business of most US food retailers, with almost 80% having increased the amount of private label products offered between 2006 and 2008. Many have been developing multi-tier systems for their private label portfolios, ranging from low-priced value goods to more luxurious foodstuffs positioned at the higher end of the market. As a result, many are being marketed according to other attributes such as quality, rather than simply low price.

It is estimated that prices for private label goods such as foods are on average 25% lower than branded products in the US. This results in savings for consumers of over US$20bn per annum, according to trade sources. The main reason for private labels being cheaper is the fact that manufacturers of national brands frequently pass on the costs of marketing and advertising their products in the form of higher prices.

The US market for private label groceries (including both foods and beverages) amounted to an estimated US$115bn in 2008. This represents an increase of more than 16% compared with the previous year, and reflects the growing popularity of private label products as the economic situation has affected consumer expenditure. It is estimated that almost a quarter (24%) of all food and drinks served in US households are now private labels, up from 18% at the end of the 1990s.

US private label food and drinks market by value, 2003-2008 (US$bn and %)

Source: just food
  2003 2004 2005 2006 2007 2008
Sales (US$bn) 72 77 83 90 99 115
Percentage change (%) - 6.9 7.8 8.4 10 16.2

In value terms, the private label sector accounts for just over 20% of sales via conventional US supermarkets, growing by around 10% per annum. Much of this has been due to the increasing focus on private label by the leading operators. The value share taken by private label within warehouse clubs and mass merchandising outlets stands at just over 15%, dropping to under 10% for discount and dollar stores. However, given the growth of chains such as Aldi, this percentage is expected to rise sharply.

Private label’s share of the US retail food and drinks market by value and volume, 2003-2008 (%)

Source: just food
  2003 2004 2005 2006 2007 2008
Value (%) 14.8 15.2 15.6 16 17 19.3
Volume (%) 20 20.5 21.2 21 21.8 24

In contrast, private labels account for less than 2% of sales within convenience stores, although this represents a possible area of future growth. Not only are larger retail groups such as Safeway experimenting with smaller store formats, but convenience store operators such as 7-Eleven have launched private label ranges. As a result, private label products in convenience stores are believed to be growing by around 20% per annum. According to Nielsen, “the convenience channel has an opportunity to develop their own store brands using private label benchmarks at supermarkets and drug stores”.