Introduction
For decades, national brands dominated supermarket aisles, relying on traditional marketing and strategies to secure shelf space. However, a quiet revolution has taken hold in recent years: private brands. Once considered an economical yet unattractive option, they have become a powerful tool for profitability, differentiation, and customer loyalty for retailers. Moreover, they have become a preferred choice for millions of consumers.
Understanding Private Brands
Private brands are products developed and sold under the name of a retail chain or an exclusive name created for that chain, rather than a traditional consumer goods company. Their proposal is to minimize costs in product development, marketing, and positioning, passing these benefits on to the retailer’s margin and, ultimately, to the consumer.
Historical Evolution
The modern history of private brands dates back to mid-20th century when some European chains began launching products under their names as a cheaper alternative to national brands. Initially, private brands were basic, low-quality, and generic, serving only the purpose of being affordable.
Success Stories
Leading retailers like Aldi, Lidl, Trader Joe’s, and Mercadona have redefined the meaning of private brands. They are not just a central part of their value proposition but have also captured consumers through quality, innovation, and price. In some cases, like Aldi in Germany or Mercadona in Spain, over 80% of the store’s assortment consists of private brands. These chains not only compete with national brands but surpass them.
The Secret to Their Success
Their success lies in understanding that private brands should not merely be a “me too” or a cheaper copy of the market leader. Today, private brands cater to various price levels, from economical options to premium or gourmet. They have also occupied unattended spaces (“White Spaces”) left by major brands, offering new flavors, more sustainable packaging, specific dietary needs, or more practical formats.
Strategic Advantages for Retailers
Private brands are a strategic asset for retailers, offering higher margins and better profit per unit sold (penny profit) by eliminating intermediaries and allowing greater cost control. They also strengthen bargaining power against large suppliers, forcing them to improve conditions and prices to remain on the shelves. Lastly, they provide genuine differentiation and exclusivity, as competitors cannot replicate a retail chain’s unique product portfolio exactly.
Global Participation
In mature European markets, private brands account for over 50% of total sales in supermarkets. However, in Latin America, particularly Mexico, their participation remains low, oscillating between 10% and 20%. Reasons include lower consumer trust, less integrated distribution structures, and the difficulty in finding local suppliers capable of meeting retailers’ quality, scale, and consistency requirements.
Challenges in Developing High-Quality Private Brands
Creating high-quality private brands is not straightforward. It requires meticulous work in formulation, sourcing, quality control, graphic design, and logistics management. Many traditional suppliers still view private brands as a threat when they could represent new growth opportunities.
Packaging Transformation
A crucial shift accelerating private brands’ acceptance is the transformation of their packaging. Today, we see private brands with modern, colorful, attractive, and globally trending packaging like organic, healthy, artisanal, or eco-friendly. They no longer compete solely on price; they now vie for attention, emotional connection, and customer loyalty.
Private Brands in Mexico
Mexican retailers like Walmart, HEB, 3B, and 7-Eleven have made strides in developing their private brands, though much work remains. The increasingly informed and demanding Mexican consumer is no longer dismissive of unfamiliar brands if they perceive value. Often, consumers are pleasantly surprised.
Current Opportunities
The current environment—marked by inflation, value-seeking behavior, and the growth of conscious consumption—presents a significant opportunity for private brands to accelerate their growth. Not only can they increase their share in the shopping cart but also reshape the consumer experience.
Key Questions and Answers
- What are private brands? Private brands are products developed and sold under a retail chain’s name or an exclusive name created for that chain, offering cost savings to both the retailer and consumers.
- Why have private brands become popular? Private brands offer higher profit margins, better control over costs, and genuine differentiation from competitors.
- What challenges do retailers face in developing high-quality private brands? Retailers must invest in rigorous formulation, sourcing, quality control, design, and logistics management. They must also overcome historical consumer trust issues and find reliable local suppliers.
- How have private brands evolved? Private brands have transitioned from basic, low-quality offerings to diverse, high-quality product lines that cater to various price levels and consumer needs.
- What opportunities do private brands present in the current market? Private brands can capitalize on inflation, value-seeking behavior, and conscious consumption trends to grow and reshape the consumer experience.
