Store brands shine as consumer wallets tighten
Food and drug retailers have enjoyed sustained sales of private label products, driven by new shopping patterns adopted during the pandemic, ongoing improvements in the quality of the products and consumer demand for money-saving solutions.
“During the pandemic, consumers tried different items — it may have been because of a lack of other items on the shelf — and they stuck with it,” said Peggy Davies, president of the Private Label Manufacturers Association. “That seems to be what we are seeing in the sales numbers.”
While private label sales have increased overall in 2022, their growth has lagged in the drug store channel, according to IRI. For the 52 weeks through Sept. 4, dollar sales of store brands in the drug store channel were up 4.3% over the year-ago period. That compared with 6.6% sales growth across all products.
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Overall, retailers have been effective at calling attention to their private label offerings, Davies said, and private label manufacturers have also done their part by creating innovative product solutions.
“Retailers have made sure that their brands are noticed, both online and on shelf, and that the quality is there, plus some,” Davies said. “I don’t think it’s just about the economy anymore.”
Consumers’ increased interest in health and wellness has also expanded demand for private label solutions at retail, she said.
Davies cited Costco Wholesale as an example of a food-and-drug retailer that focused on store-brand private label health and wellness products. The warehouse club operator has been featuring its own pharmacists in ads promoting its store brand OTC medications, Davies noted.
Products in the ads include Kirkland Signature Aller-Flo, a nasal spray, and Kirkland Signature AllerClear, an antihistamine tablet. The retailer is also featuring the ads in its Costco Connections magazine.
Traditional drug store operators, meanwhile, have been sharpening their focus on private label.
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Rite Aid, for example, is in the process of revamping its private label line, which it said could play an important role in driving increased profitability.
“As consumer discretionary spending comes under significant pressure, we're investing in our own brands, which provide value and options for the customer,” said Heyward Donigan, CEO, in a June conference call with investors, adding that the chain is in the midst of a process to “repackage, rename and relaunch” its own brand portfolio.
Walgreens, meanwhile, is seeking to drive increased sales of private label in new and existing categories, company president John Standley said in a recent earnings call. “We’re making some good investments there in terms of how we go to market and how we position it within the store,” he said.
Walgreens also recently named Walmart and CPG products company veteran Marty Esarte as its group vice president of owned brands.
CVS has placed increasing emphasis on its private label assortment in recent years. The company’s CVS Health brand is its top-selling brand in the front of store, and private label products account for almost a quarter of total sales, Brenda Lord, vice president of store brands and quality assurance, said in an interview with the National Retail Federation earlier this year.
The retailer recently expanded into private label durable medical equipment, such as canes and walkers, with a line of CVS Health by Michael Graves Design products.
Other retailers are capitalizing on consumer interest in health and wellness with private labels of their own. Dollar General, for example, recently introduced the OhGood! line of gummy supplements, including multivitamins for men and women and range of other vitamins and supplements offering specific functionality, from sleep aids to digestive health.
Rapid-delivery retailer Gopuff recently introduced a new health and wellness private brand, Goodnow, which includes OTC products for pain relief, allergies, cold, flu and sinus congestion relief, sleep aid products and at-home diagnostic kits. Additional Goodnow products, including electrolyte drinks, bandages, antihistamines, antacids and others, are planned to roll out nationwide over the coming months.
“Health and wellness — an $80+ billion market in the U.S. — has been one of Gopuff’s fastest-growing categories,” said Jessica Glendenning, director of private label at Gopuff.
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Better-for-you private label products have increasingly incorporated functional ingredients that offer tangible benefits, said Grace Teodosio, senior business manager at private label solutions specialist Daymon.
“From mood-elevating home fragrances to immune-boosting beverages, consumers are looking for products with elevated wellness attributes in all categories of the store,” Teodosio said.
Sustainability gains importance
Sustainability is also important to younger consumers in particular, which supports the importance of eco-friendly packaging in private label, Teodosio said.
“As 89% of consumers now trust private brands just as much or more than national brands, it’s time for retailers to embrace innovation to meet these consumer expectations,” Teodosio said, citing research from Daymon’s 2022 Private Brand Intelligence Report.
Broc D. Martin, director of market research and insights at flavor and fragrance developer Arylessence, agreed that sustainability has emerged as an important aspect of private-label merchandising.
“Sustainability continues to be a top trend manifesting across private label assortments, delivering on consumers’ desire for ‘better for you and the planet’ products,” he said. “Drug store operators have leaned into the eco-friendly space through market-relevant claims, packaging, and/or formulations with offerings such as compostable cutlery at CVS, vegan and cruelty-free dish soap at H-E-B, and plant-based protein powders at Albertsons, for example.”
In addition, retailers have been touting their commitments in this area. Examples include CVS’s partnership with World Wildlife Fund to make its store brand packaging more sustainable, and Target’s Zero Collection, which highlights products from its own brands, along with others, designed to reduce waste and to make it easier to shop more sustainably, Martin said.
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He agreed that consumers are gravitating toward a broad array of wellness solutions. He cited daily ritual care, such as morning or night treatments; mental health, such as stress relief; and immune system support, such as adaptogens and probiotics.
In addition to straightforward strategies of mimicking branded offerings, private label programs are evolving to include “highly curated collections with distinct positions and personalities,” Martin explained. “These are often rooted in specialty-inspired themes, ingredients and experiences to attract and intrigue consumers.”
Impact of inflation
Nick Smock, president and CEO of PBA Health, which offers the Quality Choice private label and other services to independent pharmacies, said community pharmacies are expanding their private label offerings to meet the demands of price-conscious consumers. Given the current inflationary environment, shoppers are carefully comparing the price differences between branded and private label products, he said.
“Specifically, we’ve seen the greatest growth in analgesics and cough and cold products,” Smock said. “Consumers are treating themselves as they’re exposed to colds, flus and COVID-19.”
Consumers are also looking to pharmacists to recommend products that support the immune system, and for other over-the-counter items such as vitamins or supplements, which is helping drive private label sales, Smock added. PBA Health has expanded its product lines under its own Quality Choice private label, he said.
Michael Law, chief commercial officer at Eagle Labs, said price inflation has impacted private label demand in discretionary product categories.