Stay up to date on industry news and trends, product announcements and the latest innovations.
Market for Private Labeling of Products Showing Steady Growth
Aug 10, 2017
Hey @tonyuphoff & @thomasnet, saw your update on #steel #sourcing in the @washingtonpost. What trends are you guys noticing this week?
Thanks for the question.
One very interesting long-term trend we’re monitoring is the spike in sourcing related to private labeling, which could have big implications for the economy overall.
Our data shows that activity in private labeling categories is up across the board. Private Label Manufacturing sourcing is up 5 percent versus last week and 25 percent versus last month. Activity for Private Label Packaging is even more aggressive, up 38% over last week and 48% versus last month.
And we’re seeing this trend trickle down to individual industries, like cosmetics and pharmaceuticals as well.
Let’s take a look at recent developments in private labeling to see what’s driving this trend and analyze its potential impact on the market.
Private labeling is not a new concept – Costco has been selling products under the Kirkland brand for more than 20 years. However, more and more companies are embracing the business possibilities of private labeling, which enables them to deliver high-quality items at low prices. Amazon, for instance, now owns 90 percent of the online battery market with its Amazon Basics line.
Trader Joe’s is another example. Over 80% of its products are sourced directly from suppliers and sold under private labels.
Well-known brands like Amazon and Trader Joe’s aren’t the only companies making strategic investments in private labeling.
There is a new player in the private label market and, naturally, you probably haven’t heard their name. Brandless, which launched in the spring of 2017, private labels all of its products and markets them by product description alone. So, hand soap is just “hand soap.” And everything they make – whether it be organic or conventional – sells for the same $3 price.
While big brands spend 25 cents on the dollar to generate brand awareness, private-label products don’t incur this expense, and the savings are passed on to the consumer. According to the Private Label Manufacturing Association, these savings could add up to $44 billion per year. The company believes that by eliminating this “brand tax,” it can remove the stigma from buying non-brand products. Co-Founder Ido Leffler said: "Consumers want new options. They don't necessarily care about buying Heinz or Tide."
To Leffler’s point, Heinz has seen year-over-year sales decline 3.1% in the first quarter of 2017.
And Credit Suisse analyst Robert Moskow estimates that private label sales have increased 3.5% annually since 2012 – this growth means market share is being taken from the rest of the industry.
This new approach in the consumer-packaged goods industry has attracted high-profile investors, and Brandless has raised about $50 million in venture capital funding. And while they say they have no plans to take on Amazon, it’s hard to see how they won’t collide eventually.
That’s what we’re seeing this week.
To stay up to date on the latest sourcing and industrial trends from the Thomas Index, subscribe to our Shoptalk newsletter.
Thanks for watching.