Sourcing Soars for Private Label Foods as Consumer Preferences Shift

3/4/2019 | 5 min read

This Thomas Index Report is sponsored by Come Alive Organics, a leading provider of turnkey contract food manufacturing and food packaging services.

Hello. In this week’s Thomas Index Report, we’re going to take a look at sourcing activity for Private Label Foods by users of the Thomasnet.com platform. Our data shows that sourcing activity in this category is up 158% year over year.

Our firmographic buyer data shows that three of the top industries driving this trend are Consumer Goods & Services, Retail & Distribution, and — of course — the Food & Beverage industry.

Private Label Foods are in the news, as Warren Buffet recently explained how the explosive growth of private label brands, such as Costco’s “Kirkland” brand, is turning the packaged goods space on its head. Buffet’s comments came after his Berkshire Hathaway firm took a hit of over $3 billion, as Kraft Heinz shares plummeted nearly 27% in the wake of a disappointing earnings report.

In lamenting the loss, the legendary investor expressed his surprise that a household name consumer brand with 100 years of history and a massive advertising budget could so quickly be surpassed by a relative upstart private label brand. In fact, Costco’s Kirkland brand reached $39 billion in sales in 2018, eclipsing Kraft Heinz’s sales of $26 billion. This comes as other big names execute huge private label strategies in a bid to grow market share with U.S. consumers.

After determining that it was too expensive to develop its exclusive brands independently, Amazon didn’t give up; the company is now pushing food and beverage manufacturers to do R&D and create private label products to sell exclusively on the Amazon site.

German grocery giant Aldi is pushing to become the third largest grocery retailer in the U.S., behind Walmart and Kroger. They plan on doing so in large part by pursuing an aggressive private label strategy targeting a younger, middle-income audience.

This builds upon a trend where budget-conscious consumers are no longer the only target for private label brands; where at one time there was a stigma of cheapness associated with private label foods, millennial consumers are embracing these products as sustainable, quality options. In fact, according to Frozen & Refrigerated Buyer magazine, while the typical grocery cart contains 25% private label products, in millennials’ carts that number is 32% or more.

As millennials’ attitudes and preferences also seem to be holding true for Generation Z consumers, we expect this upward trend to continue for the foreseeable future.

In addition to Private Label Foods, our data shows that sourcing activity is also up 5% or more, month over month, in the related categories of Private Label Cosmetics, Private Label Clothing, and Private Label Pharmaceuticals.

Moving on from Private Labeling, here’s a look at the top 10 industrial product and service categories being sourced on the Thomasnet.com platform over the past four weeks.

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Thanks for watching, and I’ll see you next week.