McKinsey & Co. sees growth in private label sales
November 13, 2007
by Bryan Salvage
ROSEMONT, ILL. ― If the successful private label strategies of several large retailers are emulated by other U.S. chains, the results may lead to a seismic shift in the marketplace, resulting in $55 billion in annual sales going from national brands to private label and driving private label’s dollar market share to 24% within a decade.
The projection, first offered by McKinsey & Co. in a June 2007 report to branded manufacturers, was detailed in a new presentation by the report’s authors at the annual industry trade show convened in Rosemont Nov. 11 through 13 by the Private Label Manufacturers Association (P.L.M.A.).
This projection comes at a time when private label’s growth has been outpacing that of national brands, based in industry statistics from The Nielsen Co.
McKinsey executives Karl Alldredge, principal, and Matt Spanjers, associate principal, discussed the key findings of the company’s research study on today. McKinsey studied the private label capabilities of more than 70 retailers and interviewed several trading partners ― both national brands and private label. The report identified retailers who have successfully used private label as a key differentiator and to build consumer loyalty. These retailers have an average private label dollar share of 22%, well above the industry average of 16%. Moreover, the share leaders posted higher levels of overall sales growth versus non-leaders, 5.3% versus 3.4% over the last three years.
McKinsey called the difference between industry average private label market shares and best-in-class "value at stake." The report suggested that "if retailers do go after the value at stake, it is possible store brands dollar share may climb to 24% by 2016. Private label’s dollar share in 2006 was 16%, according to industry data from The Nielsen Co.
The success of private label in Europe has clearly made an impression on U.S. retailers.
“In our interviews ― and in public statements ― current share leaders and private label up-and-comers share the aspiration to reach dollar share levels and growth consistent with the European leaders," the McKinsey report concluded.
Brian Sharoff, president of the P.L.M.A., confirmed the McKinsey report is the latest research that points to the major growth for store brands in the next few years.
"Our own P.L.M.A. consumer research report issued last year showed that 41% of shoppers now identify themselves as frequent store-brand shoppers, up sharply in recent years," he said. "The research also found the consumers are now more aware of store brands and more likely to buy store-brand products."