What’s Up With Private Label Brands?

In the USA, total grocery sales are running about 5% ahead of last year, according to NielsenIQ. But private label sales are up 8%, as of their June 2023 numbers. Good times for private label, right?

Well, it is if you are one of the top retailers. Walmart, Amazon, Kroger, Safeway, and Amazon are leading in private label growth. But what about independents?

For our channel, sales are still up, but nowhere near where the big retailers are. Why would that be?

The first and biggest answer is availability. Regional and independent brands are struggling to get product. Where we have inventory, we are rocking (some IGA SKUs are up 14% YTD). But you can’t sell what you don’t have.

Since 2019 we have seen 30% of suppliers who once sold private label products to regional and independent retailers cut supply.

It’s not that those factories stopped producing. They didn’t shutter any production lines or lay off workers. Instead, they decided to rationalize supply for the largest retailers, or if the private label suppliers also distribute under their own brands, to favor their own labels.

This isn’t just an IGA phenomenon – large regional power retailers, other independent chains, and even some powerful food brokers are all talking about once-loyal suppliers cutting off supply.

I don’t fault a supplier from being more efficient. I understand they will have lower costs producing larger quantities for just one or two big accounts. I also know it is a dangerous strategy. The business is filled with stories of suppliers letting big retailers dominate their output and then, to get a price concession, cutting them off. A portfolio of clients is a great way to hedge risks for a manufacturer.

But this is just another example of what National Grocers Association President and CEO Greg Ferrara calls “power buyer bullying.” He means the largest retailers using their clout to bully manufacturers into committing all of their production.

“For decades, dominant firms in the grocery marketplace have leveraged their buying power to demand special treatment through access to products, promotions and better prices from suppliers that are not offered to independent community grocers,” said Ferrara says. “This unchecked anticompetitive behavior leaves independent store owners and their customers with less choice, fewer options and paying more for goods and products. Independents aren’t looking for a free handout. They’re just looking for a level playing field to compete.”

In recent months we have talked to manufacturer after manufacturer who are cutting off small and large accounts – even national chains like Aldi – to meet the production requirements of the biggest Walmart and the other big accounts.

At IGA, we have no choice but to find alternate suppliers. That word is plural for a reason – we must have secondary and even tertiary suppliers in the pipeline to ensure if one brand quits, another is ready to serve.

The good news is that this more onerous supply chain requirement is generating results. We are adding SKUs back into the IGA brand and expect to grow net SKU count for the first time since COVID this year. And many of the new suppliers have more innovative, higher quality offerings.

IGA is working closely with our wholesaler partners to ensure any decision we make is based on good data and considers all cost factors – including freight – before we recommend new vendors.

The takeaway? Managing the private label program in the shadow of big accounts using their scale to try to dominate the industry is exactly the kind of unfair business practices Robinson-Patman laws were designed to thwart. Pick up the phone and call your NGA team to let them know to count on you for support in putting teeth back into anti-competitive practice laws.

Also, as IGA is adding more replacement and net new SKUs, make sure you aware of what is available at your wholesaler. The IGA team will help you identify available items you could be selling.

And look for new items coming out every month, like our new re-packaged animal crackers, reviewed here by a fan! We aren’t out of the woods, but we can begin to see a path forward. Our goal is to restore missing items and continue to update the line with more of the private label items your shoppers want.