Blog

Jan 08, 2024

Sustainability Is Instrumental for Growing Private Label

If there’s one thing consumers have made clear recently, it’s that they aren’t

If there's one thing consumers have made clear recently, it's that they aren't wedded to their old shopping habits. In the wake of double-digit inflation that sent the cost of household goods soaring, consumer loyalty has been in short supply as shoppers have continued to seek out cheaper alternatives. A survey this year found that only a scant 22% of consumers plan to stay loyal to products they trust regardless of price. The rest say they’ll seek out better value wherever they can find it.Declining brand loyalty has created an enormous opening for private label products. Sales of private label consumer packaged goods spiked 11% last year, no doubt in large part because of price-conscious consumers. But retailers would be making a mistake to assume that consumers are shopping on price alone. A 2023 U.S. Food & Beverage Trends study revealed that 74% of consumers would be likely to continue buying private-label brands even if price weren't an issue. Private label is increasingly seen not just as a cheaper alternative but a better value. Some private label brands, like Tesco in the U.K., regularly beat national brands in rankings of overall brand preference. Rising perceptions of higher value leave private label room for continued market growth as it expands beyond the lowest price points to mid-range tiers. To continue to meet those perceptions, however, brands and retailers will have to continue to control prices while keeping quality above expectations. To truly maximize market share, however, they also must consider sustainability. Mounting research shows sustainability drives purchasing decisions at every price point, with 79% of consumers saying they would switch brands in favor of a more sustainable option.New research by McKinsey and NIQ suggests that these sustainability preferences are already helping drive consumers’ shift to private label. The study found that products that make environmental, social, and governance (ESG) claims achieved faster growth than products without them. Interestingly, this growth was highest for private label products. In 88% of product categories, private label items making ESG claims experienced disproportionate sales increases. Consumers’ preference for products making ESG claims was consistent across nearly all demographic groups, not just higher-income households. That presents multiple strategic opportunities for retailers. Perceptions of higher sustainability can either help justify higher prices or allow the retailer to grow volume while maintaining prices to grab additional market share.Delivering on sustainability and ensuring that products live up to the ESG claims on their labels requires organizations to rethink their supply chain operations. This is where multi-enterprise platforms are essential. A comprehensive supply chain platform creates visibility into prices, supply bases, and costs, enabling predictive sourcing and allowing buyers to negotiate more transparent agreements. When brands and retailers have transparency into sources and suppliers, they’re better able to mix and match materials during the specification and procurement process. This visibility is key to sourcing competitively, especially for businesses that may be expanding their private-label offerings or branching out into new categories.This technology also helps address consumers’ sustainability concerns by empowering brands and retailers to map their supplier networks to the Nth tier, measure and monitor their suppliers’ energy and water consumption, and track the chain of custody for all material components. This traceability helps brands and retailers back up the sustainability claims they make on their products. A smart platform can monitor vendor certification statuses, sending alerts about expired certifications and other red flags so that compliance teams do not need to monitor each supplier individually. And by automating key processes, a multi-enterprise platform can help businesses quickly audit and select vendors based on traditional pricing and capacity as well as their ESG performance. It also greatly speeds up onboarding for new suppliers, shaving days and weeks off the process. These are the kinds of efficiencies on which the continued growth of private label depends. Sourcing responsibly while maintaining an optimal balance between price and quality may seem daunting, but the right multi-enterprise platform makes it possible.

— Eric Linxwiler, Senior Vice President, TradeBeyond