What effects could COVID-19 have on the growth of private label?

Keshia Beadle
Senior Retail Analyst
@RetailAnalysis

Date : 18 May 2020

With the Coronavirus (COVID-19) pandemic causing changes to shopper behaviour, we investigate the impact on private label and how ranges may be impacted going forward.

Private label generally faring well

In a number of markets globally, the pandemic created initial panic buying, causing demand to surge. Whilst the significance and duration of this has varied across markets, relatively similar patterns have been seen, with initial surges in demand for products such as toilet paper, handwash and sanitiser, followed by core grocery staples such as rice, pasta and flour.

Demand in categories such as meat, produce and snacks have also tended to increase, although these have been less extreme, with shortages overcome quickly. This has led to an overall increase in sales for most grocery retailers during this time and for many, they have seen private label growth outstrip that of branded products.

What is driving the increased private label share?

Several factors are contributing to private label's relative gain. The foundations for this opportunity to grow already existed in many markets, with private label slowly increasing share in the last few years. Whilst each market and channel differs, the major reasons contributing to this are the increasing quality and perception of private label, the competitive prices and the range and product attributes available.

The pandemic caused availability issues for many products and this led to many shoppers switching brands or purchasing private label products as availability of their usual products was limited. Many shoppers have also widened the selection of stores they visit, in a bid to get the products they need. This has given them access to private label they may not have previously encountered.

Leading USA supermarket retailer Kroger noted it had seen a significant increase in new customers and that its private label ranges were proving popular. The flexibility and agility of private label supply chains has meant that many retailers have been able to prioritise production of high demand products and rapidly increase supplies, whereas branded manufacturers have not always been able to increase output and are limited in their ability to switch production lines.

Will this lead to longer-term growth in private label?

Whilst it is difficult to forecast the longer-term effect of the COVID-19 pandemic, it is likely that some of the changes to shopper behaviour we have seen will stick. For those who have tried private label products and found them to be satisfactory or better than expected, they are likely to continue purchasing them if prices provide them with value. This does not necessarily mean the lowest price, but a quality at a price that works for the shopper in relation to the product they are buying.

The economic climate is also expected to play a role, with a recession expected in many countries and regions. With tighter budgets, shoppers will be looking for ways to save on groceries and good value private label products can be an attractive option.

Brands will fight back

However, branded manufacturers are already taking steps to try to combat these developments. The level of competition will likely be increased in the future term. This includes improving supply chains and manufacturing capabilities to cope with increased demand. Some major brands are also working on launching direct to consumer sales. PepsiCo has launched two online stores where shoppers can order products for home delivery. This helps bypass the in-store restrictions that currently exist and keeps products front of mind for consumers. The convenience of this solution may make some of these shopping behaviours stick once the pandemic is over.

If as predicted, markets enter a recession post COVID-19, shoppers with limited income may be more inclined to stick with brands they know, rather than risk trying private label products that they have not verified for quality. This is particularly relevant in categories such as cleaning products, coffee, and fizzy drinks, where customers tend to have high trust in brands. Brands therefore are likely to market quality and trust as the most important attributes, aiming to differentiate themselves from retailers' private label ranges. If effective, this strategy could slow or halt the growth of private label.

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