Retailers Have Golden Opportunity with Premium Private Brands

Americans are keen to experience the finer things in life, regardless of household size, region or ethnicity. And it’s not just among the wealthiest of consumers. Today, 46 percent of Americans say they are financially better off now compared to five years ago, indicating that they may be more able (and willing) to purchase higher-end products that meet their desire for a premium experience.

Consumer packaged goods (CPGs) in the “premium” tier — defined as goods that cost at least 20 percent more than the average price within its category — are experiencing strong growth. The combination of sustained consumer optimism in the United States and strong buying power and spending indicates the potential for continued growth in the premium segment.

According to a recent Nielsen survey on product premiumization, a higher-than-average price tag is not necessarily a deterrent among consumers. In fact, only 17 percent of Americans say they consider a product to be premium solely because it’s expensive, suggesting that products experiencing price hikes without a clear value proposition are likely to dwindle. Instead, Americans primarily view premium products as those with exceptional quality (54 percent) and superior function or performance (45 percent).

Beyond basic-need products, consumers are also in search of and purchasing premium items based on how products make them feel. By offering premium products, private label retailers can directly tap into consumers’ desire (and often, demand) for specialized, enhanced or exclusive benefits.

But what’s most critical for store brands that offer premium products? Above all else, they must deliver on consumers’ expectations when it comes to experience and meet a need that was previously not addressed or unsatisfactorily so.

While retailers can solve consumer needs via premium in-store offerings, they can augment the in-store experience with digital technologies. For example, retailers can leverage digital apps to surround their private label products with content and digital experiences that elevate their products to a more premium level.

Beyond meeting elevated desires and needs, product innovation is also fueling growth within the premium segment. Retailers that are able to successfully drum up consumer attention and excitement across their store brands will likely increase their marketing spend on those specific categories. With this in mind, the premium private label segment has an opportunity to stand out within an increasingly competitive and complex retail environment.

Top premium categories for private label

Consumers aren’t just trading up on big-ticket purchases; they’re also shifting to premium buys for everyday items. Categories experiencing strong premium sales include personal care, beauty and home care categories.

Within private label, these categories are also showing strong sales and relevant market share. For example, in the 52 weeks ending Oct. 29, 2016, the household care category generated $12.5 billion in private label sales, taking 21.9 percent of share among all brands. Not far behind are personal care items, which drove private label sales of $4.7 billion in the last year, bringing in 11.2 percent share of all brands. And though the beauty care category only represents 4.8 percent share of all brands, it still generated more than $803 million in private label sales last year.

As main drivers of the premium segment, private label retailers should keep these categories top of mind when it comes to determining marketing spend and shelf space allocations. These categories, particularly in the premium space, should fare well in the years to come.