How private-label brands are redefining value for food consumers and retailers
Better quality and differentiated benefits have driven cost-conscious consumers to more private-label brands, but the bigger opportunity is what comes next, according to TreeHouse Foods’ Amit Philip.
Private-label food brands have shed their knockoff image, with record sales in 2023 and momentum to continue in 2024. Chains like Trader Joe’s and Costco have helped to transform store-owned brands into differentiators in a competitive retail landscape. But could they also help to make foods healthier? asks Amit Philip, chief strategy and growth officer at private-label manufacturer TreeHouse Foods. He sees consumers’ interest in getting healthier as a major opportunity for food brands to compete on another level.
Kate MacArthur: If you had a question that you wish you had the answer to about the future of private label or food in general, what would it be?
Amit Philip: The biggest question for me is about food consumption, and it’s is America going to get healthier? Back in 2010 to 2012, there was a lot of hype about America getting healthier. There was the same thing back in the 1970s, and all you've seen is obesity grow in America. There's a lot of hype again, more driven by GLP-1 drugs. But the question is, will Americans consume food differently?
MacArthur: How do you see the private-label market evolving over the next decade?
Philip: In the last decade, private label has grown significant share in the U.S., and it will only accelerate over the next decade. There is this [misconception] that private label only does well during recessions. The retail landscape has shifted significantly whereas 15 years ago, private label was all about “Give me a knockoff of the brand,” whereas today retailers are saying, “Give me something unique. Give me something differentiating that will bring someone into my stores.” You have the Aldis, the Trader Joe's, and they have changed the landscape of U.S. private-label retail. As you think about store growth over the next 10 years, it's these retailers that are driving it. And that will only lead to the acceleration of private label.
MacArthur: Health trends are popping on social media, particularly about clean labels for Aldi products. What is behind that?
Philip: When people read an ingredient label, they want to be able to recognize the ingredients. Is it potato, salt and oil? That's a very simple chip. The fact that it shows up in Aldi is indicative of their roots being in Europe, and European food regulations are different than U.S. food regulation. Over the years, the food industry had a push to make the food last longer. If the consumer is moving to more trips a week where they’re buying fresher food, then having preservatives may not be as necessary.
MacArthur: You mentioned GLP-1 drugs. What are stores asking for related to them?
Philip: From the research we get, we see a lot more consumption of protein. People are looking at this data and asking, “How is it going to impact consumption when people are on the drug?” It's not like we're seeing this outpouring to change our product profiles just yet. All that could change if GLP-1s become more accessible.
MacArthur: Do you think GLP-1 hype is overblown?
Philip: We anticipate in our categories probably a point of growth that could be impacted over the next five years or so. It's speaking to this bigger question of people are looking to get healthier and they're looking for ways that will happen. GLP-1 drugs happen to be the current way that people are experimenting. But if we can find healthy, great-tasting food, in the long term, that will probably win out over having to inject yourself with something.
MacArthur: What has to change to get us there?
Philip: Consumers are saying, “How about giving me a cleaner label. How about giving me something healthier that also tastes good.” It's deeper R&D work to figure out how you can make that great tasting. We make a keto cookie. It doesn't taste very good. So how can we get great-tasting food that is also really healthy? The company that figures that out will do fantastic.
MacArthur: Are generational shifts driving changes in attitude about private label?
Philip: We've done a lot of work on Millennials and Gen Zers, and when you look at their consumption of private label versus other generations, it's still lower. However, it's growing at a faster rate.
“How can we get great-tasting food that is also really healthy? The company that figures that out will do fantastic.”
MacArthur: Is premium the next big growth area?
Philip: It's a very big area of growth. In some retailers there is this notion of a good, better, best brand hierarchy, even within the retailer's brand. Retailers that are getting strategic about their brands are going to look at the premium side as strongly, if not more than, the others because they have the others covered. Getting a consumer to buy more premium is a significant advantage to them.
MacArthur: How does that affect how a consumer trades up or down within and between brands?
Philip: Take a simple category like pretzels. When consumers are trading down, they may move from a pretzel thin to a regular pretzel, or a seasoned pretzel to a regular pretzel. What retailers will look at is, “Do I have an offering across the value spectrum all the way to premium tiers?” When the consumer does look to trade down, they're probably trading down within the tiers.
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