For decades, household name brands have topped the consumer market. They’ve dominated shelf space at retailers around the world while owning consumer mindshare thanks to massive marketing budgets, established reputations and widespread recognition. Conversely, private labels were perceived solely as cost-effective solutions that helped stretch family budgets or worse, uncool and untrendy alternatives to the national brands they competed with on the shelf.
All of that is changing. Retailers like Walmart, Target and most recently Albertsons are adjusting their strategy in response to a sea change in consumer preference, driven largely by Gen Z, who eschew logos and name recognition for store brands that espouse premium quality and on-trend products that meet their needs and preferences. This shift is underscored by the impressive growth witnessed in private label sales, which surged by 6% year-over-year to $217 billion in 2023.
As Gen Z becomes the majority of the 18-35 prime-spending demographic, catering to their consumer needs has become increasingly crucial for retailers and brands alike. New research indicates that a significant portion of Gen Z grocery shoppers consistently opt for stores based on their store brands, indicating a shift toward prioritizing authenticity and uniqueness over traditional brand loyalty. This trend aligns with broader shopping preferences seen in the rise of quiet luxury and stealth wealth among younger consumers.
In response to these evolving preferences, there’s a clear opportunity for retailers to leverage the market research and data-driven insights they collect from their customers to create products that resonate with their target audience and cater to their very specific needs. Target’s recent introduction of Dealworthy serves as a prime example of this strategy, showcasing a commitment to offering value-driven products that align with the ethos of the younger demographic. More recently, Albertsons’ own brand Overjoyed was conceived and designed to fill a very specific need state, enhancing its appeal and satisfaction among its core customers.
Advertisement
AI: The Not-So-Secret Approach to Own Brand Innovation
Some retailers are in pole position to capitalize on this shift. Trader Joe’s and Kirkland come to mind as beloved store brands, attracting shoppers specifically for their in-house products. (It’s understandable. Have you tried their Chili Lime Tortilla Chips?) Other retailers aren’t so lucky — and they risk losing shoppers if they can’t up the ante with their own private labels.
The good news for them is that alongside shifting consumer preference, AI has simultaneously unlocked a new ability for retailers to innovate quickly. With AI’s impact on manufacturing processes, retailers can streamline operations and optimize product development, making it easier and faster than ever before to deliver high-quality, distinctive private label offerings. This intersection of consumer trends and technological innovation presents a promising opportunity for retailers to cultivate customer loyalty and stay ahead in an increasingly competitive market landscape.
One of the longstanding challenges in this sector has been the arduous task of finding suitable manufacturing partners. However, AI has completely upended this paradigm by digitizing and optimizing how brands identify, select and manage their manufacturing relationships. This digitization has streamlined operations, enabling brands to navigate the manufacturing landscape with unprecedented speed and efficiency.
Today, brands wield the power to swiftly execute highly specific product lines across an extensive array of offerings, a feat that was previously daunting and time-consuming. This newfound agility is exemplified by companies like Aura Bora that leverage AI to rapidly innovate and bring new products to market. By leveraging AI-driven insights, brands can tailor their product offerings to match evolving consumer preferences with greater precision than ever before.
A Private Label Future
Looking ahead, the integration of AI into manufacturing processes is poised to catalyze a wave of innovation and customization within the realm of private label products. Historically, bringing a product to market has been a complex endeavor fraught with challenges. However, AI-driven efficiencies are set to revolutionize this landscape, opening the door to a plethora of new ideas and opportunities for experimentation. With AI’s ability to streamline operations and optimize production, brands and retailers will have the capacity to rapidly iterate and introduce tailored offerings that resonate with diverse consumer preferences.
One notable outcome of AI’s influence on manufacturing is the potential for further expansion into niche markets and localized tastes. As AI enables greater agility and flexibility in product development and distribution, brands can more effectively cater to specific regional preferences and emerging trends.
This trend is exemplified by the increasing prevalence of full-line rollouts like Amazon’s Saver and Target’s Dealworthy, which are set to become more commonplace across both national and regional retailers. Albertsons itself cited products for celebrations as a reason to launch its niche Overjoyed brand, with a special focus on seasonality and special occasions.
With AI driving the iteration process, the pace of new product line introductions will continue to increase, and the competitive dynamics of the market are poised for further disruption.
Oisin Hanrahan is the Co-founder and CEO of Keychain, a manufacturing software platform for the packaged goods industry that is backed by $33 million in funding from Lightspeed Venture Partners, BoxGroup, SV Angel, and major food companies General Mills, Schreiber Foods, and the Hershey Company.
