The demand for retailer private label brands among US shoppers has historically been lower compared to other developed markets like the United Kingdom, where it accounts for over 50% of sales. In the US, private label brands have gained traction, reaching 25.5% of sales last year, which amounted to over $200 billion. The US market has been trailing behind more developed markets due to various factors, including inferior product quality, poor package design and limited marketing and promotional investment to drive awareness, trial and repeat purchases.

In many ways, this is the perfect time for retailers to introduce these private label brands, as consumers have had to endure a significant reduction in purchasing power for everyday essentials. Shoppers' reduction in purchasing power can be traced to the fact that branded manufacturers have grown revenue and profitability by raising prices, shrinking package sizes, reducing promotional support and optimizing their assortments.

But consumers only tolerate that for so long before seeking out alternative solutions. A survey from the Food Industry Association (FMI) in October 2023 found that 54% of consumers anticipate buying more from private-label brands and only 26% stated they will opt for the same name-brand items.

This battle for shopper loyalty arguably has never been more acute in the US than it is today. In some categories, these stakes are in personal care where shoppers are reducing their purchases.

Industry-wide retail sales by volume across categories

Source: Circana
Note: Retail sales volumes (units)

In the high-inflation and post-pandemic years, cost and waste conscious consumers have cut back on what were once essential items. Industry-wide, retailers sold 20% fewer razor blades last year compared to 2019, according to market researcher Circana. Deodorant sales dropped 6.5% during the same period.

In response to this competitive threat to win shoppers back, leading branded manufacturers are focused on developing innovative new products that will allow them to charge a premium price to ideally drive both volume and profit growth. This new strategy has been termed “upflation”.

An article from Bloomberg News in July 2024, Upflation Is the New Retail Trend Driving Up Prices for US Consumers brought this to life by analyzing the latest innovations from Procter and Gamble, Unilever and Edgewell in the personal care and beauty market worth $100 billion.

For example, P&G is charging $14 for all-over body deodorant, double the cost of a standard stick. Gillette sells a $15 function-specialized razor for $5 more than the regular Venus.

While this “upflation” premium-priced innovation trend is new and consumers are in the initial trial mode,  Bloomberg reports that companies with these new products are performing better than forecast but will not share specific sales figures. P&G’s most recent earnings report highlighted an almost two-year trend where revenue growth came from people buying fewer things at higher prices. The consumer goods giant did, however, post higher than expected sales in its grooming division.

Furthermore, this Bloomberg article also notes that all shoppers are not convinced they need or want these things. “Is this really something new or are they just marketing this as something different?”, asked Maia James about the all-over-body deodorant. The 44-year-old, who runs product review site Gimme the Good Stuff, has considered buying something to manage her night sweats. But she suspects a standard stick will do the trick.

This ever-changing and more complex environment has intensified the importance of winning shopper loyalty. As a result, it will be increasingly important for manufacturers and retailers to partner more closely to ensure the optimal balance and assortment of manufacturer and private label brands, to meet the maximum number of shopper purchase occasions, to drive category sales growth and profit pool. In some cases, this will require a more collaborative approach since historically manufacturer and retailer incentive structures have not always been aligned causing friction.

Successfully addressing this inherent friction requires a shift in the partnership mindset between manufacturers and retailers, from a competitive orientation of win-lose to a collaborative one of win-win. Creating this shift means investing time in strategically planning for future negotiations to ensure that they are collaborative and contain some key ingredients, such as a focus on conditional variable trading in which both parties prioritize variables that are of high value to the other party but low cost to themselves.

This shift in mindset requires a sophisticated understanding and deployment of effective negotiation techniques and the use of advanced negotiation tools. The Gap Partnership’s negotiation consulting, negotiation training and digital solutions are available to those seeking specialist support in these areas. The investment of time and resource in moving to a more strategic and collaborative playing field will pay dividends in the ongoing – and highly lucrative - battle for shoppers’ brand loyalty.

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About the author

Sal Fiordelisi joined The Gap Partnership in 2019. As an innovative leader, he has a proven track record of driving profitable growth with high-performing teams across manufacturing and professional services, especially in the consumer packaged goods industry. His strategic focus includes identifying and quantifying commercial priorities and developing operational plans. Sal has delivered results for start-ups and Fortune 500 companies.