In a recent webinar entitled, “The Private Label Revolution: Is CPG having a Netflix Moment?”, Nik Modi, global co-head of consumer/retail equity research and HBC, beverage and packaged food analyst, RBC Capital Markets, LLC, and Hunter Thurman, founder/president, of consumer psychology and behaviour consultancy, Alpha Diver, discussed the growth of private label products within consumer packaged goods (CPG) and the impact they are having on branded CPG products.

Historically PL products have been used by lower income consumers and by higher income consumers when times were tough so they would ‘trade down’, but the latter would ‘trade up’ again when the situation improved. But, Nik Modi, said this time it’s different. “The percentage household penetration for private label products has increased over the past few quarters and has surpassed pre-Covid levels,” he said, noting that PL has experienced broad market share gains.

Modi said that a 2023 study showed that about USD $1.5 billion worth of sales shifted away from national brands and sales have also shifted from the grocery channel to the rest of food channels (discount, mass, club) where PL brands sales growth notably outpaced national brand sales growth. “The percentage price gap between PL and branded players has been volatile but is recently on a downward trend approaching the lowest levels seen since 2019,” he said, adding that while this should be good for brands, the problem is that the branded price is still really high. For consumers today, Modi explained, it’s not about trending down, about trending out.

Furthermore, the percentage of household penetration of PL CPG is correlated with age cohort, with higher penetration in households of older individuals, but currently, noted Modi, Gen X consumers have the highest buy rate. He also shared that baby boomers are also heavily involved in PL product. “Companies do not market to them anymore but baby boomers have the most disposable income because they have no one they need to spend money on but themselves. Brands tend to forget about them but baby boomers will big chunk of spending over next few years,” said Modi. (Sidenote, Modi said it is because of Japan’s large baby boomer population that the country is the biggest luxury market in the world.)

Over the long term, PL is projected to gain 5 pts of dollar share by 2030. And although beverages have historically had low PL participation, it is gaining market share as branded beverages continue to see comps loss.

Retailer initiatives are ramping up and becoming more sophisticated and AI is being overlaid to help them make better decisions. “There is a major shift happening in PL — perception changing, the market, category and industry is changing. Backward looking isn’t going to help,” said Hunter Thurman, president and founder of Alpha Diver.

Thurman said what happened with Netflix 20 years ago is happening with PL brands today. “Netflix used to offer knock DVD rentals, cheap, & convenient. Pl in the past offered knock-off products, cheaper. Then Netflix began to offer a new kind of entertainment: on-demand which elevated the frame of reference to cable TV. PL products introduced a new kind of brand: cross category and attractive prices that engaged a new kind of shopper. And while Netflix started offering original, exclusive content, PL brands are offering innovative exclusive products,” he said, adding that “no one saw the ‘Netflix disruptor’ coming when it first emerged.”

“Private label/store brands are the new disruptors—they can innovate faster than the national [multinational] brands, said Thurman. “We need to banish the ‘trade down to store brand’ mentality. Modern store brands are far from knockoffs, and it’s changing shopper psychology and decision-making. A new type of shopper is being engaged and it’s changing the marketplace. Realty is that a new type of shopper is being engaged via these store brands.”

Gone are the days of ‘national vs store brand’, today, Thurman says there are three types of brands: national, owned brands and value brands. To consumers, there is little difference between ‘national’ and ‘owned brands’.

Target Stores (favorite day) and Amazon (Aplenty) launched PL brands in spring that are on-point with current trends. Walmart launched bettergoods in April — a new PL brand focused on quality, unique, chef-inspired food items at an affordable price. “This brand does more than just compete on price. This is very different than what we’ve seen at Walmart because it is not entirely a price-based proposition,” said Modi. “bettergoods is offering trendier, unique products, not just about higher prices, different foods and flavours that even national brands are not offering.”

bettergoods is competing in categories such as coffee, dairy, non-dairy (almond milk), beverages, snacks, chocolate, etc. Interestingly, Modi noted that from an income point of view, those in the USD $125K+ income bracket are showing the highest household penetration by a wide margin thus far in the launch of bettergoods. “Walmart has recruited a lot of higher income households into their stores over the last couple of years. This is a way for them to keep these types of consumers.”

Both Modi and Thurman noted that with their unique, on-trend offerings, PL/store brands are engaging the growing, ever-important, ethnically diverse Gen Z consumer.

“Consumers today are not buying PL/’owned brands’ because they are cheaper, they are interested in them,” said Thurman. “Owned brands are creating more excitement so attracting the coveted shoppers, not about trading down on price. We must stop thinking about national vs PL/owned brand in such a binary way.”

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The private label tea and coffee market in Eastern European and Nordic states is steadily growing this year, thanks to a stable demand and the ongoing expansion of portfolios by leading local players. 

In contrast to Western Europe, where the tea and coffee private label segment has been actively developing since the 1980s, most Eastern European states have registered significant market growth and massive launches of new, private label products in recent years. The same, however, cannot be said for the Nordic states, where the popularity of private label tea and coffee brands, produced by leading local retail chains has always been high. 

One such brand is Norwegian chain, REMA, which is implementing its REMA 1000 private label strategy that involves actively developing its private label brands in both the Nordic states and other Eastern European states. REMA has significantly expanded its portfolio of private label tea and coffee brands over the past few years, and most of analysts expect the company will continue to develop this segment. 

REMA’s current list of tea and coffee brands is wide and includes some iconic brands in the Nordic market. An example of this Kolonihagen, a well-known Norwegian coffee and tea private label supplier within REMA, which in recent years has strengthened its positions both in the domestic market and overseas.  

Arnt Ove Dalebø Englund, co-founder and director of innovation at Kolonihagen, said that Kolonihagen recently entered the premium tea category with a range of four variants. “This is part of the REMA 1000 private label strategy, having alternatives — [opening price point] (Prima), mid-range (R) and now finally also covering the premium through the organic Kolonihagen brand.” He said that this series of teas is nationally distributed and is present in all 650 REMA 1000 stores in Norway. According to the size of the category [in each store] (both shelf space, rotation and turnover), there are four premium products at the moment. 

“We do not have plans to expand the [number of products, [instead] bringing in new flavours [as a] one in-one out. Additional value propositions are also highly relevant and part of a continuous strive to do things better. That is the core of our brand,” said Dalebø Englund. “One example of this is to put regenerative principles (and certifications) on top of the organic standards. Seasonal products are [also always being considered].” 

Dalebø Englund expects Norway’s private label market and that of other regional countries as well as Eastern Europe will show stable growth rates in years to come. “It’s hard to answer this on behalf of competitors in FMCG market in Norway, but in general, the private label category share is lower than that of other Nordic and European countries. [I predict] that moving from 20 percent to between 40 and 50 percent is likely in a two to three-year period, and this will probably be even higher for the tea and coffee category. 

Other major players are also considering accelerating their expansion both in the market of Nordic states and Eastern Europe. 

Bethany Physick, marketing manager at Finlays Europe Extracts, shared that across Europe, Finlays is continuing to help European brand owners tap into the health and wellbeing trend with its Just Add Water solution, a range of sachets containing tea and botanical powder blends that are designed to meet consumers’ desire to drink functional water on the go. “Later this year, Finlays’ new cold brew coffee extraction facility will open in the United Kingdom bringing an exciting range of cold brew coffee extracts to the fast-growing European market,” she said. “The coffee extraction facility will produce for branded and [private]-label suppliers in the UK and European and Eastern European retail and hospitality sectors.” Physick noted that Finlays is already a global leader in cold brew in the United States, and it expects growth in the category in the European market. 

Regarding future market prospects, Sian Edwards, insights manager, Finlays Group, explained that tea in all formats offers major potential in Eastern Europe, in terms of the market scale and growth prospects. “There are big markets, many of which are fast premiumising, as consumers seek a wide range of healthy, functional and indulgent beverages. The ready-to-drink (RTD)/iced tea market was valued at USD $2 billion in 2022, and has yet to reach maturity, with a forecast of 18 percent CAGR between 2022 and 2027, to reach an estimated market size of $5 billion in 2027.” Furthermore, he noted that RTD/iced tea is being bolstered by consumers seeking healthy and innovative alternatives to traditional soft beverage categories. 

“Hot tea and infusions are a more mature category for consumers in Eastern Europe. The category was valued at USD $9 billion in 2022 and is expected to exceed $10 billion by 2027 – with a 2 percent CAGR,” said Edwards. “Per capita consumption in the region is particularly high, with tea established as a habitual, daily necessity in many Eastern European markets. There is continued consumer demand for both RTD/iced tea and hot tea and infusions, and we see private label continuing the play a valuable role in this market growth.” 

PL still strong in Western Europe 

The private label market is traditionally within the interests of some major Western European players. 

Jens Schneider, managing director of Kloth & Köhnken Teehandel GmbH, one of leading tea suppliers in Europe, said the company has big plans for the further expansion this year. “There is an ongoing demand for organic and the wish for a sustainable supply chain throughout the world. The Nordic states, and Eastern Europe are markets we have good contacts in for many years, and we [see] steady, growing consumption [in both]. 

Still, according to Schneider, after three years of continuous challenges with consequential influences in sales channels, filled stocks and market movements, “it is currently difficult for the company to predict what trend or demand it really has in the market. [However], the focus on and trends toward organic, transparency and sustainable sourcing will be ongoing and rising.” 

PL optimism fades in the Nordics 

Representatives of some leading Nordic and Northern European retailers are less optimistic, regarding further prospects of the private label market, particularly in the coffee segment. Juhani Haara, a senior sales manager, S Group, a Finnish retailing cooperative organisation, said that private label, the coffee segment in particular, has decreased. “According to our sales data, there is a clear decline in private label coffee sales volume – a nearly 19 percent drop – this year. The reason for this is the increased campaigning with branded products both in S-Group and in the market. On the other hand, private label tea sales volume has increased significantly, by about 25 percent, during this year,” she said, adding, “this is certainly influenced by the economic situation. We expect this trend to continue towards the end of the year.” 

Haara said that new private label products have been added to the tea selection this year: two Kotimaista herbal teas and four different X-tra products. “There hasn’t been any promotion in tea products, but our own PL products are remarkably affordable compared to brands. This year there have been no private label novelties in coffee yet, but we are developing our selection.” 

Most independent analysts also do not expect sharp market growth rates in years to come. Julija Poliscuk, a senior consultant at global market research firm, Euromonitor International, believes that private label tea and coffee items are not growing as quickly as in other food and drinks categories. “The slow dynamics in current value and flat or declining volume share can be attributed to these products’ association with rituals and thus, the demand for high-quality offerings, reflecting the cultural and image significance they hold.” 

She said that in 2022, the current value share of private label in Nordic countries for coffee and tea increased slightly, reaching 9.3 percent. “This cooling trend aligns with stabilised consumer financial confidence and desire to spend after the challenging years of Covid-19. Notably, the volume share of retailers’ own brands in coffee rose by 0.7 percentage points, reaching 11.8 percent in 2022, signaling better performance compared to the overall coffee market in Norway, Sweden, Finland, and Denmark combined,” Poliscuk explained. “In Eastern Europe, historically known for brand-oriented preferences in tea and coffee, the current value share declined by 0.2 percentage points in 2022, reaching 5 percent. Coffee’s volume share was 7.2 percent (versus 7 percent in 2021), which pales in comparison to the strong growth of discounters and retailers’ own brands’ performance in other categories.” 

She added that many Eastern European markets offer big promotions for national tea and coffee brands, which reduces price gap between those products and private label ones. This market situation, according to Poliscuk, favours branded products. “When the price difference is marginal, consumers opt for familiar brands, purchasing them on discount. This hampers the development of private labels in tea and coffee in the region.” 

Poliscuk said that the hyperinflation in Eastern Europe, did not boost private label in 2022, as consumers inertially continued their ‘revenge’ spending after the Covid-19 period. “However, 2023 might bring a different outcome as consumers already started downtrading, potentially making private label a more attractive option. The level of sophistication and price segmentation within private label is more prominent in countries with well-developed modern grocery retail.” Additionally, recent launches of private label coffee and tea products in the Nordics target audiences seeking added value, which leads to the appearance of more specialty coffee (eg, specific bean origins). “Retailers are also expanding their assortment to align with sustainability strategies, offering more organic teas and coffee in modern, environmentally friendly packaging.” 

Per Poliscuk, private Labels primarily are considered ‘anti-crisis products’, allowing consumers to save or maintain their preferences without compromising on quality. The hyperinflation in Eastern Europe during 2022 and continuing into 2023 will impact consumer behaviour and drive the surge in private label adoption. As people seek cost-cutting measures, price increases in coffee and tea will push them to revise their previous preferences. “While Private Label won’t dominate the hot drinks market due to the nature of these products, its expansion alongside aggressive discounters will positively influence retailer’s offerings.” 

In Nordic countries, Poliscuk said the volume of private label hot drinks is expected to stagnate, even decline, but the value share will increase alongside the price. More premium coffee and tea aimed at quality seekers eager for better prices will emerge. “More caffeine-free and health-improving teas are expected, while coffee offerings will focus on specific beans and roasting variations. Retailers in these Western countries have the expertise to develop premium store brands based on specific needs like sustainability or fair trade.” 

Despite the impact of war on logistics chains and prices, with a small private label market and a decreased national brands presence, Eastern Europe expects a stronger demand than ever before for retailers’ own brands. 

• Eugene Gerden is an international freelance writer, who specialises in covering the global coffee, tea and agricultural industries. He worked for several industry titles and may be reached at gerden.eug@gmail.com. 

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Private label and store brand teas continue to grow by captivating consumers with better quality, great taste and improved value. Private brands and store brand teas maintain their rise because of their ability to capitalise on the:

• Right Selection – successful private brands combine the best-in-class in flavour and function from across top-selling national brands;
• Right Fit – private label tea brands maintain consistency with other branded product lines and meet customer expectations for quality and convenience (eg, organic, Fair Trade, “free-from,” non-GMO, etc);
• Right Value – whether your private brand is premium or discount-focused, the tea brand is competitively and attractively positioned.

Before diving into the weeds, there are a few key numbers to keep in mind about the growth and size of the tea market in the United States:

• $10 billion tea market by 2020
• 80 percent of households buy tea
• 50 percent of Americans drink tea daily, with room to grow.

Room to Grow

The US tea market is nowhere near reaching its full potential. When you look at the per capita consumption levels across countries, there is plenty of room for many countries, including the US, to drink more tea. As it stands, about half of Americans drink tea daily, and at an average of less than a cup a day. Each person in the US consumes about 0.5 pounds worth of tea each year, compared to Turkey (a famous coffee-drinking culture), which consumes about seven pounds of tea per person per year.

American consumers have the spending power necessary to upgrade their tea. Per capita disposable income continues to rise so higher quality and functional teas are becoming preferred over lower-grade, commodity-based teas.

Americans are starting to prefer tea to coffee. Many consumers understand the health benefits related to tea drinking, and they seek the diversity of flavours and variety that teas offer. Millennials, now the largest age demographic in the US, make up 26 percent of all households in America. They are as likely to order a cup of tea as a cup of coffee. In fact, 87 percent of millennials drink tea, but (as consumption levels indicate) they can certainly drink more.

Creating a successful line of teas may start with simple imitation of national brands, but sustained success will require tapping into unmet needs. One of those unfulfilled desires is for green tea.

Zig When Others Zag

The popularity of green tea may appear surprising at first as black tea often claims the lion’s share of the overall tea market. However, recent reports on US market trends (see blog.firsdtea.com/posts/us-tea-market-forecast-tariffs-and-trends) and China’s Increased Green Tea Production (see blog.firsdtea.com/posts/chinas-growing-green-tea-production) point to the rise in green tea capacity and imports into the US. The tide may be turning. It is unclear whether black tea dominates due to consumer preference, or insufficient supply of green tea options — especially for iced tea.

It is inadvisable to put all your chips on the table for green. A better course of action is to create functional blends with a range of base teas, including black, green, oolong, and herbal ingredients. Green tea easily stands at the crossroads of consumer taste preference and functional value — tea drinkers enjoy the taste and appreciate green tea as a health-promoting beverage.

Other types of tea need not be ignored. Oolongs were once over-hyped as a fat-blasting tea that would melt away the pounds. A more moderate message combining oolong tea, healthy metabolism and active lifestyle can leverage the “skinny” associations of oolong without flogging a dead horse.

So, where is private label is moving? Depending on the setting, private and store brand teas face a range of helps and hindrances. The main settings showing private brand tea developments include:

• Grocery and supermarket store brands
• On-premise (eg coffee shops).

Private Brands: Grocery

Store brand and private brand teas are on the rise for several good reasons. Store brands are the most important area for the development of private tea brands: some 80 percent of consumers purchase tea from the grocery store. Grocery and supermarkets possess the opportunity to take the greatest advantage of private brand tea because they are best positioned to offer:

1. Value – quality-for-price
2. Convenience – community presence, overall access to range of items
3. Trust – dependable products across segments.

Since nearly all teas (national and store brands) are bought in grocery and supermarkets, these stores hold the best cards to play in terms of leveraging national brands and store brands at the same time. They already move the most national brand tea into the homes of shoppers – they have the data on pricing, popularity of flavours, and tea functions that tea drinkers are seeking. Adding their own competitive store brand to the mix means phasing away shelf space from the national brands as their own store brand gains ground. And this is not an uphill battle – private brands already dominate most national tea brands.

Competition on a grocery shelf is direct and intense, but also allows for more direct comparison. The value claims and pricing are visible side-by-side, so a store brand tea can conveniently display its comparative value over national brands. Supermarkets with successful store brands in other product areas are in touch with shopper preferences so they can leverage multiple items. Their trusted products in other areas of the store give them an advantage in brand trust and familiarity. Their physical store presence in shoppers’ communities can also be an advantage.

Successful store brand teas are part of the bigger picture of a store brand initiative. A recent Information Resources Inc (IRI) report, Beyond Price, Consumers Find Value in Private Brands, points to the momentum successful brands are building with these guiding thoughts:

• Private Brands Build the Base. Store brands develop loyal shoppers. Between 45 percent and 66 percent of shoppers choose their shopping destination according to the store brand options available.
• Take Packaging Seriously. 20 percent of shoppers felt that store brand packaging made the product appear to be lower in quality than national brands. Successful packaging communicates value, environmental friendliness, and effectiveness of functional teas.
• Position for Premium. Millennials may be taking the lead, but most generations are ready and willing to level-up for improved product quality and greater sustainability impact.
• Imitate and Innovate. While imitation of national brands may get your foot in the door, consumers who turn away from national brands will look to store brands to start leading the pack. For teas, this will mean new and unique flavours and ingredients, distinctive functional benefits and greater social-environmental impact.

Private Brands: Coffee Shops

Coffee shops and other on-premise beverage providers with their own private brand see how their private brand tea creates the right fit across their tea and coffee selection. A selection of mediocre and cheap teabags look out of place beside single-origin, specialty coffees. This is an important fact when tea orders are on par with espresso and iced coffee orders across the country.

The right selection of private brand teas enables coffee shops to offer specialty tea beverages and attract customers during day-parts when coffee is less popular, and tea is a better fit.

• Jason Walker is marketing director of Firsd Tea North America. Prior to his work with Firsd Tea, Walker served in a variety of roles in tea and beverage business capacities. His experience includes business services for small tea companies, a top-ranked online destination for tea consumer education and co-founding a coffee business. His insights draw upon his diverse range of experience in sales, operations and management in the tea world. He may be reached at: jason.walker@firsdtea.com.

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The announcement comes one-year ahead of the timeline Walmart was aiming for when the Bentonville, Arkansas-based company announced a commitment in 2017 to make 100% of Walmart’s private brand coffee in its US stores 100% certified sustainably grown by 2020.

“Sustainability is at the heart of our ongoing mission to do right by people across the Walmart supply chain and across the planet. When our customers enjoy the aroma of our private brand coffee, we also want to ensure we’re meeting their expectations on quality and sourcing based on best-in-class, certified industry standards – all while delivering on everyday low prices,” said Ryan Isabell, Walmart Stores senior buying manager, coffee & cocoa, in a blog. “Our customers can now be certain that the coffee they’re buying from us was grown with care, by farmers working to build sustainable livelihoods and thriving communities.”

He added that Walmart is working with suppliers to increase traceability within its private brands. “That includes working with one of our coffee suppliers, Westrock Coffee, to offer visibility into their supply chain, all the way back to the coffee farmers at origin. It’s all part of a larger effort to create more transparency so customers can feel good about the items they purchase at our stores,” said Isabell, noting that Walmart became the first major North American retailer to join Conservation International’s Sustainable Coffee Challenge. The Challenge is a collaborative effort of companies, governments, non-governmental organisations, research institutions and others that aims to stimulate greater demand for sustainable coffee across the globe.

Walmart continues to be a driving force of sustainable action, coffee being just one area. In September, the company signed the “10x20x30” initiative, bringing together ten of the world’s biggest food retailers and providers to each engage with 20 of their priority suppliers to aim to halve rates of food loss and waste by 2030. This private sector commitment is designed to be a significant advancement toward the United Nations’ Sustainable Development Goal (SDG) Target 12.3, which calls for a 50% reduction in food loss and waste by 2030 worldwide. Overall, Walmart has shifted to embrace the Environmental, Social and Governance (ESG) business model – outlining strategies and initiatives in its first inaugural ESG report (released in May).

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