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June 15, 2018 • Volume 17


What about brick and mortar private label brands?

The rise of private label (PL) online [or at least the threat of the rise of private label online] has been the subject of intense focus for the past two or so years. In the disposable razor blade category, we have seen Dollar Shave Club (DSC) and Harry’s scrap their way to positions of significant market share against far more established rivals.

But when most of us think private label, we tend to think of brands that are owned by retailers that offer a broad mix of categories, not single-category specialists. In my mind, DSC and Harry’s are direct-to-consumer success stories, not private label success stories. 

In preparing for a webinar with our friends at the Path to Purchase Institute, we focused on the performance of the private label brands of online native retailers: Amazon, Brandless, and Jet.  These are all retailers born on the web with private label brands that cut across multiple categories. 

I wasn’t surprised to see that, generally, private label is not very well-developed amongst this group, as they’ve not been at it a particularly long time. Given that private label brands have little, if any, off-site marketing investment, I’m betting that they take longer to develop than non-PL brands with true marketing budgets.  

Hardly “generic”: brick and mortar private label brands find premium success

What did surprise me, was the success of private label brands of brick and mortar retailers relative to their online-only PL competitors. We looked across five categories – disposable batteries, paper towels, bath tissue, laundry care, and coffee and found that the online native retailer was the leader in only one of those categories; batteries, where AmazonBasics is the leading online brand overall, not just the private label leader.

In the other four categories, Costco’s Kirkland brand was the leader by a substantial margin. Great Value, one of Walmart’s private label brands, was in the number two private label slot in laundry care, coffee, and paper towels. Amazon’s Presto! brand held the number two and three slot in bath tissues and paper towels, respectively. Emerging private label offerings from Jet (Uniquely J) and Brandless have not yet significantly popped on the radar.

In short, familiar private label brands seem to be trumping nascent private label brands from online upstarts. AmazonBasics batteries are the exception at this point, not the rule. 

This will be the topic of a future column [or two], but this is just one piece of the argument supporting a prediction that has been increasingly popping in my mind:  2018 will be the year that we look back on as the year that brick and mortar retailers finally established the momentum online that will ultimately lead to a legitimate counterweight to Amazon. It’s not the first time that I’ve predicted this, I’ll admit. But I might be right this time.

Amazon and Whole Foods, a year later

Yes, it’s been [only] a year since Amazon announced its intent to acquire Whole Foods. It feels like a lot longer than that because so much has happened in response to the acquisition. For brands and retailers in the grocery space, e-commerce history will break down into two periods: time before the Whole Foods acquisition [BWF], and time after [AWF].

What we’ve seen from Amazon and Whole foods has been surprisingly predictable. The loyalty programs are being morphed together, with Prime members enjoying advantageous prices at Whole Foods. Prime Now’s delivery force is starting to replace Instacart’s. Whole Foods’ private label products are available on Amazon. And we can try out Echo devices in Whole Foods stores.

My bet is that Whole Foods proved more difficult to digest [pun intended] than Amazon had expected [which is the case with big acquisitions 100 percent of the time]. And Amazon didn’t ever intend to manage Whole Foods at arm’s length as it did with Zappos. Blocking and tackling beat out-of-the box thinking.

While Amazon has been digesting, its competitors have been voracious in return. They’re opening fewer stores than planned to reallocate dollars to e-commerce to counter this mortal threat. Target bought Shipt for $550 million. HEB bought Favor. Deliv expanded from 19 to 33 markets. Instacart’s client base grew from 30 to 200 in the year as countless [well, 170] retailers realized that they needed an instant e-commerce strategy.  

Most importantly, Kroger tied itself up with Ocado, which as I’ve noted before is a far bigger gamble than Amazon’s [essentially free] acquisition of Whole Foods. 

Amazon’s acquisition of Whole Foods was essentially a wake-up call to the U.S. grocery industry that could go one of two ways: Amazon might find that in order to compete with the scale of the competitors it’s woken up it needs to make an even bigger acquisition. Or, these brick and mortar retailers might find that they are drawn into costly conflict that compels them to take their collective eye off of the $700 billion online grocery ball that they currently dominate.

Which way will that go? That’s one prediction that I’m going to exercise my prerogative to not make at this point.  

About Ken

Ken Cassar is vice president, principal analyst at Slice Intelligence, where he looks at trends in the e-commerce industry armed with Slice’s robust set of online sales data.

Ken brings a rich online retail background to Slice Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.
Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Slice profile. He also has the appropriate jacket for every occasion.