I recently realized that Trader Joe’s was owned by the German grocery chain Aldi. This surprised me because at first glance the two stores seem so different. Trader Joe's upbeat and friendly stores sell specialty items, while Aldi is more of a straightforward discount store. However, it does make sense because both chains are based on the same model of offering almost only private label goods.
As a transplanted European, I was shocked that private label groceries were still a new idea here. In France, supermarkets like Carrefour - the world’s second largest after Walmart - have had a wide range of private labels (first price, organic, upscale) for over a decade. One article I read suggested that this is because in Europe there are larger chains of supermarkets while in the US (except for Walmart) the market is pretty fragmented with many different regional players. Hence, Sainsbury's and Tesco in the UK, Carrefour in France, and Aldi in Germany are ahead of US retailers in terms of private labels. Carrefour wants 40% of its turnover to come from sales of private labels.
With the recession inspiring frugality amongst consumers, private label sales grew in the U.S. But they continue to climb despite the improving economy. This is a real opportunity for retailers across all categories. In fact, at the end of 2013, Costco announced that private label brands will be critical to their continued growth. Target, long known for their design savvy, has made a successful go of private label, as has regional drug store retailer CVS. These companies have proven that with an investment in branding, design and product formulation, US consumers will embrace and buy effective, attractive private label products that deliver higher gross margins than their big brand counterparts.
