The Wall Street Journal - Why Walmart Is Making Its Own Premium Products Now | WSJ
Walmart and Target are investing in premium private label brands to compete with national brands. Walmart's new brand, Bettergoods, aims to offer higher quality products with trendy ingredients, while Target's Good and Gather and other brands focus on unique, high-quality offerings. This strategy is driven by consumer demand for value and quality, as well as the potential for higher profit margins. Private label sales have increased, with Walmart's Bettergoods attracting new customers and Target's own brands contributing significantly to revenue and profit. Both retailers are leveraging consumer insights to create differentiated products that appeal to modern shoppers.
Key Points:
- Walmart's Bettergoods targets premium market with trendy ingredients.
- Private label sales grew 4.7% in 2023, outpacing national brands.
- 60% of consumers view private labels as equal in quality to national brands.
- Target's own brands account for a third of sales and drive store traffic.
- Retailers aim for higher margins and customer loyalty with private labels.
Details:
1. 🔥 Walmart's Premium Brand Challenge
- Walmart is expanding its Great Value brand strategy by introducing a new premium grocery brand called Bettergoods.
- The new brand aims to compete with higher-priced salsas, expanding Walmart's reach beyond just lower-priced products.
- Bettergoods will include a variety of premium products, targeting consumers who are willing to pay more for higher-quality options.
- This move is part of Walmart's broader strategy to capture a larger market share in the competitive grocery sector, traditionally dominated by premium brands like Whole Foods and Trader Joe's.
- Walmart's existing brand strategy has primarily focused on affordability, but Bettergoods signals a shift towards catering to diverse consumer preferences.
- By offering premium products, Walmart seeks to enhance its brand image and appeal to a wider customer base, including those who prioritize quality over price.
- The introduction of Bettergoods is expected to challenge established premium brands by offering similar quality at competitive prices.
2. 🎯 Retailers' Strategic Shift to Store Brands
- Retailers are increasingly focusing on enhancing their private label offerings, aiming to capitalize on their significant market presence as some of the biggest store brands in the country.
- Investing in higher quality store brands is becoming a key strategy, with companies like Target leading by example to improve product appeal and customer loyalty.
- Approximately 30% of retailers are actively pursuing this strategy, highlighting a substantial trend towards prioritizing private labels.
- This shift is driven by changing consumer preferences for value and quality, as well as the competitive advantage of differentiating from national brands.
- Retail giants such as Walmart and Costco are also expanding their private label lines, reinforcing the trend across the industry.
3. 🏷️ The Evolving Role of Private Labels
- Private label brands, also known as store brands, are gaining prominence as retailers like Walmart and Target increasingly produce their own products.
- Retailers are focusing on private labels to offer low-cost alternatives to brand name products, especially as inflation pressures consumers.
- The strategy of enhancing private labels is proving effective as consumers seek value amid rising food costs.
- Private labels are significantly impacting the competitive landscape by challenging traditional brand dominance, with some retailers reporting double-digit growth in this category.
- Consumer behavior is shifting, with a growing preference for private labels due to their perceived value and quality, leading to improved customer retention for retailers.
- Future trends indicate that private labels will continue to expand, with innovations in packaging and marketing expected to differentiate these products further.
4. 📈 Growing Popularity of Store Brands
- In 2023, sales of store brands increased 4.7%, compared to a 3.4% increase for national brands.
- Retailers use store brands to create unique and high-quality products.
- Private label started as a value proposition, offering greater value, and evolved to match or exceed national brands in quality.
- Value includes price, quality, and fabrication.
- A McKinsey survey shows most consumers now view private label brands favorably.
5. 💡 Walmart's Brand Differentiation Strategy
- Walmart's private label brands have gained significant customer trust; 60% of customers would continue purchasing them even without the cost-saving benefits, highlighting their perceived quality and value.
- Great Value, Walmart's prominent private label, is the largest in the US, driven by strategic pricing and meeting demand for affordable yet quality products.
- In a strategic move to capture a premium market segment, Walmart introduced Bettergoods, a new private label brand focusing on higher quality products with trendy flavors or ingredients.
- Walmart's private label strategy differentiates it from competitors by offering a diverse range of products that cater to both cost-conscious and quality-seeking customers, strengthening its market position.
6. 🔍 R&D and Quality Assurance in Product Development
6.1. Great Value Strategy
6.2. Bettergoods Strategy
6.3. Product Development Process
7. 📊 Balancing Act: Retailers vs. National Brands
- Walmart has successfully attracted over 60% of Bettergoods buyers who had not previously purchased any private label products at their stores.
- Walmart plans to significantly expand its private label product line, with dozens of new Bettergoods items expected to launch in 2025.
- The introduction of more private label products by Walmart will intensify competition with major brands for limited shelf space, affecting brand visibility and consumer choice.
- Retailers like Walmart depend on established brands, such as Kellogg's and Coke, to draw in shoppers, while these brands rely on retailers for product accessibility and sales channels.
- The balance between promoting private labels and maintaining favorable relationships with major brands is crucial for retailers to sustain traffic and sales.
8. 💼 Strategic Importance and Impact of Store Brands
- National and private brands coexist, driving innovation from both sides, with private brands pushing for cost-effective alternatives and unique offerings.
- Retail giants like Walmart focus on understanding customer desires through analysis of purchases, trips, and spending patterns, which informs their store brand strategies.
- Walmart's store brands, such as Bettergoods, Equate, and Time and True, contribute to higher profit margins due to lower initial investments and strong value propositions.
- Over 20 of Walmart's private label brands generate more than a billion dollars each annually, demonstrating significant financial impact.
- Retailers benefit from higher margins on store brand products, which also provide customers with better value when quality is maintained consistently.
- Target's store brands generate $30 billion in revenue annually, making up about a third of sales and contributing even more to profit, highlighting the success and strategic importance of private labels in retail.
9. 🔄 Target's Focus on Private Label Expansion
- Owned brands are strategically important for driving traffic to Target's stores, website, and app.
- Target brands have prominent placement throughout stores, such as Good and Gather in the market section and Wild Fable in clothing.
- Target emphasizes creating a cohesive brand experience where products are easily found, reinforcing brand identity.
- In 2024, Target launched 'Deal Worthy', targeting price-conscious customers, and rebranded its essentials line 'up and up'.
- The focus on private labels is crucial as Target faces slowed sales and a stock decline of over 20% after lowering financial targets in November.
- Target's strategy involves leveraging its mix of national brands and private labels to maintain brand uniqueness.
10. 🛍️ Innovation and Consumer Trends in Retail
- Target's private label strategy focuses on creating trendy, high-quality, affordable products which have led to consumer purchase responses.
- Sales for Target's 'All In Motion' brand grew by double digits in the third quarter, showcasing the success of their private label strategy.
- The emphasis on new, distinctive products with appealing fabric choices is a key differentiator for Target against national brands and other retailers.
11. 🌶️ The Quest for Unique and Trendy Products
- Brands that innovate and introduce new benefits to the marketplace tend to experience growth and success.
- For instance, companies like Apple and Tesla have revolutionized their industries by consistently offering unique and cutting-edge products.
- Unique products are those that not only meet consumer needs in novel ways but also anticipate future trends and demands, setting a company apart from competitors.
- The impact of such innovation is often seen in increased market share and customer loyalty, as consumers are drawn to the perceived value and exclusivity of the products.
- Market trends show that consumers are increasingly looking for products that offer new experiences, enhanced functionality, or sustainable solutions, driving brands to continuously adapt and innovate.