Importing European food at a reasonable cost is harder for US supermarkets in the age of Trump’s tariffs. But they are busy filling their shelves with another European staple: private label groceries.
Foods sold under store brands are steadily filling a bigger share of the US consumer’s shopping cart. Think Walmart’s Great Value wavy potato chips instead of PepsiCo’s Ruffles, or Trader Joe’s organic chicken rather than cuts sold under the Perdue name.
Sales of so-called private label groceries, pioneered by German discounters Aldi and Lidl, have increased by 4.2 per cent in the past 52 weeks in the US, according to data compiled by NielsenIQ. That compares with a 1.1 per cent rise in sales for national brands over the same period.
The result is that the US supermarket sector is beginning to more closely resemble that of western Europe, where private label constitutes 39 per cent of total sales. That is more than 20 percentage points higher than in the US, according to NielsenIQ.
The gap between the two markets equated to more than $100bn in sales, said Matt Hamory, a grocery industry consultant at AlixPartners.
The heft of US store brands will be on display next week as 15,000 delegates from retailers and the food and consumer goods manufacturing industries gather for the annual Private Label Manufacturers Association trade show outside Chicago.
There, representatives from retailers such as Walmart and Kroger will taste samples and strike deals with the low-profile third-party manufacturers that make many of the items that appear on shelves.
“We now have a wait-list of people that want to exhibit,” said Peggy Davies, president of the PLMA, estimating store brand sales would reach a record $280bn this year.
The rising popularity of private label groceries reflects the worst bout of US inflation in four decades, as squeezed shoppers tried out cheaper substitutes for their favourite products and found that they liked them.
Private brands deliver higher profit margins for retailers, as the lower shelf price is more than offset by a reduction in their wholesale costs. But for consumer goods companies, which spend billions on marketing and innovation to retain customer loyalty for their brands, the growth of private label is intensifying challenges.
On an earnings call last month Ramon Laguarta, PepsiCo chief executive, called out the threat posed by private label brands as one of the reasons why it needed to cut costs.
There is more to come. Aldi is opening more than 200 US stores this year as part of plans to add 800 stores over the next five years. Private brands, which often closely mimic well-known third party alternatives, make up about 90 per cent of its range.
At a store in the New York area Aldi is selling cans of store brand Summit Popz prebiotic sodas ($1.49) alongside identically coloured cans of PepsiCo’s Poppi prebiotic soda ($1.99).
Customers were queueing six deep to check out there on a recent weekday morning, picking up cereals, breads, vegetables and meat from its limited assortment. For Ana Reyes, a 77-year-old retired seamstress, the only problem was that her federal food subsidies had been cut off as a result of the government shutdown in Washington.
“For we who are poor, they are a little bit better than other supermarkets where everything is expensive,” she said in Spanish as she loaded milk, fruit and bread into a small Nissan with a missing hub cap. Shifting to English, she said: “Some things are better [quality] here than [at] the other supermarkets.”
Aldi and Lidl have disrupted grocery markets across Europe with their finely tuned operating models, limited ranges and cheap private brands.
In a recent report promoting its prices, Aldi said the average US family of four who bought branded products spent $10,610 a year, but only $6,759 a year when buying Aldi’s private label versions. Three in four shoppers it surveyed said Aldi’s brands were “just as good as more expensive brands”, according to the survey.
Joel Rampoldt, chief executive of the US division of Lidl, predicted the gap between the prevalence of private label goods in the US and Europe would narrow.
Lidl has nearly 200 US stores and has been gradually opening more in the New York, Washington and Atlanta areas, according to Rampoldt, who added that private label accounts for about 80 per cent of Lidl’s core assortment.
While the biggest US grocery chains devote more shelf space to third party brands, they have also developed massive private label businesses. At Costco, the private Kirkland Signature brand is 30 years old and recently hit $86bn in annual sales, the Wall Street Journal reported earlier this year.
About a quarter of Walmart US’s $462bn in annual net sales now come from private brands, including its Great Value label. On Walmart.com this week, a 13-ounce bag of Great Value Original Wavy Potato Chips cost $2.96, while the same-size package of Ruffles cost $3.33.
Walmart, which captures more than a fifth of US grocery sales, has also developed premium versions of store brand goods, following European retailers such as the UK’s Tesco. The retailer launched its premium private label line Bettergoods in 2024, its largest new food brand in 20 years.
John David Rainey, Walmart’s chief financial officer, said the heft of its private label business served as a helpful negotiation tool with branded suppliers.
“Not in every case is a supplier willing to lower the price to the level that we want, and that’s where our private brand assortment really helps out,” Rainey told the Financial Times in a January interview.
While some retailers manufacture a portion of their private label products, they are typically sourced from contract manufacturers.
The 20,000-plus third party US private-label manufacturers have ample capacity to produce more, according to Oisin Hanrahan, chief executive of tech start-up Keychain, which connects brands and retailers with manufacturers.
With discounters Aldi and Lidl setting their sights on becoming major players in the US market, private brand groceries are set to make their way into the kitchen cupboards of many more American homes.
‘We live and die by private brand. It’s the centre of our offering,” Lidl’s Rampoldt said. “As discounters have grown, private brand’s share has gone along with them.”
