Private Label (PLs) often leads the innovation race

Posted by Oliver Koll on Apr 27, 2021

Launching attractive innovations is an important way to stay relevant in most industries. National brands are typically perceived as setting the pace in innovating while PLs are often considered to rely on price as their main point of differentiation. Is this true? We analyze PL innovation activity in 1,217 categories across 15 countries for the year 2019 by comparing the proportion of new products launched by PL with their market share in the category. This is what we find:

  • PLs innovate: Irrespective of the level of PL share in a category, there are hardly any categories where we find no PL launches.
  • Not surprisingly, PL innovation activity increases with PL market share. However, in the average category the share of new products launched by PL exceeds the market share of PL This difference is particularly pronounced in food, beverages, and personal care. In food, more than half of all new products are PLs.
  • We find a consistent pattern across countries. Obviously, the PL share of launches increases with the market share of PL (60% of all launches in Germany are PL versus only 22% in Italy), but in each of the markets their share of innovations exceeds their market share (except Spain and the UK).

These findings should worry national brand manufacturers. If they lose the edge in one of their core competences, then brands’ perceived value and hence their ability to command price premia will suffer. While one could tune out this imbalance by observing that PLs need more new product activity to sustain their share (note that our numbers do not inform about the success of launches) this logic seems wishful thinking. The imbalance must be a warning signal that PLs are setting the pace in many markets.