- Grocery shopping in the US is more expensive than in the UK.
- One of the reasons for this is the relative lack of private-label goods in the US.
- These products have high profit margins as they cost less to create.
There's a lack of private-label groceries in the US, and it's keeping prices high.
Data shows that the US falls behind the UK and other European countries such as Germany and France in its offering of cheaper private-label goods in grocery stores.
In 2016, these products accounted for 14.5% of all US spending on consumer packaged goods, according to research firm IRI. In the UK, they made up for 51% of total sales during the same period.
"The UK has a lot to teach us," Mike Paglia, director of the retail insights firm Kantar Retail, told Business Insider, referring to the UK's innovation of private-label goods in grocery stores.
He added: "It has become a lot more sophisticated [in the US] over the last 10 years or so, but it still lags behind."
Supermarkets in the UK have already experienced fierce competition from discount stores such as Aldi and Lidi, which offer cheaper prices by predominantly stocking private-label brands.
Lidl claims to offer products at 50% less than rival stores, and about 90% of its stock is private label.
Business Insider/Hayley PetersonThe benefits of selling these brands are twofold. It allows the store to cut out the middleman, which eliminates any additional supplier costs. The company also has greater control over manufacturing costs and can set its own prices. This means that products can be sold for higher margins than national brands, as the initial costs are much lower.
This competition in the UK has led to greater own-label innovation at more established stores. In a recent earnings call, the CEO of the largest grocery chain in the UK, Tesco, said that private labels now account for 50% of its sales.
In the US, there's still a stigma around these products, according to Paglia.
"Suppliers don't look on these products favorably and as a result, retailers don't invest in the innovation and the sophistication that they could," he said.
Walmart, the largest grocery chain in the US, has made almost no impact here. It's known by some analysts as the "house of brands," which stems back to its origins as a general store rather than a food retailer specifically, according to Fung Global Retail and Technology.
But this could change as competition from discount retailers and online stores offering private-label goods heats up.
German discount store Lidl announced plans to open 100 stores along the East Coast last year.
A report done by Fung Global Retail and Technology said that total sales in the US generated by private-label discount stores such as Aldi and Lidl could surge to $37.7 billion in 2020 as they rapidly expand.
Amazon is also revving up competition in the space. In August, the retailer launched sales of Whole Foods' private-label brands, including its lower-cost 365 line, online. Jet.com, owned by Walmart, also said it would launch its own label, Uniquely J, to sell a range of nonperishable items.