For example, Walmart, America’s largest retailer, launched a premium food brand in late April called Bettergoods. The lineup includes adventurous flavors such as cardamom rose raspberry jam, plant-based products such as oatmilk ice cream and single-origin coffee. Grocery conglomerate Ahold Delhaize, owner of Food Lion, Stop & Shop and other chains, announced in May a target to increase the companywide share of private-label sales to 45% by 2028, from about 38% today. Ahold’s push is also about more than value alternatives: Its own-brand portfolio includes an organic line called Nature’s Promise and a premium line called Taste of Inspirations.

Store brands yield better margins for retailers and can deepen loyalty: Consumers love Trader Joe’s, Aldi’s and Costco’s Kirkland products so much that they have devoted fan accounts on social media. Grocers that almost exclusively sell their own store brands, such as Aldi and Trader Joe’s, have been grabbing market share that legacy supermarkets like Kroger are losing, according to data from Numerator.

“It’s not lost on retailers that the fastest-growing retailers have the fastest-growing private-label programs,” said Steve Oakland, chief executive officer of TreeHouse Foods, which manufactures store-brand snacks and beverages for major retailers including Walmart. Shoppers can now browse online to see how much a national brand item costs at different retailers and, in most cities, have them delivered the same day. Retailers need to offer something unique to drive traffic and loyalty, he said.

Private label’s overall share of sales hasn’t moved all that much over the past decade: It made up 21.8% of sales for categories that TreeHouse Foods sells, according to the company—not a huge step up from 20.5% 10 years ago. By contrast, store brands make up about 40% of grocery sales in Western Europe, according to NielsenIQ.

One barrier is that grocery sellers in the U.S. have less market power than European retailers over major consumer packaged goods, or CPG, companies such as Procter & Gamble and General Mills. The top four grocery sellers in the U.K. account for about two-thirds of sales, while in the U.S. they account for a little more than a third, according to a 2023 paper from Prof. Jan-Benedict Steenkamp at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School.

Grocery sellers in the U.S. have less leverage in sourcing their private-label goods: Many are actually produced by national consumer packaged-goods companies that compete for the same shelf space. There are dedicated store-brand manufacturers, but the quality of their products still lags behind those of Europe, Steenkamp said.

Brand-name players in the U.S. also have a lot of money to splurge on promotions to drive up market share: Steenkamp’s paper noted that U.S. store brands are priced on average 20% lower than national brands—a less enticing discount than the roughly 30% seen in Western Europe.

The retailer-manufacturer dynamic is a delicate one. CPG companies don’t typically like it when retailers ask them to start manufacturing competing private-label products, but refusing also comes with the risk of damaging the relationship and losing their own shelf space.

The pandemic had a complex impact on this dynamic. In its initial phases, consumers were so hard pressed to find what they needed that they were forced to try out many private-label products. But as supply disruptions wore on over years, CPG companies gained the upper hand since many had more robust supply chains than their private-label competitors.

Amid elevated demand for food at home and consumer wallets flush with stimulus cash, CPG companies were able to raise prices without much resistance. But that is now quickly changing as retailers deal with price-sensitive consumers increasingly exhausted with the cumulative impact of inflation: Grocery prices are about 26% higher than they were in 2019. In a recent survey of U.S. consumers by Jefferies, some 51% of respondents said they are buying more private-label products to save money on grocery bills.

In an interview, a food industry executive said national brands’ price gap over store brands has widened compared with historical norms in mainstream snacking categories and that CPG companies are likely to run more frequent promotions in that space this summer. But he added that higher-end snacks are better insulated.

Differentiating on quality is one defense against store brands. But during the recent bumper years for CPG companies, brands also didn’t need to innovate as much to spur sales. JJ Fleeman, chief executive of Ahold Delhaize USA, said in an interview that the company sees an opportunity to gain private-label market share because innovation has been lacking in national brands on packaging, sustainability and taste profiles. Target launched its Figmint kitchenware brand last year partly because there hasn’t been much innovation in the category over the past decade, according to a company video featuring its senior vice president of brand and portfolio management, Carlos Saavedra.

What is more, the biggest retailers—namely Walmart and Costco—gained market share through the pandemic. Now that supply disruptions have passed, this has given them more bargaining power over CPG companies.

Being a retailer means owning the distribution, which can lend itself to nimbler product innovation. Aldi, for example, introduces approximately 100 rotating seasonal products a week in a dedicated aisle called “Aldi Finds,” according to Scott Patton, vice president of national buying at the company. Recent introductions have included hot honey kettle chips and birthday cake yogurt-covered pretzels. If the product sells out and the company sees a lot of mentions on social media, it then decides to carry it for a full season.

“You can always do focus groups, but for us, customers are the best source of feedback and inspiration,” Patton said.

Higher share for store brands can ultimately be good for consumers. If national brands can’t improve the quality of their goods, then they need to lower prices to compete. Historically, national brands have tended to be more aggressive on trade spending, such as promotions, when a strong private brand is introduced in a category, according to Jim Griffin, president of private-brand agency Daymon. “The biggest CPG [companies] are not going to lose share to Walmart or any other retailer without a fight,” he said.

The relationship between consumer goods companies and retailers is heating up. Consumers could end up the real winners.

Aaron Back contributed to this article.

Write to Jinjoo Lee at [email protected]