Private Labels are Winning: The End of the Pricing Runway for CPG Brands
Over the past few years, consumer packaged goods (CPG) brands have pushed price elasticity to its absolute limits; now private labels are winning. Leveraging inflation as a backdrop, many brands have raised prices to protect margins. However, this has led to new consequences: consumers are making it clear that they either can’t afford these inflated prices, or simply won’t pay them. Instead, they’re turning to private labels and store brands, leaving many CPG giants grappling with declining volumes and eroding loyalty.
In recent years, CPG brands benefited from relative pricing effects, where industry-wide price increases maintained the competitive balance between them. However, Private-label has surged globally, increasing sales by 12% in recent years, and now accounts for 19% of consumer spending in the U.S. CPG market (NIQ). While this shift helps consumers manage budgets, it presents risks to CPG brands. For example, we’re already seeing volume decline or flatlining (McKinsey & Company), so without a shift in the value equation, we could see more fundamental impacts across categories, with declining frequency, weight of purchase, and penetration.
The situation is challenging. Yet, it’s also an opportunity. Winning back these disillusioned consumers isn’t just about rolling back prices, it’s about redefining value through innovation that drives measurable results.
How to avoid a race to the bottom and build lasting consumer value
To avoid the pitfalls of a promotional spiral aimed at short-term competitive advantage, CPG brands must focus on enhancing their value proposition through innovation. With limited room for further price hikes, companies are urged to reshape their strategies to reignite profitable, volume-driven growth.
This can be achieved by updating existing products to align with evolving consumer preferences. A familiar example is Coca-Cola Zero Sugar, first introduced in 2005 as a zero-calorie, zero-sugar alternative to Coca-Cola original. In 2021, the product was reformulated to enhance its taste, aligning it even more closely with the original Coca-Cola flavour. This reformulation was central to Coca-Cola’s ‘Best Coke Ever?’ platform, which invited consumers to try the product and decide for themselves.
Coca-Cola Zero Sugar has since become a major growth driver for the brand, achieving 5% volume growth in 2023, more than double the growth rate of Coca-Cola’s overall portfolio. (Marketing Week)
“You can create compelling value through innovative approaches that go beyond simple price reductions.“
In addition to renovating existing products, identifying and addressing unmet consumer needs is key to unlocking new growth opportunities. Liquid Death is a brand that recognised that younger consumers wanted more than clean water. They craved a brand that reflected their rebellious spirit and eco-conscious values. By 2023, Liquid Death’s bold branding and sustainable aluminium cans drove $263 million in revenue and global expansion into 133,000 stores. This proves that you can create compelling value through innovative approaches that go beyond simple price reductions.
Catalyx believes that the brands willing to look beyond the obvious and embrace these innovative solutions will emerge stronger.
Private Labels Are Eating CPG’s Lunch
Private labels have been gaining momentum globally.
In the UK, private label products now dominate nearly 60% of supermarket sales, driven by the cost-conscious choices of consumers (International Supermarket News). In the U.S., dollar sales of private-label goods have surged over a third since 2019 and are expected to exceed $250 billion by 2024, reflecting their growing appeal across categories (CoBank).
Across Europe, private label share has climbed from 35% in 2020 to 38% in 2024, with frozen and chilled foods leading the way (Alix Partners). Globally, 50% of respondents report buying more private label products than ever, showcasing a significant consumer shift toward perceived value parity with national brands (NIQ).
“This dynamic landscape demands more than reactive strategies. It calls for CPG brands to anticipate and shape consumer needs proactively.”
Private labels are no longer viewed as the “cheap alternative” but as worthy competitors. The result? A notable decline in volumes for CPG brands. For those prepared to innovate, this shift presents opportunities to reclaim lost market share. For brands ready to challenge private labels, this shift represents an opportunity to create innovative solutions.
Navigating Mixed Signals in the Market
The impact of inflationary pricing has left CPG brands navigating a fragmented market, with some categories experiencing declines while others show resilience.
In the UK, supermarket volume sales saw fluctuations throughout 2024. September recorded a 2.4% drop in supermarket sales volumes, the largest month-on-month decline for the year (ONS). However, by November, a modest recovery of 0.5% indicated that supermarkets played a role in stabilising sales (ONS). Meanwhile, in the US, private-label alternatives continue to capture market share, with 55% of consumers opting for these products in at least one category (Just-Food).
Yet, it’s not all decline for branded goods. Pockets of resilience exist, often in categories where innovation drives differentiation. For example, premium products that address evolving consumer priorities, like sustainability or enhanced functionality, are carving out success stories even in challenging conditions.
This dynamic landscape demands more than reactive strategies. It calls for CPG brands to anticipate and shape consumer needs proactively. By focusing on affordability, premium experiences, and sustainability, brands can turn these mixed signals into a competitive advantage, paving the way for long-term growth and renewed consumer loyalty.
In short, CPG brands need to start looking beyond the obvious.
Looking Beyond the Obvious with the Catalyx Innovation Triple Diamond©
To solve this challenge, brands need to move beyond reactionary tactics and adopt a consumer-first approach to innovation. This is where the Catalyx Innovation Triple Diamond framework becomes invaluable:
1. Identifying the Desire
What do consumers truly want? This step is about uncovering the unmet needs or desires driving behaviour. For example, in a post-inflation world, consumers may seek solutions that blend affordability with superior functionality or sustainability.
2. Building the Recipe
Once the core desires are identified, brands need to translate them into actionable platforms. Is the solution a new product, a service, or a go-to-market evolution? Using recipe cards, the Catalyx Innovation Triple Diamond ensures every idea is grounded in consumer insight and primed for success.
3. Creating the Product
The final stage validates the solution through rigorous testing and optimisation, ensuring it resonates with target audiences and delivers both emotional and functional value.
This structured yet flexible approach ensures that every innovation is primed for success, delivering measurable growth, increased loyalty, and long-term market leadership.
How Catalyx Helped Lavazza Innovate Its Way to Success
The successful U.S. launch of Lavazza’s ready-to-drink cold brew cans is a testament to the power of consumer-centric innovation. We played a pivotal role by identifying a growing consumer desire for organic, convenient, and premium beverages. This enabled Lavazza to create a product line that not only strengthened its market presence but also highlighted the importance of innovation in winning back consumer loyalty.
This strategic approach resulted in Lavazza’s ready-to-drink segment growing nearly 39% faster than the overall packaged coffee market, significantly increasing market share and strengthening brand positioning. You can learn more here.
This is the power of looking beyond the obvious. By addressing latent consumer needs and creating solutions that feel both familiar and fresh, brands can reinstate their position as category leaders.
What’s Next?
CPG brands are at a crossroads: continue relying on outdated strategies or lead the market with innovation that delivers meaningful consumer value. Winning requires more than just incremental changes, it demands a vision, direction, and measurable outcomes.
At Catalyx, we go beyond surface-level insights to craft end-to-end innovation strategies that work. Leveraging our proven Innovation Triple Diamond Diamond framework, we align every stage of the process, from identifying the initial consumer need to validating a market-ready solution, ensuring your innovations not only launch successfully but also create a lasting impact.
If you’re ready to redefine your market, Catalyx is your partner for success. We deliver more than insights, we craft solutions that position your brand to win. From concept to execution, we ensure your innovations deliver measurable impact and set new benchmarks for the industry.
Schedule a consultation today to create the innovations that will lead your category into the future.
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