Private Label Reckoning: A New Playbook for National Brands

For most of the past three decades, private label followed a script everyone in this industry could recite from memory. Store brands hovered somewhere between 14% and 17% of the grocery market, ticked up a point or two whenever the economy soured, and retreated once national brands rolled out enough promotional spend to win shoppers back. It was a predictable rhythm: recession, trade-down, recovery, clawback. This pattern has held for decades.

That rhythm is gone. Private label share didn’t retreat after the disruptions of the early 2020s; it kept climbing through 2024, 2025, and into 2026, and in a growing number of categories it’s now sitting comfortably in the low-to-mid 20% range. This isn’t a temporary reaction to inflation. It’s a structural realignment of who consumers trust, what retailers are capable of producing, and how the supply chain behind the grocery shelf operates. Retailers have stopped treating their own brands as bargain-bin filler for the most price-sensitive shopper and started running them as category leadership plays, backed by real data, agile manufacturing partners, and formulations that hold their own against anything a national brand puts out.

The old stigma is gone, too. And as the U.S. grocery market starts to look more like Europe, where private label routinely clears 30% of the grocery basket, national brands are facing a question that doesn’t have an easy answer: how do you win back share in a market where the consumer, the retailer, and the manufacturing base have all changed underneath you?

The response taking shape across the industry is not a single strategy but a portfolio of strategies: aggressive SKU cuts, heavy investment in automation, dual-track manufacturing arrangements, and a wave of acquisitions aimed squarely at premium, insurgent brands. What follows is a look at how we got here and where the smartest national brands are placing their bets.

The Numbers Behind the Shift

The scale of this move is hard to overstate. According to Circana and the Private Label Manufacturers Association, U.S. store brand sales hit an all-time high of $282.8 billion in 2025, up more than $9 billion from the year before. The momentum that built during the early 2020s clearly hasn’t run out of runway.

What should worry legacy CPG leadership more than the topline number is the growth rate relative to their own. Store brand dollar sales grew 3.3% in 2025, nearly three times the 1.2% growth posted by national brands. And this wasn’t just pricing doing the work: store brands added 434.3 million units, for a 0.6% unit-volume increase, while national brand unit volumes actually declined 0.6%. That’s not two categories growing at different speeds. That’s a direct substitution effect: shoppers picking up the store brand instead of the name brand, one trip at a time.

Primary Drivers for Brand Switching

Zoom out to a five-year view and the shift looks even more decisive. Between 2021 and 2025, store brand dollar revenue grew by $64.8 billion, a 30% increase, pushing dollar share from 19.1% to 21.3%. Unit share climbed from 21.6% to 23.5%. And the growth isn’t concentrated in one or two commodity aisles; it’s spread across nearly every department in the store.

Source: Circana Unify+ / PLMA 2026 Private Label Report

Refrigerated is the one that should get the most attention in a boardroom: store brands already control nearly 39 cents of every refrigerated dollar spent. That’s not a fringe category anymore. That’s the center of the store.

Europe Shows Where This Is Headed

If 21.3% feels like uncharted territory domestically, it looks almost modest next to Europe.

NielsenIQ’s most recent reporting puts total private label sales across 17 monitored European markets at €387 billion, or 38.8% of the total grocery market. Twelve of those markets already sit above 30% private label share, and eight have crossed 40%. Switzerland leads the continent at a striking 52.4% value share, more than €14 billion in a single country.

The European data matters because it puts to rest any assumption that private label has a natural ceiling around 20%. It doesn’t. Given supply chain efficiency, sensory parity, and consistent quality, European shoppers have shown they’re comfortable putting a third to half of their grocery spend into non-national brands. There’s no obvious reason the U.S. consumer behaves differently once the same conditions are in place. And those conditions are increasingly in place.

The Perceptual Battleground

National Brands still dominate in “Innovation” and “Trust,” but Private Labels have achieved parity in “Convenience” and “Functional Quality.” The biggest risk lies in the narrowing “Aesthetic Gap.”

A Consumer Reshaped by a K-Shaped Economy

A genuinely bifurcated consumer is driving the private label surge in the U.S., the kind of split economists have come to call “K-shaped.” Lower- and middle-income households, squeezed by years of cumulative inflation, elevated housing costs, and wages that haven’t kept pace, have shifted into a defensive, price-first posture. This isn’t experimentation anymore. For a large share of shoppers, buying store brand is simply what balancing the household budget requires. In recent national surveys, 82% of consumers say high prices have fundamentally changed how they shop, with trading down to store brands sitting alongside coupon use and sale-seeking as the primary coping mechanisms.

The interesting part is what happens after that trade-down. Once price-sensitive shoppers actually try the private label option, many discover the quality gap they expected simply isn’t there anymore. Globally, 68% of consumers now consider store brands a genuinely viable alternative, and 69% see them as offering better value for money. In Europe, 55% of shoppers say they’re buying more private label than ever, describing it as a smart choice rather than a compromise.

At the other end of the spectrum, higher-income households (insulated by asset gains and largely indifferent to price on individual items) are behaving in a way that’s arguably even more damaging to national brands. Call it the unscripted consumer: someone perfectly willing to buy the store brand paper towels or canned vegetables in order to free up money for a splurge on a premium functional beverage or an artisanal snack. It’s trading down and trading up simultaneously, and it starves the mid-market national brand of volume from both directions at once.

The Loyalty That Isn’t There Anymore

Layer a generational shift on top of the economic one, and the picture gets more difficult still. The old CPG model depended on inherited brand loyalty: you bought the detergent your parents bought, largely without thinking about it.

That inheritance has essentially broken down. Fifty-nine percent of Gen Z shoppers and 52% of Millennials say they’ve increased their private brand purchases over the past year, compared to 49% of shoppers overall. These are the two cohorts that should worry legacy brand teams the most, because they’re not shopping out of necessity. They’re shopping out of preference.

Younger consumers care about ingredient transparency, sustainability, functional benefit, and a brand’s ability to show up authentically online, and they don’t assign extra credit to a legacy logo for simply having been around a long time. When Target launched Dealworthy or Walmart launched Bettergoods, younger shoppers didn’t file those away as inferior generics. They treated them as modern, well-designed products built for how they actually want to shop.

The Pricing Trap

Faced with all of this, most legacy CPGs spent the years after 2020 leaning on the one lever they had full control over: price. And to be fair, it worked for a while. Earnings improved even as unit volumes softened, which tells you plainly that not every price increase was strictly necessary to cover input costs. But that lever has reached its limit, and the evidence of the snap-back is now sitting in quarterly earnings reports across the industry.

Kraft Heinz posted a full-year 2025 net sales decline of 3.5%, with organic sales down 3.4%.

The result was a $4.7 billion operating loss, driven heavily by $9.3 billion in non-cash impairment charges against stalled brand assets. The company has since committed $600 million toward commercial levers aimed at stabilizing the business and getting back to what it’s calling “profitable growth,” corporate language for admitting the old approach stopped working.

PepsiCo has made a similar reversal under pressure from activist investors and its own declining volumes, moving toward price cuts and “everyday value” positioning on its more affordable tiers. General Mills leadership has been equally candid, acknowledging that price alone can’t carry growth without real reinvestment in product quality, brand campaigns, and category renewal.

The lesson every CPG boardroom is absorbing right now: once a shopper builds the habit of buying the store brand (and discovers it’s just as good), winning that customer back becomes expensive in a way that no promotional calendar can solve. Discounting your way out of a structural shift doesn’t work. It just delays the reckoning and burns margin along the way.

Cutting Back to Move Forward: SKU Rationalization

If national brands can’t win a price war against a retailer that controls its own shelf, and they’ve run out of room to raise prices further, the next lever is internal: cut the fat and redeploy the capital.

For years, CPGs chased incremental growth through endless line extensions: new flavors, seasonal packaging, and minor size variants. It left most portfolios bloated and expensive to run. In a market where private label offers a lean, fast-moving alternative, that same SKU sprawl has flipped from a growth strategy into a liability. PepsiCo is cutting 20% of its soda and snack SKUs in the U.S. by early 2026. Nestlé walked away from roughly $750 million in revenue tied to underperforming, discontinued items between 2022 and 2024 to simplify its supply chain. Reckitt went further still, spinning off entire legacy home-care lines (Air Wick, Woolite) to concentrate resources on core brands like Lysol and Mucinex.

The real value in this isn’t just a shorter shelf set. Removing low-velocity SKUs eliminates the need to coordinate separate inbound shipments, reduces line changeover time, cuts warehouse carrying costs, and lowers the odds of stockouts on the products that actually move. It also simplifies forecasting, since fewer near-identical items are confusing the fulfillment process. Retailers see the same benefit on their side: Dollar General has cited SKU reduction as a straightforward win for revenue per square foot, and Bath & Body Works exited entire underperforming categories to simplify replenishment.

Here’s the part that catches some companies off guard: rationalization gets more expensive before it gets cheaper. Redesigned packaging means new plate costs, qualification testing on updated substrates, and minimum-order surcharges on formats that haven’t yet reached full volume. The real savings show up in year two, once the leaner portfolio is running at scale on more automated lines. But the payoff is real: freed-up working capital, trade spend, and marketing dollars that can be redirected to defend the highest-margin items that remain.

The Automation Arms Race

Surviving margin pressure from private label ultimately comes down to becoming a genuinely world-class cost-cutter internally. With raw material costs still volatile and labor tight across most developed markets, automation is the single most reliable lever available. The global food robotics market was valued at $3.1 billion in 2025 and is projected to reach $13.2 billion by 2035, a 15.7% compound annual growth rate. This isn’t optional spending; it’s the price of admission for competing on cost against a vertically integrated retailer supply chain.

The investment isn’t limited to end-of-line palletizing anymore. It’s showing up upstream, in autonomous crop-weeding robots (a market projected to hit $6.6 billion by 2036) that shift weed management from manual crews to vision-guided field platforms, reducing herbicide dependence and softening the agricultural labor shortages that push up raw commodity costs. It’s also showing up on the plant floor, where collaborative robots equipped with AI and machine vision now handle precision portioning, real-time defect detection, and delicate handling of perishable products at speeds and error rates no human crew can match, all while meeting the stringent hygiene standards required under FSMA.

Companies deploying this kind of capital are reporting gains of 25% to 30% in line efficiency and cycle time. Beyond the direct cost benefit, it creates something close to a technological moat: smaller regional brands and lower-tier private label manufacturers typically lack the capital to invest in multi-million-dollar automated cells, which leaves only the largest national brands and the top-tier co-manufacturers able to compete on pure operational efficiency.

Moving Upscale: Premiumization, Nutrition, and M&A

If national brands are conceding the price-sensitive shopper, their clearest path forward is to fight where private label supply chains still struggle to keep pace: deep formulation science, targeted functional nutrition, and fast, disciplined M&A.

The GLP-1 wave has accelerated this shift considerably. As daily caloric intake drops among active users of weight-loss medications, demand for nutrient-dense, high-protein, high-fiber food has surged. Costco has noted that “anything protein,” including its own private label beef sticks, is moving in real volume on the back of GLP-1 demand. Meijer has called out fiber intake specifically as a breakout consumer priority and expanded its store brand assortment accordingly. Retailers are moving fast here, which puts pressure on national brands to move faster.

This is exactly the kind of formulation challenge legacy R&D budgets are built for. Producing a shelf-stable, high-protein, clean-label product without artificial dyes or seed oils takes food science that most private label co-manufacturers can’t replicate overnight at scale. Investors focused on the food sector have started evaluating companies against what’s sometimes called a nutrition maturity curve, a useful lens for thinking about where a brand’s R&D posture actually sits.

The other lever, and arguably the faster one, is acquisition. Legacy portfolios skew heavily toward processed staples, and organic reformulation is often too slow to keep up with shifting consumer demand.

So the largest conglomerates have effectively started acting as venture investors, buying up “insurgent” brands: agile, often founder-led companies generating $10 million to $25 million in revenue that have found real traction by solving a consumer need authentically. Despite representing under 1% of total food-sector market share, insurgent brands captured nearly 39% of incremental category growth in recent tracking periods, and, notably, almost all of that growth came from actual volume expansion rather than price, with unit volumes up close to 60% year-over-year. PepsiCo’s $1.95 billion acquisition of prebiotic soda brand Poppi and $1.2 billion purchase of Siete Foods are the clearest recent examples of this playbook in action: buy the high-income, brand-loyal consumer that’s already walked away from the legacy shelf, and let private label have the commodity floor.

The Co-Manufacturing Boom and the Rise of Dual-Track Production

This is where the industry looks the most different from a decade ago, and it’s the part I spend the most time thinking about, given where our own work sits. The global food contract manufacturing market was valued at $176.7 billion in 2025 and is projected to reach $388.7 billion by 2035, an 8.2% CAGR. What used to be a battle over shelf branding has quietly become a battle over manufacturing capacity.

As retailers scale their store brands, they need reliable, high-volume production that meets increasingly demanding quality and ESG standards. That demand has pulled top-tier co-manufacturers and private equity capital deep into the sector. What’s emerging in 2026 is a pattern of exclusive production agreements, where large retailers lock up the best available capacity through multi-year contracts. That creates a real production moat: a mid-tier national brand looking to launch a competitive response may find that the best external manufacturing lines are already spoken for by the retailer itself.

Source: 2026 Industry Outlook, Grocery Trade News

Private equity has been an active driver of this build-out. Firms like Entrepreneurial Equity Partners have recognized that CPGs are outsourcing manufacturing at record rates, and their investments (in companies like Furlani Foods, MBC Companies, and Bil-Jac) reflect a clear thesis: build automated, world-class production capacity that can serve both branded and private label customers simultaneously. One level down the chain, contract packaging is growing at an even faster 11.9% CAGR and is projected to reach $130 billion by 2028. For national brands, handing volatile or seasonal SKUs to a co-packer converts a fixed cost into a variable one, which is exactly the kind of flexibility a brand needs when it can’t predict demand a year out.

All of which brings us to what’s probably the most pragmatic response in this whole playbook: dual-track production. Rather than treating private label purely as a competitor, a growing number of national manufacturers are using their own excess capacity to produce it. Post Consumer Brands is a good example: alongside its branded cereal lines, it produces bulk granola, private label pet food through Perfection Pet Foods, and store brand cereal using the same manufacturing expertise that built its own brands. Seneca Foods manages nearly 20% of the U.S. vegetable pack, converting raw crop into shelf-stable inventory for national brands and private label retailers alike.

It’s not a strategy without friction: manufacturing a retailer’s store brand does cannibalize your own shelf volume to some degree, and it requires real discipline around capacity allocation, margin structure, and where the innovation pipeline goes. But the logic is hard to argue with: if that volume is leaving your branded shelf regardless, it’s better to capture the manufacturing margin and keep your factories running at full utilization than to hand the entire sale to a competitor like TreeHouse Foods.

Fighting Smarter, Not Just Louder: Precision Revenue Management

Longer-term structural moves aside, national brands also need to change how they fight for the sale at shelf, right now. Broad, deep discounting has never been a healthy long-term habit: it erodes brand equity and trains the consumer to wait for the promotion before buying at all.

The better path, and the one gaining real traction, is precision revenue growth management. Instead of a blanket 20%-off tag, brands are using loyalty data and machine learning to identify specific households with a high propensity to switch back from private label, then targeting them with personalized digital offers rather than store-wide discounts. That’s a fundamentally more efficient use of promotional dollars: it protects margin on shoppers who were never going to switch anyway while spending real money only where it can change behavior.

Alongside that, brands are running ground-up reviews of price-pack architecture: adjusting sizes, testing new configurations, and hitting psychological price points that fit tighter household budgets without inviting a direct comparison to the store brand sitting next to it. And while price-sensitive shoppers generally won’t pay a premium purely for sustainability credentials in a tough economy, clear communication around sourcing and packaging still functions as a tiebreaker at the shelf. It’s the kind of emotional connection a purely functional, price-driven private label product struggles to build.

Where This Leaves National Brands

None of this points to national brands universally winning or universally conceding. What’s emerging instead is a segmented, deliberate triage.

They’ll concede the commodity floor. Low-margin, undifferentiated staples are increasingly not worth fighting for against a vertically integrated retailer that controls the shelf outright, and SKU rationalization reflects that reality already playing out.
They’ll hedge through coexistence. Dual-track manufacturing means a meaningful share of national brand infrastructure quietly produces the very store brand products competing against it, capturing the manufacturing margin, keeping factories at full utilization, and staying embedded in the retailer relationship even as branded volume slips.

And they’ll fight hard for the premium ceiling. With capital freed up by SKU rationalization and cost structures improved through automation, the brands that survive this transition are acquiring agile insurgent companies and investing seriously in food science: mapping their portfolios against GLP-1 companion products, fiber-forward formulations, and clean-label functional ingredients to build the kind of moat private label can’t easily cross.

The national brands that come out the other side of this will look different than they did a decade ago, with a smaller physical footprint on shelf but leaner, more automated operations built to defend the premium end of a market where private label simply isn’t going anywhere. In turn, this will have profound implications on the external manufacturing ecosystem. We will dig deeper into that in a later paper.

Carl Melville is the founder and managing partner of The Melville Group (TMG) and founder of CoPack Connect, an AI-enabled sourcing platform connecting brands with external manufacturing partners. He has spent more than two decades working alongside food and CPG manufacturers navigating this shift.