Innovation and creativity will be key to the future growth of private label across the U.S., said Brian Sharoff, president of New York-based store brand trade group Private Label Manufacturers Association, during a presentation at private label food supplier Bay Valley Foods' Annual Leadership Meeting held in Chicago yesterday.

"In today's hyper-competitive marketplace, private label programs must go beyond the 'me-too' mentality that seldom ventures far from the standards set by the big national brands," Sharoff said. "Private label needs to focus more than ever on building a new product development capability that effectively responds to the changing needs of American consumers."

While this may require significant investments in production facilities, consumer research, and marketing, Sharoff said it is absolutely essential to capitalize on the opportunities in the marketplace.

"It used to be that manufacturers were preoccupied with product quality, making sure that store brand products were at least equal to the leading national brand competitor," said Sharoff. "This goal has now been accomplished."

The result: increased loyalty among store brand shoppers. A nationwide consumer survey conducted for PLMA revealed that 41 percent of shoppers identify themselves as frequent buyers of store brand products, and increase from 36 percent five years ago, and a huge jump from 15 years ago, when the figure was only 12 percent.

"To realize the full potential of store brands, manufacturers and retailers must become more innovative and creative," Sharoff said. "Some private label programs are already adopting this new approach. You can see it in Safeway's O organics and Eating Well health-oriented ranges, as well as Kroger Co.'s licensing agreement with Disney for children's products, and the steady stream of creative new food products offered by Trader Joe's."

There is likely to be a big financial payoff for those who take this approach, said Sharoff, citing a recent study by McKinsey & Co. that identified a group of best-in-class retail private label innovators and concluded that if other chains follow their examples there could be a massive $55 billion shift in annual sales to private label and away from national brands.

Such a shift has already occurred in Europe. According to PLMA, retailer brands there have made dramatic market share gains in recent years, climbing to 40 percent and above in Great Britain, Germany, Belgium, and Switzerland and to more than 30 percent in France and Spain. "In all these countries, retailers are investing heavily in new product development and marketing their store brands," said Sharoff.