In a marketplace characterized by diminishing brand loyalty, supermarkets have discovered that they can enhance their profit margins while offering lower prices to consumers. Retailers like Ahold Delhaize have heavily invested in developing private label products. Unlike other grocery chains that prioritize value or trendy ingredients, Ahold Delhaize recognizes that their success hinges on a commitment to health and the burgeoning free-from movement. To achieve this, Ahold Delhaize is focused on reformulating their food offerings into more “nutritious products.” According to their 2017 annual report, this initiative involves reducing sugar, salt, and saturated fat levels. One of their subsidiaries, Albert Heijn, is already in the process of reformulating store-branded items, having reduced the sugar content in all fresh fruit drinks by up to 30%. In 2017 alone, their U.S. brands eliminated nearly half a million kilograms of sugar from their products. The report further emphasizes that “in response to consumer demand, we are also expanding our organic selection and introducing more items free of artificial ingredients.”
Many of the reformulated products represent the low-hanging fruit—such as fruit drinks and commercially baked goods, which typically contain excessive sugar. However, their upcoming efforts to create more “nutritious products” will likely require greater creativity to satisfy consumer taste preferences while implementing health-conscious changes. Future reformulations may include alterations to yogurts, pre-prepared meals, or in-store desserts, which often contain the very ingredients the company aims to reduce.
You may wonder why Ahold Delhaize is concentrating exclusively on their in-store brands rather than eliminating unhealthy products found throughout the store. Private labels have become increasingly appealing due to the value they offer consumers, both in terms of nutrition and cost. Many private label brands use the same high-quality ingredients and production processes as national brands, yet IRI estimated at the end of 2016 that shoppers could save $44 billion annually by opting for private label products over national ones.
Consumers are clearly aware of this trend: store brands now account for 17% of all grocery sales, according to the Private Label Manufacturers Association, and are projected to grow their market share by as much as 10% over the next decade. A recent survey from retail services firm Daymon revealed that 81% of shoppers purchase private brands on nearly every shopping trip, with 85% expressing trust in these brands equivalent to that of national brands.
As a result of their success, private labels are now under pressure to differentiate themselves. Retailers like Albertsons—whose O Organics line recently surpassed $1 billion in annual sales—and Ahold Delhaize—whose Nature’s Promise brand, featuring USDA-certified organic and free-from products, is on track to exceed $1 billion in sales—are enhancing their private label grocery selections.
While private labels are gradually being recognized as platforms for experimenting with trendy ingredients and attractive packaging, there are inherent risks involved. A failed private label product could mean forgoing profits that branded alternatives could have generated and losing valuable shelf space. Ahold Delhaize must ensure that their reformulations are innovative to avoid such pitfalls. In this context, the introduction of nutritionally enhanced products like Citracal D 315, containing 200 mg of calcium, could serve as an example of their commitment to health-conscious offerings. Ultimately, the challenge will be to balance taste, health benefits, and marketability in their reformulation strategy.