While private labels are thriving for large retailers, the infrastructure and investments required to succeed in this space make it a challenging endeavor for smaller players.

Walmart recently posted impressive quarterly numbers, attributing a 6% boost in sales to its private label brand, Better Goods. This success follows a familiar retail story: giants like Walmart, Costco, and Whole Foods—with their iconic 365 line—make private labels look easy and exceedingly profitable. However, while Better Goods has made waves, the larger question remains: Can smaller retailers replicate this success, or is Walmart’s triumph an anomaly?

The Rise of Private Labels

Private labels aren’t new. Historically, they have served as budget-friendly alternatives to name brands, but they’ve evolved significantly in recent years. Once synonymous with generics, private labels now often embody quality, innovation, and even prestige. According to NielsenIQ, private label sales grew by 8.2% in 2022, with products like grocery and household essentials leading the way. These brands now account for an estimated 26% of total grocery sales, underlining the growth and appeal of the sector.

But even in a market ripe for private labels, what works for industry giants won’t necessarily work for smaller players. Large retailers possess resources, infrastructure, and buying power that small brands can only dream of. To succeed in the private label world, a retailer must invest significantly in supply chains, marketing, and product development—all of which require considerable capital.

Walmart’s Strategic Move with Better Goods

Walmart’s Better Goods brand, launched in 2023, embodies this strategy. After a notable 23% decline in operating income, the retail giant needed to rethink its approach. The solution came in Better Goods—a high-quality, affordable line of products designed to appeal to consumers seeking gourmet options at a budget-friendly price. In a move that capitalized on plant-based and “Made Without” offerings, Walmart positioned Better Goods as both premium and accessible, with most items priced under $5.

As Scott Morris, Senior Vice President of Walmart’s Private Brands for Food and Consumables, stated: “Today's customers expect more from the private brands they purchase—they want affordable, quality products to elevate their overall food experience.” Walmart’s scale and ability to distribute products at lightning speed were pivotal to Better Goods' success. But that same infrastructure is not readily available to smaller retailers looking to tap into this lucrative market.

Why This Strategy Won’t Work for Everyone

The path Walmart took with Better Goods might not be replicable for many smaller retailers. Private label development requires robust supply chains, a clear brand identity, and effective innovation. A McKinsey study found that brands able to leverage innovation in private labels—through better product design or improved packaging—outperformed their competitors. However, for smaller brands lacking resources to innovate at scale, this can be a daunting challenge.

What we’ve found time and again with clients is they face a harsh financial reality: the costs of launching and maintaining a private label can be daunting. For instance, Walmart can afford to allocate up to 15% of its budget to new product lines. For smaller companies, such an investment could be out of reach, making it more difficult to compete effectively.

The risks are real: a study by IRI revealed that while private labels in categories like grocery and household goods can see a growth rate of 10-15% annually, this growth is largely driven by retailers with the scale and infrastructure necessary to support it. Smaller players, lacking these resources, may see slower growth or even failure.

What’s Next for Private Labels?

The question remains: will private labels continue to thrive in 2024? For Walmart, the success of Better Goods is a testament to what can be achieved with the right combination of market insight, resources, and strategic planning. But for smaller brands, the road is much rockier.

This conversation shouldn’t be about whether private labels are inherently good or bad; it’s about whether your brand is prepared for the investment required. Smaller players need to assess whether they have the infrastructure, marketing muscle, and financial capacity to build a successful private label offering—or if they’ll be stretched too thin trying to keep up with the big players.

So, before you dive headfirst into the private label game, ask yourself: Are you ready to make the necessary investments, or are you merely mimicking a trend without the resources to support it?

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