The successful strategies of several large, high-performance retailers could trigger a seismic shift in the private label marketplace, giving it an unprecedented 26 percent of dollar share and $55 billion in annual sales from national brands, according to a report from McKinsey & Co., a privately owned management consultant firm.

Several retailers “have successfully used private label as a key differentiator and to build consumer loyalty,” according to the report. Together, these private label leaders have an average private label dollar share of 22 percent, well above the industry average of 16 percent. They also have posted higher levels of overall sales growth versus non-leaders (5.3 percent versus 3.4 percent in the last three years).

Trailing the pack is a set of retailers that remain focused on national brands and have a private label dollar share of about 11 percent, the report said. If they begin to emulate the private label share leaders and pump up their store brands, however, they could put $55 billion in annual sales up for grabs. If retailers do go after the value at stake, the report suggests, store brands’ dollar share could climb to 24 percent by 2016.

A shift of this magnitude is consistent with the experience of store brands in Europe, according to McKinsey. “In the 1990s, as many European retailers began to understand the impact that private label could have on their business, private label share more than doubled in several major markets.” 

The report singles out Tesco, a retailer in the United Kingdom, which increased its private label share by 3 percent annually—from 21 percent to 34 percent—over four years.

The success of private label in Europe has made an impression on U.S. retailers. “In our interviews—and in public statements—current share leaders and private label ‘up and comers’ share the aspiration to reach dollar share levels and growth consistent with the European leaders,” the report said. [January 2008 PET AGE]