Retailers are significantly growing private label shelf space and share by leaving only the strongest CGP brands to pull in traffic, then trumping the CPG efforts with increasing price differentials between CPGs and private labels.

So, who wins and who loses with this scenario?

• Private label manufacturers continue to grow with little to no investment cost beyond expanding their manufacturing bases and associated costs with fulfilling new orders.
• Consumers get better prices, less selection and arguably lower quality.
• CPG companies are left with the privilege of funding a long term strategic shift that ultimately leads to overall category compression. Even if they win, their vitality in the category has to be questioned.
• Retailers get simplified shelf sets that lead to lower overall costs and better margins. But under a hyper compressed version of this model in the US, only Walmart wins. Here's why;
  

If a CPG wins a category "jump ball" because they spend more money on marketing to drive customers to a retailer's shelf, cut their margins in exchange for greater volume, and then find themselves sitting on the shelf as the only name brand next to a private label, with more "jump balls" on the horizon, over time the effort isn't worth the spend.

What's a CPG company to do when it's category is under the microscope with a major retailer?

The logical solution is to pick and choose their best retail customers and retool their models based on profits vs. share and volume.
The millions of dollars that must be spent to maintain a retail client, with the on-going chance of getting d-listed, can be better spent growing profitable businesses elsewhere.

As this trend continues, CPG companies will have more lessons under their belt and will begin to pick and choose the battles they have the highest probability of winning. In a perfect retail scenario many categories will become exclusively private label and CPG brand margins will be squashed.But if that continues as a trend over the long haul in the US, Walmart wins all the business away from other retailers, because other retailers cannot compete against their volume and purchasing power.

What other differentiators are out there that a retailer can use to survive against Walmart?

Quality, Selection, Service, Location and Technology.

Smart retailers are now considering the overall health of their shelf set and partnering with brands to solve their biggest challenges. Those that don't, and simply follow the private label, price compression model are signing themselves up for a challenge they cannot win, unless they can trump Walmart on service, location and technology.

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