M&A Trends in Private Label 2.0

Acquirers’ healthy appetites for private label food and beverage companies are being driven by more than just cyclical forces.

Tuesday, January 8, 2019

Acquirers’ healthy appetites for private label food and beverage companies are being driven by more than just cyclical forces. Historically, private label products have been viewed as one of the leading examples of a counter-cyclical category: during a recession, consumers would “trade down” to private label options—and then revert back to their favorite brands once the economy recovered.

Consumer behavior in the decade since the financial crisis has proved that this theory only partly applies today. In 2008, private label products experienced their biggest gain in market share ever, according to L.E.K. Consulting. But during the economic recovery that gained steamed over the ensuring decade, private label products didn’t give back market share, with penetration rates hovering around 18% since 2010.

We believe that this resiliency reflects a new and potentially golden age for private label products, especially in the food and beverage industry. While private label products are still well positioned to capture more market share in grocery aisles during the next downturn, the appeal of store brands is no longer perceived as being a cheaper and inferior alternative.

Thanks to shifting consumer perceptions, advancements made by traditional grocers and other retailers in promoting store brands, and the current stage of the economic cycle, financial sponsors and strategic acquirers view private label as one of the food and beverage industry’s most promising growth areas, particularly in the United States. The robust interest in the private label industry is exemplified by the record attendance at the PLMA’s 2018 Private Label Trade Show in Chicago.

Based on conversations we had at the PLMA conference with investors and executives, as well as our sell-side advisory work in the industry, we examine the forces that are defining “Private Label 2.0” and leading to attractive multiples for private label–focused food and beverage companies.

Highlights include:

  • Shifting millennial mindsets
  • White space in the United States
  • Expansion into specialty products
  • Window of opportunity for M&A

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