Slowing retail sales, cleaner products from Kraft-Heinz, and the rise of private label

0:28Every shopper is different. Each customer is unique. Treat them that way with Coveo, the AI relevance company.

0:43Hello, everyone. Welcome to the Modern Retail Podcast. It is our show that covers the ways the retail industry is changing and modernizing. I am senior reporter Gabby Barco, and I'm here with my co-host, Melissa Daniels. Hey, Melissa, how are you this week? I'm doing well. I'm looking forward to the summer solstice. Always a great event. Always a great time of year. How are you today? What's new? Yeah, no, same. I think, you know, we have somewhat of a holiday weekend. So I am excited to see some sun. It's been pretty gloomy here. But yeah, that's exciting. What do you do for the solstice? Do you like like I just always imagine you out in the desert under the moonlight and whatnot?

1:26Yeah, I mean, I should probably like charge my crystals and get a flower crown um you're so southern california yeah it is no there's there's so many good community events where i live right now because it's before things get super super hot so this is like our last sort of breadth of weather where it's high 90s early 100s before it's like 110 so think potlucks think you know outdoor parties in the in the dusk time yeah it's a beautiful time of year. There's a lot of stuff in bloom still, which explains why I probably sound like I have allergies. Cool. All right. Well, I got to see photos later, but let's get to the rundown portion of our show.

2:09So actually, first up, maybe we should give our listeners a little bit of a preview. We're both very excited about our featured segment this week, which is all about private labels or in-house labels or owned brands. There's a lot of different names for them now. Yes, we get into everything about store brands in a conversation with our fellow modern retail reporter, Julia Waldo. So excited for folks to hear that. But first off, we're going to do our weekly rundown. We've got a couple great topics today. We're going to talk about the main retail sales and then the latest on food brands removing artificial dyes from their products.

2:48Yes, there's some pretty big updates there that we'll be talking about. But yeah, let's dive into the May U.S. sales figures, which came in at like a decent level, I guess. A lot of experts were saying that essentially we haven't really seen the fallout from tariffs related slowdown. But obviously there's some caveats to that. So yeah, let's run through them now. Yeah. So if you were looking for, you know, a giant drop off in spending in May, that's not what we saw. Instead, we saw spending on retail and food service in May hit about$715.4 billion. That's a 0.9 % drop off from April, even though a lot of Wall Street types had expected it to be more like a 0.6 % drop off.

3:38And, you know, I think this was maybe surprising from a decreased spending standpoint because March and April had been relatively strong, right? I mean, We had seen some pull forward because people were stocking up on goods, thinking that tariffs are going to disrupt pricing. You know, spoiler alert, they have and they will continue to. But because some of that pull forward happened, I think it pulled away from May a little bit. Yeah. And this is the time of year that usually we're seeing, you know, beginning of summer sales, sometimes even like later in the year, like some people start to already shop for back to school.

4:15So yeah, with that said, I guess we could maybe talk a little bit about the different segments or different categories that we saw that were up. For example, I think apparel being up, even though it's just slightly, like almost a percent up from April, is pretty interesting because that's a category that has struggled for over, what, two years now? right yeah and I have to wonder how much of that is seasonally typical right because people sort of stocking up on their on their summer wardrobe uh summer vacation planning um you know I can't be the only person who loves to buy a new outfit before I go on vacation I feel like that's definitely a trend no I was definitely up late browsing bathing suits and have no idea where to start it's it's very confusing online oh man that's a pod for another day for sure it's a pod for another day.

5:08But yeah, I think a lot of people are definitely stocking up. We're seeing even some big ticket items, getting a little bit of a boost. Furniture, I know this is your area of expertise. That's also up from last year, which is good news for those brands. Yeah, the furniture sector in May was up 8.8 % from last year. Looking at five-month totals year to date compared to 2024. Furniture is up 6.8%. And that's really good news for a category that has had a lot of headwinds, right? We got into this on the pod last week with the housing market panel and folks from furniture brands sort of talking about how they're finding and keeping their customer, even though we don't have the typical housing turnover that generates big furniture spending.

5:55You know, they're leading into affluent customers, they're kind of expanding categories, you know, Paragold selling appliances now. There's just different things brands can do to kind of get customers where their needs are. Another thing that I think was interesting in the year-to-date numbers so far is that health and personal care is up 6.5 % year-over-year, year-to-date. So I feel like that's saying something about where this sort of wellness and better for you and longevity trends that we're seeing from a lot of brands, like that's really paying off, it looks like. Yeah, so I think this is a good time to zoom out and just get some takeaways and see how they are informing the upcoming months, right?

6:40I think June, this seems to be a pretty decent preview for what we'll be seeing, or it could, you know, maybe set us up for the actual slowdown. I feel like I personally can't tell when this sort of tariffs-related slowdown is going to come given all the pauses and changes in policy announcements. But yeah, what do you think? Right? Yeah, I mean, that's that's the sort of the name of the game right now, right? Is this quote unquote, uncertainty that everyone's experiencing? We don't know if a pause is gonna be unpaused, or if we're going to get a continuation of some sort, who's to say? But I think among, you know, shoppers, I think people are cautious, and rightfully so.

7:21Some new data from Wunderkind that came out this week showed that 58 % of shoppers feel pessimistic or cautious about the economy. And I think that's because they're seeing a lot of these headlines, you know, around prices potentially going up. Yeah, with that, I mean, what do you think this means for brands? Because we talk to them all the time, and it feels like every time they kind of get on track with navigating this, something new seems to fall out of the sky. So I think for planning purposes and going into now we're going into holiday planning, for example. I don't think some of these numbers are really that informative, maybe, or maybe they're not actually going to point us in the right direction for the second half of the year.

8:06So I guess that's sort of what I was alluding to earlier. Yeah, yeah, no, I think that makes sense. And I think if you know, there's a lot of brands that are looking at consumer sentiment right now, and adjusting their plans accordingly. They might be looking at marketing budgets differently. They still might be talking to potentially new suppliers so they can change what their own operational costs are. I think discounting and sales strategy is also continually going to play a bigger role for brands, right? What do their summer sales look like? And then what are their holiday sales going to look like?

8:41And how do you sort of meet in the middle there where it's prices that people can't resist and they're going to go for even though they are feeling a little economically strapped. Yeah. So I guess we'll probably find out more in the next round of U.S. retail sales for June. Now we can move on to our next topic, which is the latest round of brands that have pulled or announced that they are pulling artificial dyes from their products. This is largely, you know, the big CPGs. So you've got Kraft Heinz announcing this week that it will no longer launch any new products in the U.S. that contain food, drug and cosmetic colors.

9:25That's effective immediately. And then it's also removing any remaining artificial colors from the U.S. products portfolio by the end of 2027. These timelines are always a little stretched out. But yeah, we are seeing some progress there under this sort of new banner of make America healthy again, which is a topic I've been covering a lot in the last few months. Yeah. And then there's some other companies that have made some changes recently. What do you think? Yeah, I think this is big news in a way that we haven't even fully experienced yet on shelf, right? I mean, I think we've seen a lot of companies and startups come in saying, hey, this is a more natural product, no artificial dyes, this is a better for you swap ingredient.

10:12But I think there's still room for the big players to make that the default and not the exception, right? So I think Kraft Heinz doing this is really signaling something of a sea change. It's also interesting to note that currently almost 90 % of Kraft Heinz's U.S. products don't contain food, drug, or cosmetic colors. They've sort of already been slowly taking it out over the years. But that's why I think coming out and saying, hey, we're not going to do this across the board is a big deal. Yeah. So, for example, some of the products that still contain these dyes are under their desserts and beverage lineups.

10:51So like a lot of brands we all grew up with, you know, Crystal Light, Kool-Aid, Jell-O, Jet Puff. And then the other company that also made an announcement actually on the same day this week was General Mills, which is a huge one because cereal brands in particular tend to get a lot of the ire of, you know, parents or anybody else who I mean, obviously, including RFK Jr. who's talked a lot about Fruit Loop dye. So that's a pretty interesting one, too, I thought. Yeah. And, you know, this is something that you probably have more expertise than I do. But don't a lot of these companies sort of already know how to make their products without artificial colors because they've had to comply with regulations in other countries like in Europe?

11:38I feel like I've read about how, you know, there are certain things that they were only doing in the US. Yeah. So obviously in every market, these big CPGs follow whatever the local, you know, guidances are from health officials. So currently the FDA has 36 food color additives that it has approved, including eight synthetic dyes. But for context, you know, some of these companies make products for like Canada and the EU without these additives. So they use, you know, more natural hues made out of beets, radishes, algae, and even crushed insects, which make red dye. Yeah, I highly recommend going down the rabbit hole on that one.

12:26But yeah, I think, you know, they have the means. They obviously are already being proactive, I guess, about this. So we know that they are able to, they just, you know, haven't had to up until now, which brings us into the sort of law or legislative part of this, right, which is, I guess, a lot of the big push that the new administration has had. But I thought it was interesting that in this press conference from April, RFK Jr. said that we don't have an agreement, but we have an understanding after talking to some big food companies about taking out the synthetic dyes. So it seems kind of like this unofficial urge that the administration is taking.

13:11Yeah, I don't know. What are your thoughts on that? I mean, I guess in a way there are some, you know, we saw, for example, the red dye three announcement in January. That was a really big one. You know, the fact that it's being banned by 2027. But there are still a lot more synthetic dyes and additives that are still allowed. Yeah, yeah. Yeah, I still think, you know, this is my hot take that we're still just sort of at the beginning here of where this all goes. You know, here in California, the governor already signed an executive order this year targeting ultra processed foods. And that hits on some of these same topics as far as, hey, what ingredients and artificial additives are in foods and how do we get them out?

13:56And I think that's a conversation that's going to continue not just at the FDA, but also in state legislatures. And, you know, it's kind of incumbent on the private companies to act before they have 50 different sets of state laws to follow. Right. I think sometimes some of these things are like harbingers of regulations to come that the industry sort of manages to dodge by getting ahead of it. So I think that's one way this could play out. And I think there's already a lot of companies out there, you know, kind of gunning for the big guys. as far as trying to make cleaner and healthier products that don't have artificial ingredients in them.

14:32But, you know, the big guys with the resources are probably still going to be the ones who manage to do it at the biggest scale and, you know, arguably most effectively. Yeah, there's been some other interesting announcements lately. PepsiCo, for example, in the last month or two announced that on its earnings call to shareholders that it has already begun phasing out artificial colors. In-N-Out, which I thought was an interesting one, also announced it's taking dyes out from its menu items. I didn't even know they had them, but I guess that's good news. So yeah, many US food companies are already reformulating, like we said.

15:11According to Sentient Colors, which is like a big producer of food dyes, this is already taking place. It's underway. So I think we'll probably end up seeing a lot more of these announcements in the next few months to a year or whatever the timeline is going to be. Yeah, we should start building a timeline. I feel like that would be something fun to have for our own resources. Yeah, I'm down. All right. Well, let's move on to our featured segment where We'll be talking about more food and beverage, actually. So please stay tuned after the break. But yeah, we'll give you a little bit of a preview here.

15:50Yeah, you mentioned this at the top of the episode. We get into all things private label with our co-worker, Julia Waldo. We go over what's happening on grocery shelves, in the personal care aisle, in the home goods aisle, and with apparel and footwear. And one of the biggest takeaways for me is that not only are store brands really having a moment because people are trying to save money, but store brands are really kind of looking to elevate themselves. Sometimes now the store brand becomes a trend in and of itself, or it takes off in a way that a name brand hasn't. And so, yeah, a lot of really interesting findings.

16:26And I hope people can, you know, reflect on their own favorite private label as they listen along. Yes, this topic has ignited a lot of passionate respond, let's say. I think We learned a lot about people having loyalty, weirdly, to private labels, which I think 20 years ago would have been unheard of because they were seen as sort of an afterthought or lesser than. Now they have their own following. So, yeah, stay tuned.

17:05Your site looks great. Your product catalog is deep. But if shoppers can't find what they want, they won't convert. That's not a design problem. It's a relevance problem. Coveo's AI search for commerce delivers true relevance. Learning from every click to show the right products to the right shopper at the right time. The result? Higher engagement, more conversions, more revenue. Visit coveo.com slash commerce to see how it works. More relevance, more revenue. With Coveo, the AI relevance company.

17:47You're probably used to seeing private labels by now. It's the quote-unquote store brand equivalent of a name brand, usually made by a third-party manufacturer. These are also known as in-house brands or owned brands. Usually you'll see these items side by side on the shelf, and it's a bit cheaper, and that's the whole play. Private label is a more affordable, no-frills product of the leading name brands. But now, private labels are having a moment. Retail giants aren't just making their own store brands anymore. They're putting out multiple private labels to meet different customer segments and demographics, and from what we've been able to tell, they're seeing major results.

18:26So today, with me, we have Gabby Barco and Julia Waldo. So we're going to talk about why private labels are becoming a bigger force in the world of retail, why they're taking off, and how they're resonating. As someone who hates paying full price for anything and is always looking on a discount, I've been so eager to do this segment with you all. We're specifically going to talk about what's happening in the grocery category, the household essentials category, and the footwear and apparel sector. First, I'm going to hand it off to Gabby, our CPG expert, And she's going to give us a lay of the land on private label.

19:01Any thoughts, Gabby, on why you think private labels are doing so good right now? Yeah. So in food and beverage in particular, or grocery, if you will, there's a couple of different factors that have contributed to their explosion. And this has been happening for a few years. I feel like COVID was a big turning point for people when quote unquote name brands weren't available on shelves. So people were just kind of experimenting by trying out different brands, including store name brands. There's that. And then obviously the economic factor. They are they tend to be a little bit cheaper. But to me, the biggest one is actually how elevated they've become just because retailers have actually invested a lot in them in the last few years.

19:49I'm sure most people are familiar with Target, Costco. these brands have like cult followings like people actually go specifically seeking out Kirkland of Costco and I think a lot of retailers notice this and we're like wait let's get in on this because guess what it's also really great margins for the retailers because they can kind of just control manufacturing co-packing and whatnot and they're able to sell it at the prices that they set. A lot of it is basically like contracts with some of these co-manufacturers. So there's a lot of industry secrets that, you know, they won't disclose who they're making it with.

20:32Oftentimes it is in pretty much the same factory as the name brands. Other times, you know, maybe with their own separate co-packer. But yeah, it's pretty opaque actually, which is why we don't know too much about the operation. That's a great overview. And it just kind of reminds me that when retailers are making their own versions of products, it's kind of a way for them to navigate volatility and keep up with the trends, right? Gabby, talk to me a little bit about the world of stores that sort of specialize in store brand and private label. I'm thinking about like Trader Joe's and all these.

21:09Yeah. So these are, I guess, a little bit of a caveat, right? Because they are retailers that pretty much most of their assortment is their own labels. They're like white labeling. that's another name for it basically maybe sometimes going to the same exact manufacturer as the name brands and just making their own versions of it under their own brand name in the case of trader joe's like 77 percent of their sales come from their private label and these include all the like international fund names they've come up with for their products like you've got trader jose which is like the mexican line trader mings which is the asian brand and And then you've got Trader Giotto.

21:52Sorry, I tried. And these, you know, of course, I think some of these have been memed and actually kind of criticized, too. That's a different topic. But yeah, I think 77 % tells you that there's very little name brands at Trader Joe's. And I think most of them probably know them at this point. Costco, on the other hand, like 31 % of their sales come from Kirkland. You guys probably have a lot of thoughts about Kirkland, right? everybody talks about the gray goose dupe that they make. Yeah, I love Kirkland. Actually, my roommate and I, we got a Costco membership recently. We got 30 rolls of Kirkland toilet paper for a very low price, and that was a steal of the century.

22:34So yeah, I'm a big Kirkland fan. Yeah, I'm a big Kirkland fan too. One thing that I've been buying lately is their extra virgin an olive oil that I think a lot of people really love. And I have a nice little glass oil decanter thing and I dump the olive oil into my glass jar and I feel very luxurious and like I'm a home influencer every time I decant my olive oil. Yeah, that one has a pretty big cult following online and amongst home cooks. But then, yeah, let's talk about maybe some of the other retailers that are catching up most recently. Walmart, which is now already at 26 % of their sales is their own brands.

23:15But they've really only started investing in private label like in the last few years. So they've got Better Goods is the new one. I'm sure you guys are hearing a lot about it. That's like their sort of like elevated pantry food line that is apparently really popular among like higher income households, which Walmart has been attracting in the last year or two. But they said Better Goods, which has like everything from plant based milks to gluten free pasta, has a 46 percent repeat rate. That's pretty good. Means people really like it. Walmart, in this case, is taking a page out of Target's playbook, right, which is like building this suite of in-house brands.

23:59Speaking of, let's talk about Target. I feel like this one is going to be a doozy, right? Because we all have a lot of thoughts. Yeah. I mean, for me, when I think of Target private label, I think of up and up paper goods. And in the more grocery category, I think of Market Pantry, Good and Gather, and now Favorite Day is one of the newer ones. But it's something we've seen a lot from Target in the last few years, them really investing in private label and coming up with new plays there. From my perspective, They really excel in the sweet treat area. I feel like every time I am cruising a Target grocery aisle, I might walk out with some sort of like Good and Gather cookie bar or some sort of favorite day trail mix that has chocolate in it.

24:43You know, like for me, it's kind of like an add on. It's not necessarily something I'm looking at to sort of dupe a name brand, but I have kind of gone to them for their more novelty items. What about you guys? Any Target private label grocery hacks? Yeah. I mean, I love their like frozen fruit that they have in terms of their, you know, Ziploc baggies. I know you mentioned, Melissa, their paper towels. You know, I'm a big fan of their version of Kleenex. I just feel like they are really good quality and honestly, just as good to me as some of the name brands. And, you know, for me, if I can definitely save some money, you know, by getting those, then I'm super happy to do it.

25:21And I mean, even in the home category too, like with room essentials, that is a category that I really love at Target. Like I remember when I was in college, so much of the stuff that I was getting from Target was room essentials branded like sheets and trash cans and even like cups and bowls and things like that. So I think they do a really good job of, you know, marketing around these products, but also like making products that are interesting and fun and like brightly colored and that people will actually want to use. Yeah, I think a great example when I say elevated is it's not just like essentials anymore, right?

25:55I think that's like the big theme we're trying to hammer. I mean, Favorite Day has a high protein ice cream now. It's basically their Halo Top dupe. The only thing with Target though is I'm like, they're actually not that much cheaper. So that must be kind of the big caveat there, right? Like it's not like it's half the price of a Halo Top. But you know, it's an option. I'm not sure how many people are going for it, But they're really going deep on developing the products. And that's something that I think Target has really, I wouldn't say pioneered, but really has invested in for more than a decade.

26:31I think Up and Up launched in 2009, to give you context. So as far as, you know, a big box retailer that has created a lot of their in-house labels, they're known for this. We'll talk about it a little bit more later, but I think apparel is another big one for them. That's Target for you. You know, Gabby, I really like this point you've been making about how private label can somehow feel more elevated. You know, I saw a numerator survey recently that said about 60 % of people who buy private label do so because it's a better value. And about 40 % say they buy private labels so they can save money.

27:08So it's kind of like holding two things. Not only are you saving money, but where does this feel like I'm getting a better product or a better value? And Julia, you kind of touched on some of that in what you were explaining about your college dorm purchases. I think we all have those memories. Because it's not just grocery items that are private label, right? It's also everything else in the store. And we've actually seen more brands lean into private labels for personal care and household items lately. One thing that was really interesting to me lately was when Michaels brought Joanne's private labels recently, there was an acquisition of Joanne Fabrics IP.