From infant diapers to razor blades, private label consumer goods are booming online and represent a very real threat to established national brands. Not all categories, however, have been equally affected by online retailers’ never-ending search for sales growth and higher profit margins. Case in point: vitamins and health supplements.
Across the leading online retailers, this $2.6 billion industry is led by national brands such as Now Foods, Garden of Life, and Nature’s Made, but is incredibly fragmented. No brand garners more than 6% market share and the top 10 brands account for only 28% of total sales. Low barriers to entry, high profit margins, and unlimited shelf space have led to an explosion of consumer choice, with literally thousands of vitamin and supplement brands vying for consumers’ wallets. Among all of these choices are a growing number of retailers’ own brands, the most popular of which are Kirkland Signature (Costco) and Spring Valley (Walmart).
Over the past year, private label vitamins and supplements have made up only a fraction (1.1%) of the total market. A closer look at the three leading online merchants in this category, Amazon, Walmart, and Costco, reveals why. Private labels account for 22% and 13% of vitamins and health supplements sales on Costco.com and Walmart.com, respectively, thanks in part to their prominence in search results and discount pricing. A quarter of first page ‘vitamin’ search results on Walmart.com are Spring Valley branded items. Additionally, the first 24 listings within the vitamins and supplements category on Costco.com are all Kirkland.
The biggest contributor to the low overall adoption of private label brands in this category is Amazon. Despite being the dominant online seller of vitamins and supplements, Amazon’s private label sales make up less than 1% of its total category sales, and even that number is misleading. Amazon’s ownbrands account for only a third of the 1%, with the balance consisting of sales of rival private labels via Amazon’s third-party marketplace.
Amazon has signaled it wants this to change. This year they have rolled out new labels, including Solimo, Revly, and Mama Bear, in addition to signing on Amazon-exclusive brands such as Nature’s Wonder and Pure by Nature to broaden its category coverage and to attract different buyer groups.
Amazon’s private labels are partly a victim of the retailer’s own success. Amazon’s historical focus on selling other companies’ brands has made the site the go-to destination for thousands of vitamin and supplement brands. These very brands now crowd the site, making it more difficult for Amazon’s nascent private label offerings to stand out, with national brands investing heavily on promotion and Amazon’s own ranking algorithm favoring popular and high-selling items.
To address this, Amazon’s has flexed its muscle and done an end-around. Now Amazon features it’s applicable private label and exclusive brands in a prominently shaded and unavoidable “Our Brands” window just below the top sponsored search results. This move is likely to frustrate national brands reliant upon, and significantly invested in, a hyper competitive marketplace to generate online sales.
Whether or not private label vitamin and health supplements can truly disrupt this online market remains a mystery, but clearly national brands have their work cut out for them if they hope to compete on this arguably tilted playing field.