Consumers aren’t just trying private label goods, they’re flocking to them…and staying. Once considered a low-price and substandard option, today’s private label products are viewed as high-quality and on par with name brands, if not better. The shift is pushing retailers to expand their private label offerings and increasingly look to third-party manufacturers for production capacity and innovation.

Below, we cover the rise of the private label segment and why investors are drawn to private label and co-manufacturers across the food and beverage industry. For operators in this space, we share attributes that could enhance a company’s value and strengthen its position in the market.

The rise of private labels traces back to the COVID-19 crisis, when consumers grappled with empty store shelves and turned to private label goods (drawn to the high availability and low price of the products). Post-COVID, consumers continued to purchase private labels as inflation persisted, believing the products offered the same or higher quality for less money. Today, it’s not only price and value when consumers consider purchasing private label products – they’re also considering quality, taste, and variety. Experience and exclusivity are also factors (think of Trader Joe’s unwavering fan base).

The consumer shift shows staying power: over 95% of consumers are buying private label products, according to the Food Industry Association’s “Power of Private Brands 2023” report. Private label sales rose 3.9% in 2024, reaching a record $271 billion, and outpaced national brands based on data from Circana. Departments with the highest private label growth included refrigerated (+7.5%), general food (+4.3%), and beverages (+4%). Many retailers are prioritizing private label as part of their overall strategy, recognizing the products’ higher margins and appeal to a wide range of shoppers.

• Kroger is heavily investing in private label brands, from rolling out new products to expanding existing lines. The company recently debuted Field & Vine, a fresh produce line sourced from U.S. farmers. Other initiatives include Mercado, a Hispanic-inspired private label brand, and Smart Way, a line of affordable staples.
• Walmart, no stranger to private label with its successful Great Value line, launched premium brand bettergoods in 2024. The brand’s products cater to culinary experiences (think specialty salts and seasonings) or various dietary needs (gluten-free or free from artificial additives).
• Sprouts Farmers Markets has ramped up its label offerings, focusing on health and wellness products along with items consumers typically won’t find at traditional grocery stores (like hot honey chicken tenders or flavored cauliflower rice). Recent years have seen the company add 300 to 400 new products annually.

Retailers, armed with customer data and consumer insights, are turning to co-manufacturing to produce their private label products. Several major grocers have brought their private label production in-house, but for many retailers, outsourcing manufacturing offers benefits – cost savings, flexibility and scalability, and speed to market. Given the critical nature of production, from product development to rapidly scaling a new private label brand, retailers are increasingly reliant on co-manufacturers and private label providers – creating significant growth opportunities for operators in the space.

Recent years have witnessed an upturn in mergers and acquisitions in the private label and contract manufacturing space, with both financial and strategic buyers taking an interest. What’s the appeal? Financial buyers like that third-party manufacturers produce essential goods, creating consistent demand from retailers, while also being brand-agnostic (i.e., not competing for shelf space). They also see a high growth market as retailers accelerate their private label initiatives. And with a lack of large-scale providers, financial buyers see an opportunity to establish platforms and execute roll-up strategies. Strategics, too, are investing in and acquiring third-party manufacturers to strengthen supply chains, increase domestic production capacity, and foster customer loyalty via private label brands.

Growing investor interest creates a favorable M&A market for private label and co-manufacturers, namely that as competition among buyers heats up, high quality assets could command premium valuations. While no deal looks the same, the attributes listed below, along with other considerations like market conditions, often inform what a buyer will pay.

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