As concerns about inflation and a potential recession grow, the shift towards private label is also increasing.

It’s a cyclical trend that typically arrives as retailers, concerned about reduced spending, take a step back from products that cut into profit margins—including those attached to licenses. And many retailers now have a vested interest in the business with Walmart, Target, and others fielding dozens of private labels across multiple categories.

And with brands like Great Value (Walmart), Good and Gather (Target), and Simple Truth (Kroger) rivaling national brands in consumer recognition, what’s the impact on licensing?

It may require lowering royalty rates or minimum guarantees to ensure licensed products remain competitive with private label. Another opportunity is for licensed brands and private label to join forces. ASO Corp., for example, combined retailers’ private labels for bandages with licenses like Batman, L.O.L. Surprise, and Sesame Street.

“One of the first things retailers find to improve margin during tight financial times is not pay extra for a license,” a licensing executive said. “Or, a licensor can reduce royalties and minimum guarantees to keep or gain business. You have to look at what the market will bear and remain flexible. Some retailers are saying now that the Top 10 brands will make it in their categories and, below that, everything drops.”

As retailers shift to a potentially narrower assortment of licensed goods featuring properties with strong sales histories, they will fill gaps with private labels that deliver better profit margins.

“It puts pressure on everyone because you need to drive your property as a need-to-have and convince retailers that they have to take it now, but also what you are going to do support it,” said JJ Ahearn, managing director at Licensing Street. “Retailers now might not have room to build your brand.”

Globally, private label accounted for 19.4% of fast-moving consumer goods (FMCG) across Q2 sales this year, including grocery, drug, and other categories, according to Nielsen. The figures were higher in Western Europe (36.6%), where Switzerland (52%) and the U.K. (44%) led the way.

In North America it was 14.4% and, in the U.S., private label had a 28% share of the market (up from 20% several years ago), according to the Private Label Manufacturers Association (PLMA). The relationship between inflation and private was clear in several counties, including Turkey and Argentina where sales grew 61.6% and 59.2% as inflation rates hit 78.6% and 64%, respectively, according to Nielsen.  With inflation having dropped to 7.7% in October, the rate has stabilized the past few months, according to Nielsen. But it is still holding to a record high of 12%.  October reported a 9% lift in dollar sales, whereas unit consumption dropped by 3%.

“There will be trade-offs where licensed and private label compete, but you also have to try different aisles of the store,” Ahearn said. Ahearn met with kombucha suppliers at the recent PLMA show with an eye toward potentially supplementing the business done with the G-Fuel energy drink brand and the Sonic the Hedgehog license at Walmart. “There is a headwind with private label but you have to stop complaining and look for new aisles where you can grow.”

Yet there are limitations on private label growth. For example, national brands are, in many cases, also are  the suppliers of private label products to retailers and may not want the category to increase beyond a certain level.

“National brands have the money to promote at retail and stores love that,” said Bill Cross, SVP of business development at Broad Street Licensing Group. “But, in most cases, price still does matter. There are consumers who will [deviate from a beloved brand to] buy on price.”