The latest salvo in the white-hot war between Walmart and Amazon is word that Jet.com—the ecommerce upstart bought last year for $3.3 billion to help Bentonville take on Bezos—will launch its own private-label line of groceries. Dubbed “Uniquely J” and targeted at “metro millennials” with box art that looks like a hipster’s sleeve tattoo spiked and “fun, witty label copy and quality ingredients,” according to the company, it represents the latest move in the battle for grocery aisle glory.

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And recent trends are catching out some of the best-known brands in the grocery store in a big way, including Kellogg (NYSE: K), Campbell Soup (NYSE: CPB) and Hershey (NYSE: HSY).

Things are moving fast now

In addition to its hyped $13.7 billion acquisition of Whole Foods Market, Amazon has a growing line of private-label brands from Wickedly Prime snacks to Pinzon bedding and Single Cow burgers. Walmart has made a few deals of its own, including this week's acquisition of Parcel, a delivery logistics company that offers same-day delivery in New York City, and its acquisitions of online fashion retailers like Bonobos and ModCloth. The company has also partnered with August Home and Deliv to test in-home delivery options, giving customers the choice of filling their refrigerators with Sam's Choice cranberry juice while still at the office.

Overall, Walmart has made nearly $4 billion worth of M&A transactions since 2015 (mostly to Jet.com), while Amazon shelled out closer to $15 billion over the same period (mostly to Whole Foods), per the PitchBook Platform.

Trouble is brewing for the legacy brands, as they're pressured from all sides: retailers obsessed with cutting costs to compete with Amazon and Walmart, cheap store brands undercutting on price, and the new wave of upscale store brands capitalizing on consumer interest in organics. And now, a fresh wave of food cost inflation is pressuring profitability from beneath, as well.

The share prices tell the tale. Kellogg is down 27% from its mid-2016 high. Campbell is down 30%. And Hershey, merciful by sake of comparison, is down just 6%.

Private-label brands are expected to gain market share

Walmart Battles Amazon

Credit Suisse analyst Robert Moskow expects private-label brand share—including Walmart's new Uniquely J and Amazon-Whole Foods 365 Everyday Value—to swell by nearly one-fifth to 21.5% in 2020. Big food brands will need to fight back, likely through increased marketing spend, promotional discounts, and vendor kickbacks, in his view—all of which will depress margins further.

This will be good news for consumers, who are just coming out of a run of grocery price deflation that started in late 2015. It will also be good news for VC-backed players in the US consumer non-durables space that have enjoyed a surge of investor interest in recent years, particularly for food & beverage companies, with total invested capital in the food space clocking in at $1.2 billion so far in 2017, per the PitchBook Platform. That's already up from an average of $1.1 billion per annum from 2014 to 2016.

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Article by Anthony Mirhaydari, PitchBook