- Shoppers are buying more cheaper private label products amid record inflation.
- It became a trend during economic downturns, like the 2008 recession.
- Retailers with a strong private label roster, like Walmart and Target, stand to benefit.
In grocery and big box stores across the country, shoppers have a decision to make: stick with the brands they know and love, or switch to the store brand and save?
Faced with record inflation, buyers are increasingly choosing the latter.
The rising cost of everything from gas to food has forced many consumers to think twice about branded items and opt instead for the stores’ private label products, i.e. branded products owned by those same grocery stores or big-box retailers. This shift has happened during other economic downturns, and it’s a boon for retailers like Walmart and Target, which have strong private label slates.
At Walmart, which operates more than 3,500 grocery stores nationwide, rising costs are changing the way customers shop. The company said on its first quarter earnings call in May that customers were buying more private label products as they felt “inflationary pressures”.
“We are seeing some shift, which would include moving specifically from brands to private labels,” Walmart US CEO John Furner said on the call. “We see categories like deli meats, lunch meats, bacon, dairy, where we see customers trading.”
Target puts a slightly different emphasis on its private label brands: They’re designed to “drive trips to Target, not just provide another option when customers are already in a store,” said Christina Hennington, chief growth officer of Target during the company’s first quarter earnings call in May.
Still, Target likely benefits from inflation, given that its in-house brands, much like Walmart’s, tend to be cheaper than products with better name recognition.
“I think that’s important when we think about value-seeking consumers, the strength of own brands in food and beverages: Good & Gather and Favorite Day,” CFO Michael Fiddelke said at the conference. ‘call. “The customer response we’ve seen to these two own brands has been nothing short of amazing.”
Private label products have grown so much that big brands are starting to take notice. Clorox executives noted growth in private label during the company’s latest earnings call, while Procter & Gamble said it would start making more “open” statements about the quality of its dish soap. Dawn, presumably over private label products.
But at Walmart, the company’s Great Value dish soap is $2.28. Dawn’s dish soap, though slightly bulkier, costs $2.94.
“It just has to be cheaper”
This type of buying behavior – switching from name brands to private labels – happened during another period of economic uncertainty: the 2008
Between 2008 and 2009, shoppers began spending less at restaurants, skipped manicures and hair appointments, bought smaller quantities of items, and, notably, switched to private label products, according to IRI dataa market research company that tracks consumer packaged goods industry data.
Now similar patterns are repeating themselves. In March, as gasoline prices began to rise and consumers began to feel pressure on their finances, private label purchases began to climb compared to 2020 and 2021. In grocery stores, buyers began to buy more off-brand infant formula, oil and butter. , and milk – with respect to “inedible” items, gloves, foil and
have become popular private label purchases, according to IRI data.
But it’s unclear whether shoppers always opt for private label when times are tough — there are a few factors driving customers to make the switch, according to Sucharita Kodali, retail analyst at Forrester.
“Consumers don’t really have a problem with that if the packaging is nice and the price is the right price and the quality of the merchandise is good,” Kodali told Insider.
But ultimately, it must provide significant savings to the consumer.
“There’s no formula that says, ‘if it’s 10 to 20 percent cheaper…’ it just has to be cheaper,” Kodali said. “It’s not the difference between something worth $9.95 and $9.99. It won’t make a difference. But in some categories, if there is a difference in dollars, it’s substantial. “