Grocery Stores Up Their Private-Label Offerings

Consumers are flocking to cheaper alternatives to offset price pressures, and supermarkets see profitability in store brands.

December 16, 2022

ALEXANDRIA, Va.—More than 80% of food retailers plan to moderately or significantly increase their investments in private-label products over the next two years, and inflation-weary consumers are trading to value brands, reports the Wall Street Journal.

“We continue to expand and diversify our brands portfolio at every price point,” Kroger Chief Executive Rodney McMullen said on a call with analysts earlier this month. McMullen added that Kroger customers are gravitating toward its private labels “as a way to stretch their food budgets.”

Kroger says its private-label sales increased over 10% year over year in the third quarter, and it rolled out more than 140 new private-label products during that quarter. The supermarket chain also launched Smart Way in September, a new private-label brand that has been purchased by two million households, and Kroger is expanding the line.

Walmart is also increasing its private-label options.

“We’ve seen some customers this year trade into private brands more than they did in previous years,” said Walmart U.S. President John Furner on an earnings call in November.

Europeans are more open to purchasing private-label brands than Americans. For Koninklijke Ahold Delhaize, which operates grocery stores in Europe and the U.S., including Food Lion and Stop and Shop, half of sales in the Netherlands and Belgium are store brands compared with 30% in the U.S.

Major European supermarket chain Carrefour says that store brands are “the heart of our business model,” and the company aims to have half of its sales by volume and 40% of sales by value come from its private-label brands within the next four years. Right now, store brands represent 33% of sales by value.

In the U.K., private-label sales are up over 10% at British grocery stores year over year, as Brits grapple with 41-year-high inflation and recession worries. Asda, Britain’s No. 3 supermarket chain, says its private-label line Just Essentials, launched midyear, helped the company see profitability return in the third quarter. The label was cause for 400,000 shoppers to switch to Asda from other supermarkets, according to the company.

“There’s no question that more and more people are turning to private labels,” Julian Skelly, the head of the European retail practice at Publicis Sapient, a consulting firm, told the Journal. “Everyone’s cost-conscious right now. If they are not already being impacted by the cost-of-living crisis, they are afraid that they will be.”

However, Skelly raises the question of whether grocery stores’ private labels can retain their hold on customers once inflation and price pressures ease. With an edge on price, the answer, Skelly said, will likely come down to quality. What the makers of the big consumer brands fear most, he said, is that people will make the switch to cheaper store brands “and then realize there’s very little difference.”

In the convenience channel, private-label sales climbed 17.8% in 2021 year over year, outpacing national brands, which only saw 4% sales growth, according to NACS State of the Industry data. (Read more about private label performance in c-stores in NACS Magazine’s June SOI Summit issue.)

The opportunity for improved profits is one motivator for retailers considering offering private-label products.

“In some cases, margins could be 25% versus 18% for a national brand,” said Roy Strasburger, president of StrasGlobal, a Temple, Texas-based convenience-store operations and consulting company. Marketing and promotional control over the brands is another benefit, allowing c-stores to become destinations for products not available anywhere else. “If done successfully, it’s not the store pushing the product, but the product pushing the store,” Strasburger told NACS Magazine.

Learn how private-label brands drive loyalty at c-stores and raise their image for fair prices in this month’s NACS Magazine cover story “An Exclusive Offer” in the digital edition of NACS Magazine.

NACS recently hosted a free webinar on how convenience stores can get into the private-label game.