Higher Name-Brand Prices Push Consumers to Buy Private Label

80% of shoppers are actively looking for ways to cut costs, including buying store-brand items.

February 21, 2022

Wawa Private Label Drinks

ALEXANDRIA, Va.—With grocery prices up 7.4% over last year and inflation at a 40-year high, consumers are looking to cut back any way they can, and private label products are the answer for many, reports NBC News.

Big-name companies, from The Coca-Cola Company to The Kraft Heinz Company to Mondelēz International, have passed along some of their higher production costs to buyers, but store-brand product prices have not risen nearly as much.

“Store brands are increasing prices slower than national brands because they have a contract with a supplier for a year or two years and it’s a fixed price that’s locked in,” Phil Lempert, a food marketing expert dubbed the Supermarket Guru, told NBC News. “The manufacturer, not the store, is going to absorb it in the short term.”

A recent survey found that 80% of respondents are actively looking for ways to cut costs by doing things like buying less expensive products and private-label brands and more items on sale. The survey said that “if prices were to climb higher (and they likely are),” more shoppers will resort to cutting costs.

“During periods of inflation like this, middle-income families, lower-middle-income families, even wealthier families become more price sensitive. And that’s to our advantage,” said Walmart CEO Doug McMillon. Walmart reported better-than-expected earnings last week. (The Wall Street Journal reported on what some of the world’s corporate leaders are saying about inflation, the supply chain and travel and dining.)

Even before the pandemic, supply chain woes and labor shortages forced companies to raise prices, and retailers were stepping up their private-label product game to ensure that the products are on par with brand-name products, while still keeping prices down. That’s an advantage that may come in handy for retailers, according to Lempert.

Historically, private-label brands thrive when inflation rises and there is economic uncertainty. During high inflation in the 1970s, private labels grew more prominent as cost-effective substitutes to name-brand products, and in 2008, store-label brands excelled, according to a 2008 New York Times article.

Consumers who gravitate toward private labels are older and have higher household incomes, according to IRI, with 55% of private-label purchasers having a household income of less than $70,000.

Convenience stores have been getting in on the private-label game for some time. 7-Eleven launched its first private-label brand 7-Select in 2008, and in 2019, the company launched 24/7 Life, with total private-label selection at 1,500 products. According to 7-Eleven, about eight out of every 10 Americans buy private-brand products to save money, NACS Magazine reported in “Private Matters” in the April 2021 issue. Millennials have a particular affinity for the value and quality that the brands offer, the chain said, and are contributing to the growing popularity of retailer brands.

Foxtrot says its specialty is its private labels, and the company says it’s “investing in a deeper private label assortment around meal-times.” Since introducing private label products one year ago, the assortment of Foxtrot-branded and -created labels now account for nearly 30% of all retail offerings and nearly half of all brick-and-mortar and online sales.

Gopuff, a virtual on-demand convenience store, launched private-label products under the brand name Basically, starting with snack, household products and health and wellness products.

The opportunity for improved profits is one motivator for retailers considering 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.

A category deep dive at the 2022 NACS State of the Industry Summit, which will take place April 12-14 in Chicago, will cover private-label performance in the convenience retail channel. Hear from Kristine Modugno, director of category management at Nouria Energy Corporation, who will lead the session.