Sales of private label food and beverage products in the United States topped $98 billion 2011, according to a new report from market research firm Packaged Facts. Products in this category accounted for 17.6% of total retail food and beverage sales, the report said, and posted a 6% year-over-year sales growth.
The days when a store brand meant “barely acceptable quality” are long behind us. The current generation of private label brands, including some of the higher-end, differentiated labels, have helped many shoppers adhere to a budget in hard times while still clinging to a wisp of luxury, said Packaged Facts research director David Sprinkle. The new data points to an ongoing shift in the marketplace, a shift that will have some legs even after the current economic malaise is behind us.
“I think that the actual quality has increased for a wide enough spectrum of store brand products for consumers to change their perceptions,” Sprinkle told FoodNavigator-USA.
“Also keep in mind that store brands aren’t just being defined by conventional grocery store products. Trader Joe’s occupies that premium/progressive store brand tier and in fact has helped set the pace for it. So has Whole Foods’ 365 brand line, as well as Costo’s Kirkland Signature. So it’s not just store brands competing against national brands, but store brands from ‘alternative’ retail channels with distinct value propositions competing against national brands rooted in traditional grocery stores,” he said.
Tired of thrift, but scared of spending
According to a 2011 survey by the National Foundation for Credit Counseling (NFCC), 71% of respondents said they were “tired of pinching pennies." But the economic wreckage of recent years is still fresh in their minds, with the vast majority saying they would continue to be frugal.
It makes for a fertile field for private label products, especially those that have started to build quality reputations that stand alone, and not just in relation to name brands.
“I would say that premium store brand products have made it tougher for ordinary name brand products to compete, and have even helped erode the cachet of ‘name’ brands,” Sprinkle said.
According to a Packaged Facts Food Shopper Insights survey, nearly two-thirds (62%) of shoppers now believe that private label food and beverage products are usually as high quality as name brands, and more than half (53%) believe that private label products are often a better value than national name brands.
Even if one of the presidential candidates succeeds in rebuilding the middle class, that’s sobering news for name brands, Sprinkle said. A rising economic tide (assuming it doesn’t stay out permanently) won’t necessarily raise all boats.
“If and when the economy becomes robust again, consumers will certainly do some trading up from products that compete mainly on low price to products that offer a broader value proposition—factoring in quality, freshness, healthfulness, authenticity, innovation, sustainability, and so forth. But that won’t be a simple shift from store brands to name brands; premium store brand products should be in just as good a position to benefit as name brand products,” he said.
Private label launches up
The advantages that private labels offer retailers—better margins and a better value proposition for customers—mean that the category will continue to grow, Sprinkle said. Across the board, grocery retailers are planning to increase private label offerings, including better-for-you and gourmet product offerings, according to the research firm.
“Grocery store chains use their store brands to help define their place in the market, so there is more at stake than just price points,” Sprinkle said.
The drive toward luxury is a durable desire, Sprinkle said, and it’s not going away. But the expectations for growth at the top end of the market may be more limited than they were before the recession cut deep into the nation’s spending psyche.
“Indulgence and extravagance will come back, but that doesn’t necessarily mean that name brand spaghetti sauces will be able to breathe a sigh of relief,” he said.
For more information on the report, titled “Private Label Food and Beverages in the U.S.,” go to the Packaged Facts website .