Shoppers are trading down to store brands without even realizing it
Price is key to the rise of private-label products, but so is sleeker packaging that can make it harder to tell name-brand items from cheaper in-house products
Many consumers are buying retailers' cheaper alternatives to name-brand items without even meaning to.
So-called private-label products have been getting more popular for years as inflation-weary shoppers hunt for bargains. U.S. sales of store-brand products rose nearly 4% last year to a record $271 billion, the Private Label Manufacturers Association estimated in January. But it isn't just affordability driving the shift. Many customers can't distinguish name-brand products from private-label ones as well as they think they can.
About 71% of consumers surveyed recently by First Insight said they knew when they were buying a private-label item. But when the retail market-research firm showed them in-house and name-brand products side by side, virtually the same share — 72% — failed to correctly identify the private-label one.
"Companies are savvy in how they market," First Insight CEO Greg Petro said of the findings. "It's not just consumers that can be fooled, it's experts."
And the experts say that's by design.
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Many grocery store operators are using slicker aesthetics "to elevate their brands as equal or better quality at a better price," said Bruce Myers, a professor of packaging design at the Rochester Institute of Technology in Henrietta, New York. Even the printing quality on packaging has improved, he added.
That marks a shift from decades ago, when supermarkets would use inexpensive packaging and stripped-down branding to send the message that they were "passing the savings on to you," Myers explained.
It has long been common for some name brands and private-label operators to share manufacturers for certain goods, meaning that many of their competing packages contain the same products. The difference is that while Nabisco or General Mills, for example, have to spend on marketing and store placement fees for their items, Aldi or Costco don't.
But the bare-bones packaging associated with private-label goods is increasingly a thing of the past — sometimes replaced by approaches that name-brand competitors criticize. Last month, Mondelēz International sued Aldi, alleging trademark infringement. The snack-maker accused the discount supermarket of "blatantly" copying the packaging of Oreos, Wheat Thins, Nilla Wafers and Ritz crackers for its private-label alternatives.
But in other instances, even store brands that don't resemble well-known rivals have enough shelf appeal to attract shoppers on their own merit. The result is eroding brand loyalty for major incumbents. In First Insight's survey, 47% of shoppers said they tried a store brand specifically because it was a "dupe" of a name-brand product, and 84% said they now trust private labels' quality at least as much as national brands'.
Price, of course, remains a key factor in private labels' appeal.
During the worst of the post-pandemic run-up in inflation, consumer goods giants such as Procter & Gamble raised prices on customers. Faced with steeper costs from supply-chain snarls and labor shortages, many companies bet that shoppers would shell out more to stick with products they knew and liked. And for a few years, many of their better-heeled customers did just that. But the winds have shifted, and in recent years shoppers have been reprioritizing value.
"They're saying, 'What I'm paying for what I'm getting is not worth it,'" Petro said.
After an earlier series of price hikes on cereals, snack bars and pet food, General Mills said last week that its main focus now is on juicing sales volume. "To do that, we'll invest further in consumer value," its CEO assured investors.
Michael Swanson, chief agriculture economist at Wells Fargo's Agri-Food Institute, said the grocery wars largely hinge on what shoppers pay attention to.
When you look at the raw sticker prices on store shelves, it's easy to notice how sharply they've climbed. Grocery prices have risen more than 23% over the last five years — but households' average spending power has outpaced it, he pointed out. In "real," or inflation-adjusted, terms, groceries are broadly cheaper than they've been in years. (While it surely didn't feel that way for many families, 2024's Thanksgiving dinner was its most affordable in nearly 40 years, farm data showed.)
"Whenever you get a pay raise, that's a good thing. Whenever you see your favorite food go up, that's a bad thing," Swanson said. "But we really are very bad at tracking the relative change of those two things."
Still, Swanson doesn't expect shoppers' diminishing brand loyalty or hunt for low prices to push name-brand products off supermarket shelves anytime soon. In fact, grocery stores typically rely on branded products to set price points for customers, he said.
"The only reason you know that private label is a value is because you glance right next to it in the refrigerator section and that something else is 25 or 40% more expensive," Swanson said.
This story originally appeared on: CNBC - Author:UK GAG
