Customers turn to store brands amid poor economy

With the economy in a recession, private-label products are gaining ground on their name-brand counterparts and likely will continue increasing sales next year, industry experts say.

U.S. sales of private-label products, also known as store brands, have increased 10 percent so far this year in terms of dollar sales, compared to about 3.5 percent growth for name-brand products, according to Nielsen Co., which tracks consumer sales data.

Even segments, such as carbonated soft drinks, that are normally dominated by name brands have lost ground to private labels as the year has progressed. Nielsen data on Nov. 1 for the previous four weeks showed private-label carbonated beverages up 6.5 percent in dollar sales. Branded carbonated beverages fell about 1 percent in that same period.

The growth in private-label products is being driven primarily by the economy, said Todd Hale, Nielsen’s senior vice president of consumer and shopper insights. Private-label products had similar sales increases during the 2001 recession.

“Consumers are worried about their financial state,” Hale said. “They’re worried about their long-term position in terms of where they’re working. …They’re looking for anything they can do to save money.”

Retailers also are putting a greater emphasis on their store brands, Hale said. They’re promoting the private labels more heavily and touting the quality of the products, he said.

“You have a lot more focus around private label than you’ve ever had in the U.S.,” Hale said.

So are Big K and Sam’s Choice colas ready to knock off Coke and Pepsi? Not exactly, but they could chip away at market share while the economy remains weak.

The strength of private labels varies greatly by category. Private label accounts for about 40 percent of dairy sales but just 1 percent of alcoholic beverages.

Even with some recent gains by private labels, name-brand carbonated soft drinks account for more than 90 percent of all soft-drink sales.

“Obviously, the big (soft-drink) manufacturers have done a pretty good job of spending a lot of money on advertising and building strong equity among their consumers,” Hale said. “It’s also a category where there’s some pretty healthy promotions and good value.”

Publix has seen an increase in demand in recent months for its store brand soft-drinks, juices and waters, Publix spokeswoman Brenda Reid said. The grocer has made changes in recent years to its store brands that are helping, she said. It has added all-natural products, such as its Greenwise organic juices, and started offering 12-count fridge packs for soft drinks.

The recent spike, though, likely is driven by the economy, Reid said. “We sense that’s primarily due to the price point and people are looking to save money right now,” she said.

Kroger declined to talk about sales data for specific segments, but its store brands are doing well across all categories, said Kroger spokeswoman Meghan Glynn. In its third quarter, store brands accounted for almost 27 percent of Kroger grocery sales, up from 24 percent in the same period a year ago.

Store brands have been offered by Kroger since its inception more than a 100 years ago, but they have gained extra attention in recent years, Glynn said.

“We expect to continue to see growth even after the economy recovers, and we’ll continue to invest in private labels,” she said.

Retailers and consumer goods companies will be watching closely to see how consumers react when the economy recovers, said Nielsen’s Hale. Consumers might not return to name brands as strongly as in the past, he said.

“I think some will (go back to name brands),” Hale said. “But I think private label is going to stick in consumer mindsets a lot more strongly after we come out of this recession just because of how serious and deep this recession is going to be. It’s much different than 2001.”

Beverages, however, could be a mixed bag. Private labels usually don’t post sustainable gains in carbonated soft drinks, said John Sicher, editor and publisher of Beverage Digest. Private-label soft drinks offer about a 35 percent discount compared to the category average, according to Beverage Digest statistics.

“Private label is basically a price buy for consumers,” Sicher said. “It fluctuates within a certain market-share range. It moves up when the economy is difficult for consumers and moves back down again when the economy returns to normal.”

Bottled water could be an exception, Sicher said. Even without an economic downturn, consumers likely would be shifting to lower-priced bottled water, he said.

Nestle leads the bottled-water category with about 35 percent of take-home sales through the first nine months of the year, according to Beverage Digest. Bottled-water brands that are managed or owned by Coke have 16 percent of the market, and Pepsi products account for about 14 percent of the market. Private labels account for 25 percent of bottled-water sales.

“The main package for bottled water is 24 packs of half-liter (bottles),” Sicher said. “As the pricing for that package comes down, it makes it harder for the Coke and Pepsi systems to compete profitably.”