Store brands have gained ground among consumers in recent years, a new study shows. But their popularity among thrifty shoppers may be overstated, said Kusum Ailawadi, a professor of marketing at the Tuck School at Dartmouth College and one of the [image-nocss] study's authors. "It's not as big as conventional wisdom has it," he told AOL DailyFinance. Ailawadi conducted the study with business-school professors Yu Ma of the University at Alberta in Edmonton, Dinesh Gauri of Syracuse University and Dhruv Grewal of Babson College.
The study, "An Empirical Investigation of the Impact of Gasoline Prices on Grocery Shopping Behavior," studied the everyday phenomenon of how households adjust their food spending to accommodate rising gasoline prices. It is a common tradeoff, said the report, with food and gasoline being households' two most common everyday expenses. Groceries take the third-largest chunk out of the average U.S. household's budget, after housing and transportation, the study showed.
Researchers studied data from 1,000 Midwestern households of various sizes and economic circumstances from January 2006 to October 2008. Participants used home scanners to record all the groceries they brought home, their prices and where they bought them, which the researchers then related back to the price of gasoline at that time. The period covered by the study saw the average price of gasoline in the United States rise from $2.24 per gallon to $3.48 after peaking at $4.11 in July 2008, according to the U.S. Department of Energy.
Larger households reduced their shopping trips more with each gasoline price hike, while households with lower incomes made more trips, which the researchers suggest was due to financial pressures that made them shop around for deals.
As gasoline prices rose, the study showed, consumers cut back on shopping at grocery stores and bought more food at supercenters and club stores. With every doubling of gasoline prices, groceries lost 7% of their dollar share of the households' food budget, while supercenters gained 41% and clubs gained 24%. The researchers theorized that shoppers turned to supercenters because they could save trips by getting all their shopping done in one place, while the clubs gained because they sold gasoline at low prices.
But warehouse club chains such as Wal-Mart Stores' Sam's Club, Costco and BJ's had been complaining that shoppers are spending more on low-margin necessities like food and health items and less on more profitable discretionary items like clothes and electronics.
And while lower gasoline prices may have attracted shoppers when the U.S. average was peaking, that did not last. As the price of oil dropped, so did their sales during most of the last 12 months. Most warehouse clubs had seen their same-store sales dragged down by gasoline sales until they passed the anniversary of summer 2008's peak fuel prices.
Once in the store, shoppers more often reached for national brands on sale to save money, instead of switching to private labels at full price. For every doubling in the gasoline price, the researchers found, households' share of food budget spent on regular-price items prices dropped by 10% for national brands and 4% for private-label items, but the share spent on national brands on sale rose by 39%, while spending for private labels on sale rose 30%.
As factored into the overall households' spending, marked-down national brands gained 6.5 percentage points in market share, while private labels gained only 1 percentage pointnot insignificant in a grocery segment where profit margins are single-digit rates, but not a massive move of the needle for store brands, Ailawadi said.
"If you look in the context of the private labels in the mass media, it is surprising," she told the financial news website. "It certainly puts in question this conventional wisdom that everybody is shifting to private labels."
Ailawadi acknowledged that some of this behavior may have changed as the recession took hold, and households had to cut deeper. Most reports of private labels gaining ground have come in the last year, as unemployment rose and household incomes dropped.
Although the study did not factor in the recession that hit the economy as the data collection was ending in October 2008, Ailawadi said she may continue the research, analyzing another year of scanner data to see if households stick with the changes they made, and how they reacted as gasoline prices came back to earth and the recession bore down.
The average U.S. gasoline price was down to $2.63 a gallon at the end of November, and unemployment was up to 10.2%. These days, gasoline prices may be the least of those households' worries, AOL DailyFinance said.Click the Download Now button below to view the full study.
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