Instead of expensive health-food brands, consumers across the industry are turning [image-nocss] to the Wal-Mart, Safeway or Kroger products. "Even in a down economy people need to buy food. Groceries are a necessary purchase vs. more discretionary purchases you see. That's why grocery stores have held up fairly well in this economic environment," said Davis.
The biggest variable in how much people spend at the grocery store is the price of gasoline, Pam Goodfellow, a senior analyst for consumer market research firm BIG Research, told Forbes. "Gas prices have an immediate effect on what consumers spend day to day, more so than the stock market. Everyone knows what's going on at Wall Street is trouble, but the price at the pump effects right away how much people have left over to spend on groceries."
Yet even as the price of gasoline slides, shoppers are sticking with the private brands because of economic uncertainty, said the report. A year ago, the AAA National Fuel Price average was $3.10 a gallon and 24% of consumers in BIG Research's surveys were buying more store brand and generic products. This number peaked at 37% over the summer.
A gallon of gasoline has since fallen to $2.24, but, as of October, store brand purchases are still way up- 33% of shoppers are buying more store brands. "Customers are aware of how they save money buying private-brand products, Karen Peterson, a spokesperson for Food Lion, told the magazine. "And it's definitely a positive for us."
Food Lion has emphasized its store brands in a Meals for Less program: All the ingredients for a meal, a bit of Food Lion brand and a bit of regular brands, for under $10. In October, Kroger reported its brands had their best-ever quarter, accounting for 26% of sales. Wal-Mart, responding to the trend, is relaunching its own lines.
Even Whole Foods is refocusing on private-label products. Whole Foods launched a "Whole Deal" program, a counter to its "Whole Paycheck" reputation, said Forbes. It emphasizes the store's private 365 Everyday Value brand. In-store recipe guides and store tours where "value gurus" show shoppers how to shop on the cheap are all part of the marketing.
Penny-pinching shoppers are increasingly giving up brand-name toilet paper, trash bags and other household goods, leaving manufacturers to rethink how to sell their pricier brands in a tough economy, added a Reuters report. At the same time, retailers such as Wal-Mart and Walgreen are emphasizing their own low-cost lines, pressuring the top names in household products to prove why their brands should command higher prices.
For now, shoppers are buying cheaper products mostly where there is less of a personal connection. Kimberly-Clark Corp saw North American shoppers switch to store-brand paper towels from its Viva and Scott brands in the third quarter, while Colgate-Palmolive Co saw little evidence of its consumers opting for lower-priced goods like toothpaste. Still, Colgate will increase advertising spending next year to promote its higher-margin, higher-priced goods.
It may be too early to sound the alarm that private labels are dragging big dollars away from household names, said Reuters. They have generally posted sales gains even after raising prices. "They're just a little more defensive in terms of consumer tradedown versus [categories] like food. It's not to say it won't happen; it's just it's early in the cycle," SunTrust analyst Bill Chappell told the news agency.
Major manufacturers and their brand-name goods still control the market, with private-label products accounting for 5.4% of total U.S. household care product sales in 2007, up from 5.2% in 2006, according to the report, citing Euromonitor International. The rise of private-label products has been steeper in areas such as paper products. Private-label items accounted for 15% of U.S. toilet paper sales in 2007, up from 14.1% in 2006. Private-label products made up 15.7% of U.S. tissue sales in 2007, up from 13.9% in 2006.
At Walgreen, sales of items such as its own four-roll packs of toilet paper are "just skyrocketing," president and COO Greg Wasson told Reuters. "We're going to promote [private label] more and make sure we've got prominent space and location devoted to the products. I think you're going to see more and more people willing to use private label than they have been in the past."
While private-label items carry lower prices, leading to lower sales figures, they are typically more profitable for retailers, since the retailers can control the costs.
Wal-Mart, the world's largest retailer, will relaunch its "Great Value" private brand starting in January. Great Value is the largest brand at Wal-Mart, including 5,500 unique items. "As our customers are looking to stretch their dollars as far as they can, private brands are becoming more and more important," Jack Sinclair, who oversees the grocery business for Wal-Mart's U.S. division, said at the retailer's analyst meeting late last month.
Target is also increasing the focus on its own brands. At its analyst meeting last month, the discount retailer said total sales of Target brand commodities, such as paper towels and tape, have increased at an average of more than 15% each year over the past five years. "We believe there's an opportunity to go even further," said Kathee Tesija, Target's executive vice president of merchandising.
Kimberly-Clark, Procter & Gamble and others said consumers are using up what they have at home and buying smaller packages rather than stocking up on household goods. P&G said in late October that the shift in shopping patterns appears to be affecting volume in the current quarter. P&G has held onto consumers with cheaper "Basic" versions of its Charmin toilet paper and Bounty towels, introduced in 2004. While it has Tide detergent and Pampers diapers at the top end, it also sells Gain and Luvs at lower prices.
"While private labels are clearly growing, in 19 or 20 of our top 24 categories they are not impacting us. We are either holding or growing," P&G chairman and CEO A.G. Lafley said during a conference call last month.
But shoppers have switched from its brands to private label in areas such as feminine care, pet care and batteries, where its Duracell brand lost U.S. market share in the quarter, said the report. Now, companies are responding with advertising and new products to pique consumers' interest.
"History would suggest the players that increase their share, or gain share, are those that advertise and innovate," Ivan Hindshaw, managing partner at Bain & Co. in Los Angeles, told the news agency. "You have to be able to convince the consumer that you've got something unique and special that's worth paying for."
Clorox is responding to weaker sales of bleach with a new campaign that shows using bleach for more than just laundry, while P&G's value play includes advertisements that show its Gillette Fusion razors cost about $1 a week to use.
Despite the downturn, consumers are still trying out some expensive products, the report said. Clorox saw strong sales of higher-end items like its Green Works environmentally friendly cleaners and Glad ForceFlex trash bags in the most recent quarter.
But companies must ensure the more expensive lines offer some real innovation, said Morningstar analyst Lauren DeSanto. "This is not the time to be trying to move the people up the food chain to premium-priced products," she told Reuters.
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