USA: supermarket private label products grow – 10/27/2023 – Market

Snacks have become very expensive. For years, customers who stopped by Casey’s General Stores, a chain in the Midwest, didn’t think twice about grabbing a soda and a bag of Doritos or Lay’s chips.

But over the past year, as the price of a bag of chips has skyrocketed and some customers have become tight on budget due to the high cost of gas and other expenses, they have started reaching for Casey’s cheaper private label.

So Casey’s started stocking more of its own potato chips, in a variety of new flavors. This summer (winter in Brazil), the Casey’s brand represented a quarter of all packages of chips sold, reducing sales of big brands like Frito-Lay, which belongs to PepsiCo.

“As inflation continues to rise, more people are trying alternatives,” said Darren Rebelez, CEO of Casey’s, which has 350 private-label products and plans to add 45 more this year. “If you put the alternative right on the shelf, next to the expensive option, people might say, ‘Why not?’ and experiment.”

Large food companies gained market share during the pandemic. With supply chain issues affecting what made it onto the shelves, people were basically buying what they could find.

And they kept buying even as prices soared, as food and beverage brands raised prices to maintain their profit levels while covering rising ingredient and labor costs.

Cheeses and vegetables win over consumers

But now, with retailers expanding their private label food and beverage offerings, consumers are slowly shifting their spending. Overall, private label food and drink increased to a 20.6% share of grocery spending, compared to 18.7% before the pandemic, according to research by the company Circana.

But a deeper look at some categories reveals that private label products are gaining significant ground over national brands.

Private labels captured 38% of canned vegetable sales between April and June this year, according to market research firm Numerator. The data also shows that private label cheese held 45% of the market, and coffee almost 15%.

The shift in spending reflects a customer base that is reaching or has reached its inflection point. Inflation, which rose to 3.7% in September in the US, is rising at a slower pace than a year ago, but millions of customers still face increasingly higher prices at supermarkets.

The trend is having a greater effect among those with lower incomes, who spend a greater portion of their wages on food, even with the end of a pandemic policy that increased the amount of money food aid program beneficiaries received in the last three years.

This month, federal student loan payments, which were suspended due to the pandemic, also resumed. Additionally, credit card and mortgage rates are rising.

Two-thirds of consumers said in July that they bought cheaper groceries at retailers, an increase of four percentage points from the previous year, according to McKinsey. The shift, according to the consulting firm, was particularly greater among those with incomes of less than $100,000 in categories such as meat, dairy and staples.

“Consumers are opting for cheaper products,” said Rupesh D. Parikh, an equity analyst at Oppenheimer & Co. who covers food, grocery and consumer products. He recently purchased a box of Kellogg’s Mini Wheats cereal at Walmart, along with the Walmart version. “Kellogg’s cereal was 75% more expensive, and I couldn’t tell the difference between them,” he commented.

Big brands, in response, are already starting to offer discounts on certain foods, such as snacks. “The question is how far are they willing to go in promotions,” Parikh said.

Supermarkets increase profit with their own brand

The expansion of private label products is also a response to a change in the supermarket landscape.

Competition is intensifying due to consolidation, led by Kroger’s proposed $24.6 billion merger with Albertsons, and the entry into the US of competitors such as German discount chain Aldi, which stocks 90% of its shelves with own brand products.

In August, Aldi agreed to acquire 400 stores from Winn Dixie and Harveys supermarkets, giving it a significant presence in the Southeast.

Retailers say they need private label products to offer consumers more choices. Private labels also tend to be more profitable for retailers than products from big food companies.

But perhaps the most important factor is a clear shift in consumer attitudes. Older generations who grew up on “generic” ketchup or soup remember them as bland, flavorless versions of the well-known brands.

Retailers, who have abandoned the term “generic”, insist that the quality of private label food and drinks has improved substantially.

Social media like TikTok and Reddit are full of young people raving about their favorite store-brand foods from Aldi and Trader Joe’s.

“If the food isn’t of good quality, our reputation is at risk,” said Scott Patton, Aldi’s vice president of national purchasing, who said the chain is seeing an increase in traffic across all income levels.

“If you’re going to sell store brand apple cinnamon ice cream, it has to be the best apple cinnamon ice cream you’ve ever tasted.”

Retailers are offering customers basic foods at low prices that are similar to big national brands, but they are also looking for ways to differentiate themselves, said Jordan Bouey, owner of Silver State Baking, a Las Vegas-based manufacturer that produces cookies, bars and and bread for supermarket chains and retailers.

“If there’s a category that doesn’t have a big national brand, retailers are looking to be unique and offer shoppers what they’re looking for, like a protein cookie,” Bouey said.

Products for all budgets

At a Wegmans store in Hanover, New Jersey, the dry pasta shelf was stocked with fettuccine, shells and spaghetti from well-known brands like Barilla and De Cecco.

But the vast majority of pasta on the shelves was Wegmans’ own brand, one line priced at US$0.99 (R$4.93) per box and another, Amore, which is imported from Italy and costs US$4.99 (R$24.85) per box, about US$2 more than some of the national brands.

“We want our brand to serve the customer who is on a budget,” said Nicole Wegman, who was named president of Wegmans Brand in 2021. Wegmans has expanded its private label business in recent years to more than 17,000 products, including prepared meals , frozen vegetables and healthy snacks.

“But we also want products, like our cheese and our breads, that are fun for the food enthusiast,” commented Wegman. “They are specialty items and more expensive to produce, so we have to charge more for them.”

In fact, executives at Casey’s, which began experimenting with private label products three years ago, said they are trying not to compete with national brands but rather to expand what is available to customers. In some cases, this means offering flavors that national brands don’t have.

Sales of Casey’s limited-edition snacks with flavors like sweet corn, barbecue brisket and jalapeño cheddar have done well in recent months. “These are the types of products that Frito-Lay won’t make because it’s not a national flavor profile that’s going to work for their business,” Rebelez said.

But he also acknowledged that some Casey’s customers were simply looking for deals.

An example is chocolate bars. For years, retailers didn’t compete against giants like Hershey and Mars because customers remained loyal to the brands they had grown up eating. But as the price of chocolate bars has risen in recent years, some customers have stopped buying.

So Casey’s created four lower-priced private label chocolate bars, including a mint chocolate bar and a caramel chocolate bar.

“I was skeptical at first, but these chocolates have performed very well,” Rebelez said, adding that Casey’s was working on other variations. “There is a breaking point for consumers, and in certain products and categories we will provide an alternative.”