Food Shoppers Not Trading Down to Private Labels

Consumers do not appear to be looking to the generic store branded varieties of their grocery staples even if food prices are on the rise. "We do not see U.S. consumers trading down to private label in light of rising food costs," analyst David Driscoll of Citigroup said in a note to clients.

He noted private label unit volume in food market share was flat year over year at 21.4% at the end of January.

Private label food manufacturers are increasing prices faster than their branded counterparts. This serves as an indication that we are not likely to see a significant shift from branded food into private label given that on a relative basis, private label's offerings are becoming more expensive versus branded food products.

The analyst also said the premium between branded food prices and private label prices has decreased in 12 categories, increased in 5 categories, and 3 categories were unchanged. In the meantime, "Kellogg (K), General Mills (GIS), and Heinz (HNZ) have implemented strong pricing increases while maintaining solid volume and market share trends," he noted, making them top picks in his coverage group in the next three to six months.

K vs. GIS vs. HNZ 1-yr chart:

Comments

[Celticpole]

Thank Goodness I saved the glass, paper and plastic containers of "top shelf" food products for reuse. Now I can delude myself more easily into believing that my net worth hasn't changed facing fixed income in a bear market recession compounded by 5% inflation. This has worked well for me in the past with generic Vodka and wine. Seriously though, I opine that the analyst is lying by omission. Private labels may be increasing prices - but they also are offering many more "loss leaders", coupon discounts, and general "on sale" items - at leat in the NH to NJ area. My gut feeling is that somebody somewhere is fudging data. Personal experience has proved to me that the daily paper pecking order of reading goes: supermarket ads; obits; and comics. Common sense tells me that supermarkets don't own, run and operate their own lands for food production. They buy the stuff from the same people that sell the higher priced items. Somewhere down the line the US Government does the same thing. Their branded label is called "Surplus Food". So what mathematical equation could be at work here? 3 items of private brand equal 1.3 generic? I'd say Mr. Driscoll's analysis is a product of MSRP thinking. That is, solid and factual, and having little to do with reality.

[Celticpole]

Just to digress. Is Lukoil substantially and intrinsically different from Exxon? (I have been led to believe that they are one and the same.) Or put in quantum physics terms: Is my commodity is vastly different from your commodity because I looked at it and you didn't?

[deaverb]

Excellent article about brand trends. Perhaps the most interesting fact is the "spread" between brand and private label has been reduced. Shows the consumer product companies are paying attention. Go Alpha Alerts! Great article--like so many.