CPGs Feeling The Pinch From Private Brands
Following years of private label product sales growth, some legacy consumer brand companies are finally admitting to something that has been a fact of life for them for a while. Private brands are scratching away at their sales.
The latest example is Kraft Heinz. In its third quarter, year-over-year net sales were down 2.8% to $6.38 billion and North American organic net sales were off 3.2% in dollars as price increases of 1.2% did little to boost numbers, according to a report by EMarketer. Also of note was the 4.4% decline in unit volume and the 15% drop in sales of Lunchables.
Following its sixth consecutive quarter of sales misses, the company pinned the blame on price increases and U.S. consumers trade-down behaviors.
Let’s stop here for a moment and talk about the terminology used to discuss consumer behavior. They’re not trading down, they’re trading out and away from high prices and to products that are equal in quality or better at a substantial savings. Consumers are not settling for inferior products to save a few bucks. They’re shifting to items that are tasty and of quality that also provide a cost savings.
Perhaps the best example of this is seen in a recent experiment highlighted by food writer Pamela Vachon of CNET. She priced a 48-item grocery list comparing prices at Trader Joe’s and Stop & Shop, which carries a variety of national brands and store brands. The register ring at Trader Joe’s was $150.32, 33% less than the $227.45 at Stop & Shop.
To be fair, the CNET grocery list was generic so it was impossible to pick out the national brands and store brand product from Stop & Shop. As we know, all the Trader Joe’s items are private label.
We know that CPGs such as Kraft Heinz won’t sit still. In fact, the company has said it will increase marketing dollars, enhance product development efforts, and boost its distribution efforts in value-oriented chains such as clubs and dollar stores. However, there was no mention of price cuts.
The dings private label are putting into the sales of major CPGs comes at an interesting time. In January, PLMA’s Store Brands Month initiative will debut. This effort is designed to drive brand awareness and sales of store brands in food and non-food categories.
The idea is a good one and major retail participation will be needed to make this effort a success in its first year. Many consumers have self-educated themselves about the quality and value retail private brands offer. We encourage retailers to continue this effort in January and throughout the year.
