Q&A: 84.51° Talks Private Label Growth, Consumer Behavior at Groceryshop 2023
High food & beverage inflation is continuing to impact most American households, leading many to increasingly purchase private label items.
According to 84.51°’s September Digest report, 64% of households surveyed said they were “extremely concerned” about inflation, only a slight decrease of 2% compared to September of 2022. Only 17% of those surveyed said they were “very comfortable” with the current state of their finances.
At Groceryshop 2023 in Las Vegas, Store Brands sat down with Barbara Connors, VP of Strategy and Acceleration at 84.51°, Kroger’s retail analytics agency. Connors spoke about the consumer outlook heading into next year, and how retailers can use private label products to attract customers looking for savings.
Store Brands: As the year is entering the final quarter, looking at the state of grocery this year, has there been a big story or major takeaway for you from a consumer standpoint?
Barabara Connors: So I think the big headline this year is all been around inflation. And as we think about how that has impacted consumer behavior, in 2023 we’ve been in sort of a state of sustained inflation, whereas last year there was uncertainty around how long it would last.
So what we're seeing this year is that customers are really savvy and creative and find a lot of different ways to stretch their dollars and save money and get what they want. The top behaviors continue to be looking for sales, deals and coupons more frequently, sitting at above 60%, and that's been stained throughout the year, which tells us that customers want to continue buying the same brands and products that they love, they just want to be able to get it at a more affordable price. However, more than 50% of customers are willing to trade to private label brands, and are more willing to now in an inflationary environment.
So we see that this behavior is certainly prevalent, it is also varied across categories. So there are some categories where customers are more willing to trade to private label, and there are other categories where they're much less willing. So the categories where we’re seeing much more willingness to trade are in things like frozen, shelf-stable or canned goods, household cleaning and even over-the-counter medicine. Categories where customers are much less inclined to trade a private label are in pet, beauty, personal care and beverages.
Customers are taking an active role in responding to inflation to get what they need for their grocery trip. I think what we've also learned collectively from a consumer standpoint and an industry is that prioritizing value and price does not need to be at odds with quality. And as customers are trading to private label, we are seeing that there is an opportunity to get both, and private label plays a role in delivering a more affordable product and one that many customers are saying ‘hey, the quality is really at par with what I had previously gotten with national brands.’”
SB: Do the categories where customers are more or less likely to trade to private label products in change over time or have they stayed fairly consistent?
BC: I will say that the categories where they're less inclined, the ones I listed, are ones that we also see that there is a high level of brand loyalty. So, while there's certainly personal preference, the categories around beauty, personal care and beverages are also the categories where you historically and continue to see really high brand loyalty.
SB: Private label has seen a resurgence in the past two years. Do you expect that trend to continue into next year as long as food inflation remains high?
BC: I do. And in addition to inflation, we now have coming up on us as student loan repayments. And so those are about to resume next month in October, and we just did a study with consumers this month and found that of those that say they have student loans currently, about 70% of them had not been making payments on them during this period of forbearance and 50% of them, so half, are very concerned with the ability to meet a monthly budget when those repayments start again next month.
So you're going to have these two compounding factors. If you still have inflation and then there's now an added constraint to a large portion of the U.S. population that's going to have to start making the student loan repayments, it's going to be an extra incentive or reason for customers to continue to look for more affordable options for the products that they buy.
SB: Kroger recently introduced the Smart Way collection price point kind of stuff, and then they have the Private Selection brand of items which are a little bit more gourmet. Can you talk about the value of having a tiered selection of private label products?
BC: It gives customers more options and it gives the retailer an opportunity to connect with different customer groups with different value propositions. So across Kroger's Our Brands portfolio, there are not only tiers in terms of the price, but also with Simple Truth, the natural and organic line, you have an opportunity to then meet different customer's needs based on what they prioritize. Our (Kroger’s) brands portfolio operates like a national brand in many ways. Having that variety of portfolio is important to have a healthy, sustainable business.
SB: As you mentioned, value will be important for a long time, but what shoppers end up buying can kind of change. How do retailers kind of stay ahead of the curve with this kind of evolving consumer behavior?
BC: The best thing you can do is monitor consumer trends and listen to the voice of the customer and understand what their current needs are and anticipate what their future needs will be. And you can do this through a combination of behavioral insights, so looking at transactional data and understanding what is in customer's baskets and how are they purchasing as the frequency with which they're buying. Are they switching to different categories or different brands and what is happening?
And then also the attitudinal data and talking to customers and surveying them and asking them why they're making some of the behavior changes that they are or what they anticipate as being future needs, so that you can marry the ‘what’ and the ‘how’ together to make sure that you're building a really data-driven brand strategy that's going to connect with customers today and tomorrow.