Store brands vs. name brands—behind private label’s battle for market share as inflation soars

For Save A Lot, a discount grocery chain that focuses on feeding lower-income families behind lower-priced interpretations of grocery store staples, this is a fortunate—if coincidental—moment to be breaking a new campaign that spotlights those private brand products. “We didn’t have a crystal ball, but we couldn’t have asked for a better time to be launching this, with grocery prices at a 40-year high, and gas prices being what they are,” said Tim Schroder, Save A Lot’s chief sales and marketing officer. “What you see historically, is that when gas prices rise, people are eating out less and preparing and consuming more meals at home, and that’s a great opportunity for us to capitalize on, and it’s a great opportunity for our shoppers to save money.” See America's Hottest Brands 20 brands that are having a moment Click here The “A Lot Alike” campaign, created for the chain by The Via Agency, represents Save A Lot’s take on an advertising story often told over the years in the store-brand vs. name-brand arena: Its private label goods, it argues, are equal to branded alternatives in every way but in price. The campaign also signals an inflection point in a bigger battle: A 40-year high in food price inflation is providing new momentum for private brands, threatening to upend a hard-won but prosperous period for branded food marketers such as General Mills and Kraft Heinz, which have wrestled back momentum over the past two years. Cash-strapped customers like those Save A Lot targets are already switching to lower-priced products. FMI, a trade group representing food retailers, in a report issued late last month concluded that inflation was indeed driving greater consumer interest in private label. More than 40% of consumers surveyed said they have been purchasing more private brands since before the pandemic, and three-quarters of them expecting to continue to do so in the future. Should the U.S. economy worsen or turn to recession—Bloomberg on July 6 estimated a 38% chance of a U.S. recession in the next 12 months—private label penetration would enjoy more widespread growth, as consumers across the economic spectrum change shopping behaviors, switching brands and stores in the process, said Andrew Wolf, an analyst following food companies for CL King. Historically, Wolf said, private label—and price-focused shopping formats in general—rarely give back the gains they make in periods of economic distress, even after the crises pass. “That’s how private label grows over time,” he said. Could it be different this time around? So far, name brands have weathered aggressive inflation fairly well, gaining dollar share vs. private label since the pandemic began, and losing less unit volume than those rivals last year, as at least some pandemic effects began to ease and prices climbed. Private brands’ dollar share of IRI’s all-outlet food market was 17.2% for the 52 weeks ending March 20, down from 17.5% in the same period in ended in March 2021, and down from 17.7% percent in the 2020 period, according to IRI data cited in the FMI report. Although food costs—and prices—have soared, they have not yet been fully met by a proportional drop in demand, said Wolf. Brands on the rise A look at up-and-coming brands disrupting their categories Read more here The eighth-largest CPG The phrase “private label” long ago stopped meaning only those products that might be considered cheap generic knockoffs of branded counterparts. For some sophisticated food retailers, nearly half of their private-label revenue comes from upscale-leaning, fresh and unique items that have a value element but are used primarily not to fight branded packaged goods, but to fight other supermarkets. They’re also often more profitable than brands. If the private brands controlled by the big supermarket operator Kroger were a standalone company, its CEO Rodney McMullen likes to say, it would be the “eighth-largest [consumer packaged goods] company on the Fortune 500.” Together, Kroger's own brands generated $28 billion in sales in fiscal 2021. A little more than half came from the “national-brand equivalent” opening-price point Kroger label. But the rest came from aspirational offerings such as Murray’s Cheese, Home Chef and Private Selections, a line of premium-ingredient-led takes on grocery staples. Kroger’s private brands grew faster than their branded counterparts in the first quarter. Some customers are still “trading up” to Murray’s Cheese, Home Chef and Private Selections, McMullen told analysts in a conference call. “For other customers, whose budgets are more directly impacted by food and fuel inflation, they are actively looking for ways to save,” McMullen added, an indication that its price-focused “store brand” items were also a significant element of its private-brand growth. ‘An advantaged situation’ While no one would argue a pandemic was somehow all worth it, many trends associated with COVID have played to the advantage of national brands, experts said. In many cases, brands were less affected by supply chain chaos than private brands, and also benefited from stimulus-rich shoppers “trading up.” Brands tend to characterize those effects slightly differently. “During COVID, consumers demonstrated their preference for brands that they know and trust,” said Mondelez International CEO Dirk Van de Put, during the company’s investor day in May. Many brands also point to strategic moves taken before or during the pandemic meant to help them withstand cheap competition, and better harness innovation and marketing, to communicate value. General Mills Chief Financial Officer Jonathon Nudi told analysts last month that private labels today compete with only 10% of General Mills’ current portfolio categories compared with 18% penetration in all categories. Mondelez has focused on categories for which private brands have failed to gain traction, such as chocolate, which according to Van de Put had declined to 5% private-brand penetration. General Mills’ strategy includes developing brands on the leading edge of trends that, when mature, would give it a head start in categories difficult to replicate. One example is Bold Cultr, an “animal-free” cream cheese brand now being test marketed. The company is also getting rid of brands for which it does not see a future. (It recently sold off its Helper and Suddenly Salad brands.) Kraft Heinz Co. has reduced private-brand exposure from 17% a few years ago to about 11% today, Carlos Abrams-Rivera, executive VP and president, North America, said during an April earnings call. “It certainly puts us in an advantaged situation,” Abrams-Rivera said, according to Sentieo transcript. One way Kraft Heinz reduced its exposure was by cutting loose some significant brands and categories it perceived as vulnerable to private label—most notably, its Planters-led nut business. Meanwhile, a more focused portfolio and consumer insights work allowed Kraft Heinz to creatively recharge some items that might be seen as easy marks for private label, such as Philadelphia cream cheese or Kraft Mac & Cheese, by tapping into emotional appeal that knockoffs cannot. Save A Lot’s Schroder concedes there are certain items for which private label is better positioned to win with shoppers, primarily the kind of commodities big brands are fleeing. “Bottled water, yellow mustard, spaghetti, canned veggies, they’ll try private label all day long,” he said. Some others–such as cola, coffee and toilet paper–consumers are not as willing to trust to unknown brands, “so the savings have to be more substantial there.” Amazon, which entered the private label business in 2009, appears poised to trim its portfolio to focus on commoditized categories, according to a report last week by the Wall Street Journal. Ad Age Marketer’s Brief podcast Listen here or subscribe via Apple, Spotify, Amazon Music or Audible Click here ‘Like, A Lot A Lot’ “A Lot Alike” is the first offshoot of a Save A Lot master brand campaign that debuted a year ago, also from The Via Agency. That campaign, known as “Like, A Lot A Lot,” was meant to alert lapsed and potentially new Save A Lot shoppers that much had changed over the course of its five-year, behind-the-scenes turnaround. The marketing positions Save A Lot to capitalize on what experts say is a typically reliable underpinning of private labels, and stores that specialize in them: Their tendency to be relatively resistant to economic cycles and their ability to make strides during periods of distress. In the grocery business, the best example of this phenomenon is Aldi, the private-label, no-frills grocer which has been growing for 46 years. By the end of this year, the German-owned juggernaut is on track to be the third-largest U.S. grocer by store count. Save A Lot’s lengthy turnaround was rooted in a pursuit of a cost structure and efficiency to support an Aldi-esque growth trajectory. It came after high debt from a 2016 leveraged buyout interfered with its ability to price right, causing sales to collapse and stores to close. The overhaul included switching from a hybrid retailer into a leaner wholesaler that licenses the Save A Lot name and format, and sells goods to independent owner-operators of all but a handful of its 850 stores. The project also involved efficient new store layouts supporting a low-labor model, a new logo, and new packaging for the 55 different private brands covering more than 2,000 items its stores stock and sell. Cost savings went into lower shelf prices. These changes were showcased in “Like A Lot A Lot,” in the style of a gloriously over-the-top rap music video. Save A Lot also adopted a more efficient advertising approach, flipping its spend from a paper circular to geotargeted ads on digital. According to Schroder, that’s working. "Like, A Lot A Lot,” which pioneered the approach last year, generated a 20% increase in unaided brand awareness, and a 5% increase in aided awareness. The company declined to disclose what it was spending on its campaigns. “A Lot Alike” is being funded by the company, but independent store owners can also contribute to amplify the message in their operating markets, Schroder said. “One and a half years ago, darn near 100% of our [advertising] budget was in an old-fashioned print circular,” Schroder said. “In the last year, we’ve worked closely with our retail partners and together have shifted ad spending on print media alone from nearly 100% to just over 25% of total spend, meaning digital—or a combination of digital and print together—is now 75% of the total spend. Digital channels allow us to target our customers more effectively, and we’re seeing positive results in both sales and customer count.” Subscribe to Ad Age Sign up now for the latest industry news and analysis Click here

Store brands vs. name brands—behind private label’s battle for market share as inflation soars

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