Unemployment may be low, jobs plentiful, and consumer spending holding up. However, consumers are still struggling with the rising cost of credit card debt, housing, and automobiles—expenses that defy easy solutions. However, managing the cost of groceries and other essentials, the leading expense for half the respondents in a recent TD Bank survey, is just a click or short drive away.
As consumers pull back on discretionary spending, major retailers in the grocery business are doubling down on the power of private-label brands to build traffic and loyalty. The boom is on.
Store brands have been around for years, but rising quality and general inflation drove private label product sales up last year by 11.3%, nearly double the growth of national brands, according to the Private Label Manufacturers Association. The trade group also reported that store brand unit share was 20.5% (one in five units sold were store-branded); the dollar share rose in 2022 to a record 18.9%; and over five years, the dollar share had swelled by 40%.
Walmart’s Great Value and Equate store brands are the leading examples of how retailers leverage price increases by vendors like Unilever and Procter & Gamble to burnish their reputations for value, taking advantage of the phenomenon known as trading down by higher-income consumers.
Since the days when department stores had restaurants, food has been a marketing draw for clothing and housewares. Walmart has the edge for now, but competition is heating up. Dollar General and Dollar Tree, competing chains of smaller, no-frills general merchandise stores often located in food deserts, are investing about $2 billion each in retrofitting stores for groceries.
Dollar General says it plans to offer produce in 10,000 of its 19,000 locations eventually. According to Coresight Research, Dollar Tree and Dollar General ranked in the top five retailers from which consumers bought food in 2022.
German discount retailer Aldi also has ambitions in this space. The company recently bought nearly 400 Winn-Dixie and Harveys Supermarkets with plans to convert them to Aldi locations. The company, known for offering lower-priced private-label products, plans to operate 2,400 stores by the end of this year.
Amazon, which owns Whole Foods and Amazon Fresh, hopes to transform itself from a high-end, specialty grocer (nicknamed “Whole Paycheck”) into a home delivery vendor of essentials and store-branded goods under private labels with names like Aplenty and Happy Belly. Amazon aims to leverage its last-mile advantage, built over years of development, to do an end run around Walmart, whose grocery business largely depends on its 4,600 US brick-and-mortar stores.
How seriously companies are taking this food fight is suggested by the battle between Costco and Sam’s Club over the price of the hot-dog-and-soda combo sold at their respective in-store snack counters. Costco’s version has been the same price for nearly 40 years: $1.50. Likewise, Sam’s Club. At $1.50, the hot dog combo became an emblem of each retailer’s commitment to affordability, a loss leader with a sense of humor.
Just before the big Thanksgiving sales weekend last year, Walmart-owned Sam’s Club sprung a marketing trap. It dropped its price to $1.38, a clever stunt that brought the company a lot of free publicity on the eve of the holiday retail rush.
I wonder what this holiday season will bring?
