Your Best Investments May Be on Your Grocery List

By opting for Wal-Mart's private-label Great Value or Sam's Choice brands while grocery shopping, I'm able to wring as much bang as possible out of my shopping cart buck. Many times these private-label goods are manufactured by the same companies that produce the branded product, or at the least offer quality equivalent to the brand names.

Yet I'm partial to Hellmann's brand mayonnaise and H.J. Heinz ketchup. As brand-name consumer goods, they cost more than their private-label counterparts, and logically they should be no better than the lower-cost option, but I feel I can trade up on these items because I'm pocketing so much in savings on everything else.

Apparently, I'm not alone. According to the market researchers at Rabobank, the "hybrid consumer" more often than not is shopping downmarket for most of his or her groceries but is willing to splurge on certain luxury goods -- and it's having a polarizing effect on the industry. Indeed, it's evident in the retailers that are most successful. You have Wal-Mart and Aldi discounting prices at one end and Whole Foods Market at the other, but both sides are thriving. It's the mid-tier market that hasn't fared as well.

Supermarket chain SUPERVALU (NYSE: SVU  ) lost 40% annually between 2007 and 2012 while Safeway (NYSE: SWY  ) lost 10% annually. Kroger (NYSE: KR  ) , which recognized the value of private-label branding early on, achieved 4% growth.

Between 2007 and 2012, private-label foods maker Ralcorp, which was acquired by ConAgra (NYSE: CAG  )  in January, saw its stock grow at a better than 12% compounded annual rate, outperforming its peer group and the Russell 1000. Cott, another private-label beverage maker, didn't fare quite as well as Ralcorp, achieving only 4% compounded annual growth, but it doubled the performance of its peer group, which includes such powerhouse names in the bottling industry as Coca-Cola Enterprises, PepsiCo's Pepsi Bottling Group, and National Beverage.

The growth of private-label brands has even led to the creation of "premium" off-brand names such as Walgreen's Nice! brand and Target's (NYSE: TGT  ) Archer Farms.

Rabobank would think that's smart marketing, noting that retailers should create value opportunities in premium categories, and premium options in their value segments. With the rise of the hybrid consumer, the grocery store is going to have to develop hybrid marketing to catch the dollars being spent at both polar extremes. Those like Kroger and Target that keep their finger on the pulse of the consumer will continue to be the ones that perform best.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2458236, ~/Articles/ArticleHandler.aspx, 8/1/2014 4:46:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement