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.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends H.J. Heinz Company, PepsiCo, and Whole Foods Market. The Motley Fool owns shares of PepsiCo, SUPERVALU, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.