The recession has made private-label brands a hot growth industry, fueled by supermarkets exploiting consumers' search for value. With that in mind, where might investors snatch up a deal on private-label companies?
Private-label brands racked up sales of more than $83 billion in 2008, and they're forecast to grow some 17% this year. According to the market researchers at Information Resources, the private-label share of all consumer-product spending grew to 22.6% (by volume) in the fourth quarter of 2008. Not surprising, really. The Private Label Manufacturers Association says consumers can save roughly 30% on their weekly grocery bills by buying store brands, which is about what Target says consumers can save with its relaunched "up & up" line of household items.
Can't quench the thirst
Cheaper off-brand products are forcing consumer-goods giants such as Kraft, Procter & Gamble
The press has focused more on consumers' trade-downs among food items, but let's not forget the beverage category, either. Aside from milk, water, and some juice drinks, where there's a perceived lack of differentiation, private-label beverages have been unable to break Coca-Cola
And then there's Cott
Cott is now in a bit of a sticky spot in its turnaround efforts. Yesterday, the company released quarterly earnings that beat expectations. But it also warned about second-half challenges, including rising commodity costs and stiff competition. Revenue fell 5.9%, although gross margins firmed.
A heady brew
Private-label beverages might also make inroads in alcoholic drinks. House wines have long been a top seller, but unless you shopped at Trader Joe's, you might not find a house beer. Last year, however, Costco
I'm not sure that Budweiser fears shoppers bringing home a pallet of suds along with their 50 rolls of toilet paper. Still, a Kirkland brew could actually make inroads into the beer market, which already offers a 4% share (by volume) to craft breweries. More interestingly, craft brews commanded a disproportionate 6.3% share of revenue dollars in 2008, meaning that craft beer offers the potential for more profit.
Check out this growth
While Kroger's been in the express line of private-label sales -- 35% of the items Kroger sold last quarter were generic -- the private-label beverage market might not offer the same opportunities, given Cott's poor performance and considerable challenges.
As a result, investors might want to focus on consumer-goods makers such as Ralcorp
Costco, Coca-Cola, and Wal-Mart are Motley Fool Inside Value picks. Costco is also a Stock Advisor recommendation. Coca-Cola, PepsiCo, and Procter & Gamble are Income Investor selections. The Fool owns shares of Procter & Gamble and Costco. Try any of our Foolish newsletter services free for 30 days.
Fool contributor Rich Duprey owns shares of Wal-Mart, Kroger, and Procter & Gamble, but holds no financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.