Think you can hide from slumping U.S. consumer spending behind shares of traditionally steady staples companies such as General Mills
At this point, the cat should be out of the bag: Grocers and other retailers are pushing their own labels as value alternatives to the pricier brand names on the next shelf down. The trend isn't limited to low-income shoppers, either. From Wal-Mart Stores'
How serious is the private-label threat? The table below details the recent market-share growth of private-label/store-brand goods within the consumer-packaged-goods (CPG) universe.
Trends |
Q1-07 |
Q2-07 |
Q3-07 |
Q4-07 |
Q1-08 |
Q2-08 |
Q3-08 |
Q4-08 |
---|---|---|---|---|---|---|---|---|
Private-label unit share |
21.2% |
20.9% |
21.2% |
21.6% |
21.2% |
21.8% |
22.3% |
22.6% |
Private-label $ share |
16.1% |
16.0% |
16.5% |
16.8% |
16.8% |
17.0% |
17.4% |
17.5% |
U.S. unemployment rate |
4.4% |
4.6% |
4.7% |
4.9% |
5.1% |
5.6% |
6.2% |
7.2% |
Private-label share data from IRI. Unemployment rate from Bureau of Labor Statistics.
Yes, the trend did continue in 2009. Unit and dollar share reached 22.8% and 17.6%, respectively, for the 52 weeks ending July 19.
As for the latest development in the private-label assault, let's look at national grocer and retailer Kroger
Unlike SUPERVALU
Over the long term, you say? Heck, over the long term, the recession will be over, and newly outgoing consumers will be moving back to name brands.
Umm … not necessarily. Sure, as the table indicates, there appears to be a strong correlation between rising unemployment and private-label share gains. But industry research indicates that more than 90% of shoppers plan to continue buying store brands when happy days are here again.
See, the level of quality and innovation among such products has improved in recent years. So while it may take a recession to get certain consumers to try private label goods, repeat purchases appear to be at least partially motivated by the quality and value these products offer.
Moreover, a recent IRI study upends the conventional view that links private-label growth to household financial distress. Instead, such purchases appear to be substantially driven by brand perception and emotional connection to the retailer in question. That bodes well for established companies that are growing their private-label operations, a roster that includes consumer favorite Amazon.com
Ultimately, investors who casually dismiss private label as a one-hit recession wonder could eventually find themselves wishing that their thinking hadn't been, well, quite so generic.
Other investing risks to beware: