Private label sales surge as consumers cut back

Via the WSJ, “American consumers are starting to cut costs on mainstays from toothpaste to baby formula as inflation hits a swath of the economy that has thus far proven resistant to substantial price increases. Private-label brands have begun to lure back buyers. In the three weeks ended March 13, edible private-label brands increased share slightly, and nonedible store brands held steady, according to research firm IRI.

 Consumers, hit by soaring costs for everything from gasoline to child care, are drawing a line, analysts and retailers say. Shoppers buy staples in smaller quantities, switch to cheaper, store-name brands, and more rigorously hunt for deals. The shift is especially pronounced among lower-income consumers who splurged on household products amid the heights of the pandemic, they say.

The consumer-staples industry “has crossed a threshold,” said Krishnakumar Davey, president of strategic analytics for IRI. “Consumers have been pinched for some time, they are observing that they are paying more and more, and they are beginning to drop some items from their basket because they can’t afford it.”

Wall Street Journal

Part of that shift is because private-label options are more available now than during the pandemic, when high demand and supply-chain problems led manufacturers to shift products away from store brands in favor of pricier name brands. But consumer demand for cheaper items is also a factor, he and other analysts say.

P&G executives say they are prepared for a downturn in consumer spending but have told Wall Street they believe consumers will continue to covet items like Tide laundry-detergent pods, Gillette razors, and Pampers diapers, which often are the priciest option on store shelves. That could be a huge mistake.

“Consumers continue to prefer P&G brands and the superior performance they provide even as inflation impacts household budgets,” P&G finance chief Andre Schulten said in a January call with analysts. The company declined to comment on consumer spending. Really?

Procter & Gamble is charging more for diapers, laundry detergent, razors, and just about everything else it makes, joining scores of corporations in a display of market power that is shocking consumers who grew accustomed over the past decade to prices virtually flatlining… But to consumers, P&G and its corporate kin are not reacting to inflation so much as causing it. The critics say that companies that are raising prices for beer, chicken, toys, gasoline, and medicine are just using inflation as an excuse to pad record profits and reward Wall Street.

Too many brands believe that thanks to nearly $6 trillion in government spending, consumers — taken as a whole — are flush with cash. Surging spending on products like laptops and furniture, coupled with snarled supply chains, results in higher prices, they say, but inflation is eating away at consumers’ wallets and they are looking to cut back.

Some economists say, “we know corporate executives engage in predatory, exploitative behavior.” Corporations banked a near-record $2.7 trillion in after-tax profits during the fourth quarter of 2021, almost twice as much as in the same period in 2009. But the average operating profit margin for companies in the S&P 500 index — how much is earned from each additional dollar of revenue — peaked in the middle of last year and is now 12.7 percent, about unchanged from 2018, according to Yardeni Research.

Brands that are raising prices are walking a thin line right now that advertising or marketing may not be able to fix. Defecting customers may decide they like the cheaper brand and stay with it rather than paying more for a more expensive product.

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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