Walmart is pitching its private-label goods to consumers as its suppliers raise prices. With the cost of transportation, packing, and raw materials all dropping, “retailers like Walmart are saying, ‘hey, you already had three rounds of price hikes last year, why are you giving us another? Of the store-brand packaged goods purchased online in the U.S. in the final quarter of 2022, 43% came from Walmart.
Last month, Target announced it would pay new employees as much as $24 an hour and extend health benefits to anyone working at least 25 hours a week. The company is hardly the only one coughing up cash to lure in new workers or retain those on staff. Starbucks recently set a national minimum wage of $15. McDonald’s, Dairy Queen, and Subway franchises have been offering signing incentives. Lowe’s is giving bonuses to hourly workers this month. That’s good for employees, but most consumers don’t realize that those increased costs will be passed onto them.
One way of minimizing increased costs is by pushing private-label products. Walmart is warning major packaged goods makers that it can no longer stomach their price hikes
Any price increases – even by just a few cents – can have negative effects, prompting some shoppers to look for bargains at dollar stores or warehouse chains such as Costco. Walmart, which touts its “Everyday Low Price” policy, raised prices last year on milk, frozen meals, and tide detergent, to name a few, as its suppliers battled soaring costs of everything from chemicals to wheat and fuel. But now with the cost of cardboard cases declining by 40-50%, the cost of transportation falling by 25-30% and the cost of raw materials declining significantly, Walmart is pushing back.
- 73% of people have acquired a taste for private label brands and plan to keep buying them even as the economy improves, according to a study from Attest provided exclusively in an early look to Food Dive. Just 9% said they will not stick with private label options.
- Nine out of 10 shoppers say they are bargain hunting when grocery shopping. A total of 41% are visiting multiple stores to find the best deals, and cheaper pricing is four times more likely to attract shoppers to a store than special offers and promotions.
Rod Little, CEO of Schick razor maker Edgewell Personal Care Co., told Reuters that it “will be tough” to pass new price increases through to retailers in the future. Walmart said, “from here, our consumer is challenged, we’re going to be looking out for the consumers, so you’re going to have to have excellent reasons if you’re going to price up from here,” Little said in an interview.
While grocers have earned credit for upgrading the quality and branding of their private labels, a new study finds store brands receive little marketing support.
Among the findings from a survey of 117 U.S. grocers taken in the fourth quarter from Incisiv and Wynshop’s Grocery Doppio platform in partnership with FMI:
- Ninety-seven percent are currently using marketing emails for national brands versus only 32 percent for private brands;
- Ninety-five percent are using banner advertisements on internal channels for national brands compared to only 16 percent for store brands;
- Ninety-one percent are using internal web or app search results for national brands versus 41 percent for store brands;
- Fifty-seven percent use in-store promotion screens for national brands versus only two percent for store brands.
Private label pushes may face conflicts with national brand partners. The study stated, “Grocers are in the difficult position of building their private brands to compete with the national brands while continuing to foster a mutually beneficial relationship with their trade partners.”
Eighty-three percent of grocers surveyed also felt they needed more dedicated marketing resources to realize the private brand successfully. The top personal brand challenges cited included limited in-house resources, inadequate budgets, lack of IT resources and skills, and lack of relevant content to personalize.
80 percent of food retailers and manufacturers expect to increase investments in private brands over the next two years.
Amazon says its private label brands account for 1% of sales, which equates to $4.7 billion in 2021. Since launching in 2009 with AmazonBasics batteries, Amazon’s private label has ballooned to “243,000 products across 45 different house brands,” per the Wall Street Journal. And some of these products — including a laptop stand, a chair, and a backpack — have been subject to high-profile rip-off allegations over the years. But at over $4 billion scaling back their private label means little.
Merchants have a lot of merchandising power for private-label products. When Walmart says they have had enough price hikes, national brands should listen. As we move through the year, consumers are tightening their spending, and private label offers ample savings.