Americans can expect far less federal aid in 2022 than in the early days of the pandemic — just as inflation hits record highs. The consumer price index, a key measure of inflation, rose 7.5% in the year ending in January, not adjusted for seasonal swings. As some brands report record profits, one has to wonder when consumers will say enough.
Private brands tallied double-digit sales growth and substantial unit volume in 2020 as the COVID-19 pandemic hoisted grocery sales. Yet, store-brand market share held steady as national brands kept pace, according to the Private Label Manufacturers Association (PLMA).
Private label or store brands are products in a wide range of industries that provide a lower-cost alternative to regional, national, or international brands. In 2020, the market share of private label brands in the United States was 19.5 percent. Over that year, retail sales of consumer packaged goods sold under store brands in the United States amounted to around 158.8 billion U.S. dollars, increasing compared to the previous year.
The newest trend in private label sales is “premium” private label marketed by stores like Target. There’s more profit for retailers, so they tend to give private label products premium merchandising space.
Price elasticity is a marketing theory that tries to calculate the magnitude of consumers’ reactions to a company’s price change. For instance, it can help a company like Pepsi determine how many fewer beverages it will sell if it increases prices by 5%? But consumers flush with cash from the stimulus have been willing to pay higher costs; for now.
Inflation is not a U.S. problem; it’s a worldwide problem caused by supply-chain issues, but how will consumers respond when their wallets start to empty and brands report record profits?
The ultimate goal of any corporation is to make money. Money is generally made at the expense of some other corporation or in business-speak: “taking someone else’s share” or “creating a need or want” in the market. The truth is that the ultimate goal isn’t necessarily to make money.
A growing number of companies have chosen a different goal. They see their bottom line as something radically different. Delighting their customers through continuous innovation has become their bottom line. Making money is the result, not the goal, of their activities. Interestingly, when they operate this way, they make a lot more money than companies that focus directly on making money.
While some pontificate a “brand’s purpose” with consumers, others understand that it’s more simplistic than that; it comes down to price. I’ve seen firsthand how consumers are switching brands as prices rise. Why pay $8.00 for a bag of coffee beans when store private label beans are $4.25?
Inflation will end, and consumers’ wallets will lighten. Right now, brands need to ask, “are we raising prices because we can?” or “are we raising prices because we need to?”.