Notes and Thoughts on Grocery 2.0

Major grocery chains across the country have found a silver lining in recent consumer spending. Financial concerns have not only driven more customers out of restaurants and into grocery stores, they have pushed consumers to question whether their favorite brands are worth the extra cost.

Enter store brand products, which are cheaper than national brands and more profitable for grocers. These lines, often featuring premium ingredients and pleasing packaging, are attractive to consumers not wanting to sacrifice quality to save on groceries.

For decades, grocers thought of private label products as inexpensive imitations of popular brands like Cheerios and Coca-Cola. Consumers, likewise, have been skeptical, that is, except during recessions. As Jan-Benedict E. M. Steenkamp, marketing professor at the University of North Carolina Chapel Hill, says, whereas past recessions temporarily gave consumers a reason to trade down from national brands, this time, the change may stick because the quality and consistency of store brands have improved. “Sometimes, [the consumer experience] will be disappointing,” said Mr. Steenkamp. “More often, it will be better than expected.”

While store brands grow and private label products improve, major branded consumer packaged good companies still insist that their branded products offer better quality through taste and innovation, justifying the higher price. The bottom line is, the only instance in which it matters whether private or branded products provide more value, is in consumers’ perceptions.

As Sharon Frey, a Kroger shopper says, when deciding between private label and branded products, “A lot of it depends on what product it is. If it’s eggs, it doesn’t matter. I would buy Heinz. I prefer Heinz ketchup.”

For grocery chains trying to increase profit in a down economy, private label is the key to continued growth. To compete with popular brands, increase category market share and continue to deliver a sound message of quality for less, retailers need to promote store brand products at every point of purchase. That includes online grocery shopping. Retailers should utilize changing consumer habits by advertising private label lines where cost-conscience consumers can buy with one click.

Rachel