Shoppers buying more store brands

ByUSA Today

CINCINNATI -- After watching the price of her favorite bread rising too quickly, Michele Shores decided it was time for a fresh approach.

She began picking up store-brand breads, Kroger Co.'s namesake brand or Wal-Mart Stores Inc.'s Great Value, when her usual bread went from $2 to $3 a loaf. Less than half the price, and not half bad.

"My husband takes his lunch to work and we all eat a lot of sandwiches here," said the 30-year-old mother of two from Atlanta. "So that's a lot of money for us."

As budgets get tighter and food gets more expensive, American shoppers are increasingly switching to store brands — even upper-income consumers who may not have been inclined to give them a try before.

The nation's biggest grocery-sellers, Wal-Mart, Kroger, Supervalu Inc. and Safeway Inc., all report that sales of their own brands are jumping, as customers can't stop regularly buying food and household items but need to reduce spending.

"There are things we can do to drive less, but how do you eat less? You don't," said Erin Frehner, a Brigham Young University senior.

Frehner said she and her husband, both full-time students with part-time jobs, always try to get the store brand unless they strongly prefer the national brand or if the price is almost the same.

The Food Marketing Institute, an industry trade group, found this year that the number of shoppers who say they are buying more store-brand items has been steadily rising, now up to some 60%. Candace Corlett, president of the consulting firm WSL Strategic Retail, says her group has found that even upper-income shoppers are more willing to buy store brands, which have traditionally been seen as appealing most to people on limited budgets.

That shift comes as the chains are offering more store-brand products of better quality.

Gone, for the most part, are the gray, no-frills cans with nondescript labels such as "peas," packaging that evoked cheap, bland taste. Many now sport colorful labels with names like Kroger's "Private Selection" and "Naturally Preferred" that don't shout "store brand!"

The stores have been pushing their own brands in areas such as dairy products, meats and breads where prices have risen especially fast, and are also tapping into increased demand for organics and natural foods.

"Store brands have come a long way," said Tod Marks, a senior editor at Consumer Reports, which has tested store brands against national brands for quality and customer response. "Over the years, retailers realized that store brands were not just something to be floated out during hard times ... 'This is a signature product of ours. We want to be known for this.' "

Stores generally reap better profit margins by selling their own brands — also called corporate brands, private labels or generics — and also use them to build customer loyalty.

"All of us are creatures of habit, and when things are going well, you just buy what you bought last week," Kroger's vice chairman, Rodney McMullen, said in an interview. "Customers are much more willing to try a corporate brand when the economy gets tough, and when we can get the customer to try it, they like it. It just makes it so much easier for us to get the customer to try it."

Shores has been buying more store-brand diapers, costing about 30 to 40% less, but sticks with Procter & Gamble Co.'s Pampers for use at night because they're more absorbent. She tried store-brand spaghetti sauce, then went back to Prego, a Campbell Soup Co. product she says is thicker and vegetable-rich. But she doesn't taste much difference in the store versions of canned vegetables and many other weekly grocery items.

"For oatmeal, there's almost a $2 price difference," she said. "That adds up."

Surveys have shown that most people were highly satisfied with most store brands, Marks said, and testing found many of them held their own against the national brands. In some cases, he said, consumers must decide whether "good enough" at a lower price is better than buying a national brand.

"Some stores do it better than others," said Sonya Redwine, 35, of Knoxville, Tenn., who usually steers her shopping cart toward store brands.

She does prefer Pampers diapers for her daughter and also P&G's Gain detergent for her heavy laundry loads, so she watches for sales and coupons and stocks up on those items. But she's happy with Kroger and Target Corp. store products for most groceries.

"Just because it's a store brand doesn't mean it's not the best for your family," she said.

Trying to capitalize on what Safeway CEO Steve Burd recently called "an extraordinary shift," stores are offering more new products and increasing their marketing.

Safeway's 2-year-old "O Organics" line has been so successful the company has licensed it for sale by other retailers. Supervalu's chief executive, Jeff Noddle, said this month that the Wild Harvest natural/organic line that hit shelves in April has been "our most successful product launch ever."

Wal-Mart, which says sales of some private-label categories are up 40% this year, is rolling out new "All Natural" ice cream featuring such new flavors as blueberry pomegranate.

Kroger has new lines of steaks, bread and pizzas besides more organic items. Within the past five years, the company has nearly doubled to 14,000 the number of store-brand products it offers. It also gives free samples and runs blind taste tests against national brands in its stores, and has increased direct mailings to regular customers with coupons and recipe ideas for its brands.

Like other chains, Kroger now uses a tiered approach, offering a sharply discounted "Value" brand, its namesake store brands, and what it calls "premium" brands such as Private Selection. Kroger says it puts that label only on products that meet or exceed the leading national brand in quality; Private Selection sales are projected to hit $1 billion this year.

Burt P. Flickinger III, managing director of the consulting firm Strategic Research Group, said the big U.S. chains are catching up to the long tradition of strong private-brand grocery programs in other countries, such as those of London-based Tesco PLC and Canada's Loblaw Co. Ltd. — Loblaw 30 years ago introduced a brand called simply, "No Name."

While companies with the top-selling brands will probably hold up better than runner-up brands against the store competition, he said, "the long-term implications are really cause for concern for every branded manufacturer."

Kroger's McMullen said he thinks there's plenty of room for both store and national brands to do well as people cut back on restaurant spending. Kraft Foods Inc., the nation's largest food and beverage maker, on Monday reported second-quarter growth, citing price increases and more consumers eating at home.

P&G, which has repeatedly raised prices to offset higher costs for energy and raw materials, has expressed confidence that product innovations and people's loyalty to its generations-old brands such as Pampers, Tide detergent and Gillette shavers will keep sales growing.

"It's all about value," Clayton Daley Jr., P&G's chief financial officer, recently told analysts. "It's not just price, it's all about product performance. ... It's about the trust that consumers have in your brands."

Frehner, for instance, recently loaded up on 48 boxes of Kroger macaroni and cheese that was on sale, 92 cents per box cheaper than their favorite brand.

But she and her husband miss their Kraft mac-and-cheese.

"Many times we can't tell the difference and we are glad there is a cheaper alternative," she said. "Other times, we notice a difference and just deal with it because of the money we save."