Store-brand food prices on the rise

Generic products still cost less, on average, than national brands, but the gap is shrinking. Would you pay more for a store brand?

• By
• Giselle Smith
• on
• Tue, Feb 07, 2012 9:56 PM

When I was in college, the generic no-name beer with its plain white label and black lettering was a favorite at dorm parties, where we wrote our own names on the blank labels. My tastes have changed since then, but so have generic products.

I may not buy no-name beer anymore, but I still reach for private-label grocery brands to stretch my food dollars, and I'm not alone. During the recession, a lot of people turned to store brands to save money -- and many grew to actually prefer those products.

In fact, people are sometimes willing to pay more for store brands than their name-brand equivalents, according to The Wall Street Journal.

On average, private-label brands are still 29% cheaper than national brands -- but the gap is shrinking, according to a recent report (.pdf file) from SymphonyIRI. Stores have increased prices on their private-label products by an average of 5.3% over the past year, compared with an industry average of 1.9%, says Supermarket News.

The price tags on perishable private-label goods are up even more -- 12% last year, compared with 8% for national brands.

But overall sales of store brands have increased as well, the Journal reports:

For decades, generics accounted for about 20% of the foods and beverages consumed in American homes, according to the NPD Group. But their market share has climbed to 29%, and stores are trying to push that figure higher.

Separate and not equal

Many generic products are made by the same companies that produce the national brands, such as H.J. Heinz, Tyson Foods and Kimberly-Clark, the Journal says. The manufacturers tend to keep those relationships quiet, however, and they get a smaller cut when the products carry a store label.

For retailers, private-label products offer better profit margins, but they can also be "strategic weapons," according to Supermarket News:

Private label products are viewed as differentiators. They are no longer simply "me too" products that offer "the same thing for less money."

Some large retailers have effectively branded their private labels with their own identities, attracting consumer loyalty along the way. As Time magazine reports:

A big part of the reason we like store brands more now and in some cases even prefer them over big national brands is that retailers have expended considerable effort branding their own lines of goods. Instead of a no-frills, drab label with only the bare minimum of information printed on it, brands like Target's Archer Farms line of snack foods, beverages and other items have their own colorful logos and distinctive branding.

Chains such as Wal-Mart, Safeway and Kroger are improving the quality and packaging of their store-brand products and establishing their private labels as brands in themselves, the Journal reports. Of course these efforts cost money, which may account for the increased prices of generic goods.

A few store brand purchases that cost more than their name-brand counterparts, according to the Journal:

• Archer Farms roasted almonds at Target.
• Kroger brand soy milk.
• Archer Farms instant oatmeal.
• Disposable diapers at Sam's Club.
• Safeway brand Greek yogurt.

"It's much less about value and price than it used to be," Clarkston Consulting analyst Steve Rosenstock told the Journal. Results from his company's recent study on purchasing showed that 28% of consumers chose store-brand products over national brands because of "loyalty and positive experiences" rather than price.

Not all generics are going upscale, however. While some products in Target's Archer Farms line are priced slightly higher than the national brands, the retailer carries a second generic line, Market Pantry, that is priced lower.

It remains to be seen whether consumers will continue to buy generics as the economy improves, or whether they'll pay more for private labels if the prices keep rising. The national brands, for their part, are not going to sit back and watch the market share for store brands increase.

Have you adopted some store brands as your favorites based on quality rather than price? If store-brand prices keep heading up, will you change your shopping habits?