As a majority of Americans struggle with post-recession headaches and continue to feel uncertain about the economy, including a food-inflation rate of almost 4%, shoppers continue to fill their grocery carts with more Private Brands. Nearly 45% of consumers say the shaky economy has motivated them to continue to consider and ultimately purchase more retailer owned brands and other lower-priced food items. Which of course means there is another study that proves Private brands will continue to grow and that American consumers are value conscious. This time it comes in the form of a survey released today by AlixPartners LLP.
“The American consumer is staunchly committed to value and is more open to Private Brand and other less-expensive food products than ever before,” said David Garfield, managing director and head of AlixPartners’ Consumer Products Practice. “Consumers’ uncertainty about the U.S. economy and their personal economic situations, coupled with food- and commodity-price volatility, creates an environment of both challenges and opportunities for food-makers across the board.
“The food industry is seeing a heated battle for market share and our survey shows it will continue as more consumers are up for grabs,” continued Garfield.
Private Brand Attitudes
The economic downturn moved the needle on shoppers’ willingness to stray from branded goods and try less-expensive items. Results of the AlixPartners survey even show that consumers’ consideration of Private Brand items is significant across all major food product categories – dairy, frozen foods, fresh produce, flour- and produce-based shelf stables, and refrigerated meat.
“These findings say a lot about today’s consumer, and should be of interest to both branded-food companies and Private Brand producers,” continued Garfield. “Companies that rely heavily on brand loyalty need to understand the post-recession consumer and adapt their business accordingly. Those that do can even be big winners, while those that don’t will likely suffer consequences.”
According to the AlixPartners survey, “price” and “quality” are the most important considerations for shoppers considering Private Brand items, with more than 60% of those polled indicating that price is the most important factor. The survey also found that Americans are spot-on in their perception of Private Brand cost savings, estimating an accurate average of 20% cost savings across food categories.
“Not only are shoppers more open to purchasing store brands, but they’re smarter about price and value than before the recession,” said Parmeswaran Bhaskaran, director in AlixPartners’ Consumer Products Practice. “The recession trained them to research and seek out deals – and, even when their financial situations improve, it’s safe to say that consumers may not abandon their value-conscious instincts.”
Despite enthusiasm for Private Brand, consumers indicated they still have nagging concerns about the quality of Private Brand products, with more than 40% of those polled citing questionable quality as the primary consideration that would prevent them from purchasing a Private Brand product over a similar national brand.
“Private Brands are showing a lot of strength and these companies have a lot of opportunities for growth, but that doesn’t mean it will be easy,” said Bhaskaran. “The challenge for Private Brand producers is to continue to draw in consumers by convincing them of quality-parity.”
But, Private Brand producers seem to up to the challenge, as the survey shows once shoppers try Private Brand they tend to end up making a permanent switch.
In a time when it’s increasingly difficult for food companies to keep their most popular items on the shelves, the AlixPartners survey found that product availability has a major impact on purchase decisions. Overwhelmingly, consumers indicated that they would purchase another brand if their branded preference was out-of-stock – more than 57% said they would purchase either a similarly-priced, less-expensive or Private Brand product, including nearly 40% saying they would buy the Private Brand item.
When faced with an out-of-stock situation, only 3% of shoppers said they would go elsewhere to find the product, suggesting that an out-of-stock product more often than not means a lost sale for branded-products companies.
“This should alarm most food-makers,” said John Bonno, director in AlixPartners’ Consumer Products Practice. “In a time when every sale is important, and when a lost sale could mean a lost customer, there is a lot of money being left on the table.
“Supply-chain efficiency is a game-changer – companies need to be more vigilant about managing their own suppliers and making sure they can stock the shelves with enough of the right product to meet quickly changing consumer needs and demands,” continued Bonno.
Overall, the AlixPartners survey indicates that for the foreseeable future, and possibly permanently, food companies will face an unforgiving, value-driven consumer.
“Shoppers now are looking for the best products at a price that makes sense for their families. With this in mind and costs such as fuel prices pressuring household budgets, the increase in Private Brand buying is likely to be a trend that stays in place for some time,” said Garfield.
That, combined with increasing prices for food-product staples such as sugar and corn could mean short- and long-term challenges for food-makers across the board.
“To compete in today’s brave new world,” said Garfield, “food-makers need to focus on operational and pricing efficiencies that enable them to deliver quality at a great value.”
About the Survey
The AlixPartners U.S. Food Products Survey was conducted April 7-10, 2011, among 1,000 U.S. adults. Americans were asked to provide feedback on the impact of the economy on Private Brand purchases; preferences for Private Brand food products past, current and future; key decision criteria for consumer purchase of Private Brand food products; and the importance of Private Brand food assortments in choosing where to shop.