The Rise of Private-Label Products

A Penny Saved

Private-label products are slightly cheaper versions of household staples that you see in stores. They are typically manufactured by third parties, but trademarked, managed, and often offered exclusively by a single retailer. For example, in Walmart (WMT), next to a rack of Bounty (PG) paper towels, you might see a roll of its store brand Great Value, priced a few bucks cheaper.

In recent months, sales of private-label products have surged as consumers look to stretch their budgets amid record inflation. At Kroger (KR), sales of its private label brands are more than 10% higher than this period last year.

Win Win?

This trend represents a win-win for both consumers and retailers. Buyers get cheaper products, while sellers gain more profits. Retailers typically earn a higher margin on private-label products than on major brands. Additionally, by offering cheaper products, sellers cast themselves as an ally to consumers and win loyalty.

Of course, one company’s win is another company’s loss. Companies like Procter & Gamble, which owns dozens of big name brands such as Gillette, Pampers, and Tide, are surely sorry to see buyers of consumer packaged goods forego name recognition in favor of lower price tags.

What’s the Difference?

The biggest concern for consumer brands is that buyers will switch to private label products, only to notice there’s little to no difference in terms of product quality. If this happens, there would be little incentive for consumers to return to the pricier alternatives, household names notwithstanding.

Since major consumer packaged goods companies typically offer dozens of brands, they’re well diversified against a sales slump. But, if this is the beginning of a long term consumer trend, it might not end well for the P&Gs of the world.

If you don’t already explore private label products when you shop, you might consider swapping out for some, if only to compare them to your go-to brands. In the short term, you’ll save some cash. And, in the long term, you might not even notice a difference.

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