Recently, Procter & Gamble indicated that it would continue to raise prices even though lack of consumer demand – due to increased prices – was responsible for half of its sales decreases. P&G’s CFO indicated that the packaged goods behemoth’s focus on continuing price hikes would be acceptable to consumers because, after all, people still need to launder their clothes and wash their hands.
He may wish to walk back those words.
Sure, we all do laundry and we wash our hands. But, there are many quality alternatives that are more affordable than Tide and Ivory. And, customers are figuring this out. A 42 count bag of Tide 3-1 pods costs $12.94 on Amazon. A 42 count bag of Arm & Hammer 5 in 1 pods costs $9.48 on Amazon, a $3.46 difference.
Target is taking a different approach. Target understands that in a difficult economy, people are looking for ways in which to be economical without feeling that they are being cheap. Target understands that saving money should be a joyful experience.
Right now, continued inflation and more cautious customer behavior are affecting shopping. Economists, pricing experts and observers report that customers are becoming less price elastic. Consumers are showing an unwillingness to pay sky-high premiums for leading brands. Consumers are switching to private label brands.
On March 1, 2023, Attest’s US food & beverage trends report indicated that more than seven in 10 consumers (73%) say are staying with private-label brands regardless of price. Apparently, American shoppers say they have acquired a real taste for private-label brands. The report revealed that supermarkets’ private-label brands are the biggest beneficiaries, with 58% of Americans saying they are “very likely” to purchase own brand alternatives. A further 27% say they are “somewhat likely.” Only 4% of American shoppers will not consider buying grocery own brands. Interestingly, 73% of these consumers indicate this change to own brands is permanent.
Supermarket giant, Kroger, said its latest results were “boosted by a 10% increase” in its own brands sales. Recent reporting from Walmart and Target indicates that customers are purchasing own brands more frequently and more consistently. Grocery stores such as Aldi, Publix, Whole Foods, for example, have extensive own brand lines across multiple categories.
The switch to own brands has been evolving for some time. According to a 2020 report from the consulting firm, McKinsey, “In a mid-September survey of more than 2,000 US grocery shoppers, nearly one in five said they’ve bought more private-label products during the COVID-19 crisis than they did precrisis. Company leaders at North American grocers and mass retailers tell us that they have indeed seen heightened demand for private-label goods.” Forty-five percent (45%) of respondents indicated that price was their reason for switching to own brands from national, leading brands. And, this was before brands started raising prices upon already raised prices. National leading brands have been on a price-hike binge for some time.
For, example, Conagra, maker of Hunt’s Ketchup, Healthy Choice frozen foods and other food products, increased prices multiple times in 2021 and 2022. Conagra raised price 17% in fourth quarter 2022. In the previous 2022 quarters, Conagra raised prices by 14.3%, 13.2% and 8.6%.
Unilever, home to Dove soap and Ben & Jerry’s, raised prices over eight consecutive quarters, with fourth quarter 2022 showing price raises of 13%.
P&G’s division that includes Tide increased prices 13% in its last quarter ending December 2022. Prices increased 11% in the division including Gillette. Prices increased 8% in the division that includes Pampers. Amazon Basics detergent pods cost about 13 cents per pod. Tide laundry pods cost about 24 cents per pod, almost twice as much per pod.
These leading national brands have pushed the limits on pricing. And, consumers are fighting back.
During its latest earnings call, Walmart US CEO, John Furner, indicated that Walmart sees an “acceleration” to private label brands that started in March 2022 and got “stronger” in the fourth quarter. Mr. Furner added that although it is Walmart’s goal to cater to all customers across all brands, “… there is definitely some acceleration to private brands in the last 90 days.”
In a CNBC interview, Walmart International CEO, Doug McMillon said that Walmart planned to keep maintain low prices on its own-brands. As an example of the price differential, Walmart pointed out that Lay’s BBQ potato chips are almost two times more expensive “… for a 7.75-ounce bag relative to Walmart’s Great Value equivalent.”
But, when it comes to private label brands, Target is an amazing example of profitably satisfying customer needs. Whereas the majority of Walmart’s sales are grocery-generated, according to The Wall Street Journal, Target relies on “non-food sales.” This means that Target must be creative in how it generates revenue.
News agency Reuters wrote that Target “… generates more than $30 billion in sales from its 48-owned brands.” And, Target intends to “… launch or expand more than 10 owned brands, adding thousands of new products. The majority of these items will be sold for $3, $5, $10 and $15.”
In Target’s February 28, 2023, earnings call, Target stated that its focus is to create a balance within categories by offering leading national brands and high-quality affordable own brands “that are unmatched by our competitors.”
“Target CFO, Michael Fiddelke, told Yahoo Finance that the company is seeing a “cautious” consumer, hence the reinvigorated value messaging
Target’s EVP and Chief Growth Officer said,
“Our owned brands have long been a source of pride and differentiation for Target, offering great style and quality, all at incredible value. So, it’s no surprise that our owned brands have continued to outpace total enterprise growth and why we have plans to launch new or extend assortments in more than 10 owned brands this year.
Recently, a study listing the 10 fastest-growing private label brands in 2022 included three found exclusively at Target. Target was the only retailer to have more than one brand on the list, and two of them were the only nonfood brands to make the cut.”
Target’s approach to economical shopping is articulated as follows:
Our purpose is to help all families discover the joy of everyday life, requires a balance of quality, value and innovation that sets us apart from competitors. We are relentless in ensuring every decision supports this delicate balance.
Target states that it offers Target shoppers “affordable joy” by offering an “unparalleled assortment of owned brands and a renewed focus on deal-conscious shoppers. This helps “… all families discover the joy of everyday life.”
This “affordable joy” can be experienced through own brands covering seventeen product categories including women, men, kids, baby, swimwear, athletic wear, home goods, personal care-beauty, electronics, pets, grocery and more. Target explains that its own brands are designed to be relevantly differentiated from other private label competitors and leading national brands. One analyst stated “It is nice to see Target invest in own brands and use that as a way to keep differentiating themselves against Walmart and Kroger.”
Not every enterprise with private label has success. Kohl’s, a troubled retail brand, reported flat sales in the quarter year-over-year.
For many shoppers, having to scrimp during stores trips whether for food or necessities can be a psychological bummer. But, Target is saying “not so fast.” Shopping for private label brands at affordable prices brings joy to the shopping experience. What could be so joyful as finding quality versions of everything you want across multiple categories at prices that do not bankrupt you.
Barron’s, the financial newspaper, thinks Target is a “buy.” Barron’s believes that Target is doing the right things in this difficult economy and changing landscape of customer behavior.
Interestingly, on its web page, Whole Foods tags its 365 by Whole Foods Market line of more than 3500 products as “carefully sourced for more food joy.” This Whole Foods joy is knowing that the products adhere to Whole Foods Quality Standards and “… go the extra mile when it comes to sourcing, worker and animal welfare and supply chain transparency.” It is joy derived from participating in affordable sustainability.
Marketplace observers believe that grocery private label brands have a genuine opportunity now to cement relationships with customers. Providing high quality, trustworthy, affordable brands is a must. But, behaving like Target is also a must. Target has committed to making shopping while saving on own brands about more than price. Target is focused on the emotional and social benefits that saving money can deliver. Target has chosen to make own brands shopping an affordable joyful experience.