Supermarkets are doubling down on their in-house product lines, seeking to capitalize on the disposable-income squeeze that is hitting consumers.
Sales of private-label products, which are typically cheaper than brand-name equivalents, have surged in recent months as shoppers look for ways to economize amid soaring inflation.
In response, big supermarket operators such as Kroger Co. in the U.S. and Carrefour SA in Europe say they are investing in expanding their in-house offerings across more price points and product categories.
Supermarkets typically make a higher profit margin on private-label goods than they do from selling branded products made by consumer behemoths such as Kraft Heinz Co. and Unilever PLC.
Pushing lower-priced products could also enable grocers to win the loyalty of consumers by casting themselves as the shopper's ally during difficult times.
"We continue to expand and diversify our brands portfolio at every price point," Kroger chief executive Rodney McMullen said on a call with analysts earlier this month.
Kroger says its recently launched private-label bargain line, called Smart Way, has already taken off. (Photo: Reuters)
More customers were turning to the company's private-label products, he said, "as a way to stretch their food budgets."
Private-label sales at Kroger increased more than 10% compared with last year in the third quarter, during which it introduced 147 new store-brand products.
Kroger launched a new bargain line called Smart Way in September, which it said has been purchased by two million households.
That line is now being expanded, and in January the company plans to host a suppliers' summit to help it source new suppliers to further expand its private-label lines.
Walmart Inc. has also been expanding its private-label products and has tracked growing consumer demand as incomes are squeezed.
"We've seen some customers this year trade into private brands more than they did in previous years," said Walmart U.S. president John Furner on an earnings call in November.
A recent survey of food retailers by FMI, a food-industry trade group, revealed that more than 80% of respondents plan to moderately or significantly increase their investments in private brands over the next two years.
Supermarkets have been ramping up their investment in private brands for years as a way to differentiate themselves from competitors and build customer loyalty.
After losing ground to brand-name products during the pandemic, sales of private-label goods have regained momentum this year.
The growth of German discounters Aldi and Lidl, where in-house products outnumber branded goods by about four to one, has also underscored the mass appeal of affordable alternatives.
The picture is similar in some other parts of Europe, where shoppers typically buy more store-brand goods than their U.S. counterparts.
Dutch group Koninklijke Ahold Delhaize NV operates supermarket chains across Europe and in the U.S., where its brands include Food Lion and Stop & Shop.
The company said its store brands account for half of sales in the Netherlands and Belgium compared with 30% in the U.S.
It said its Dutch chain, Albert Heijn, recently expanded its store-brand line.
Carrefour, one of Europe's biggest supermarket groups, said in November that private-label products had become "the heart of our business model" as consumers trade down from costlier brands.
The French chain -- whose brands include its Bio organic product range and Simpl line of no-frills goods -- said it wants private-label sales to rise to half of its sales by volume and 40% of sales by value within four years, compared with 33% by value today.
In the U.K., economic turmoil has driven consumers to private labels in unprecedented numbers this year, with sales of in-house goods across all British supermarkets up more than 10% in October relative to the same month in 2021, according to Kantar, a retail data provider.
Asda Stores Ltd., Britain's No. 3 supermarket chain, credited the midyear launch of a new line of bargain staples called Just Essentials with helping to return the company to profitability in the third quarter after a string of losses.
The company said last month that the Just Essentials brand -- which consists of almost 300 products, including such staples as fresh meat and canned tuna -- had helped attract 400,000 shoppers to switch from other U.K. supermarkets.
Asda's Just Essentials products are priced significantly lower than branded equivalents. For instance, a 530-gram bottle of ketchup costs 42 pence, the equivalent of 51 cents, compared with £2.80, the equivalent of $3.46, for a 460-gram bottle of Heinz Ketchup. Mayonnaise from the same line costs 49 pence for a 500-gram jar, compared with £2.40 for a 404-gram jar of Hellmann's, made by Unilever.
"There's no question that more and more people are turning to private labels," said Julian Skelly, the head of the European retail practice at Publicis Sapient, a consulting firm.
"Everyone's cost-conscious right now. If they are not already being impacted by the cost-of-living crisis, they are afraid that they will be," he said.
"One big question is whether supermarkets' own-brand products can retain customers when pressure on incomes starts to ease. With an edge on price, the answer will likely come down to quality,'' Mr. Skelly said.
"What the makers of the big consumer brands fear most,'' he said, "is that people will make the switch to cheaper store brands and then realize there's very little difference."