Grocers and Food Brands Can’t Agree on Private Label

If you ask Kellogg’s, even in the face of rampant inflation, the lower-priced private-label brands sold by grocers still don’t pose a threat to its market share.

On an earnings call with analysts Thursday (Nov. 3) discussing the food manufacturing giant’s third-quarter 2022 financial results, the company asserted that trade-down to private label has not been an issue.

“When you look at private label, there’s a lot of variables all around the world, but by and large, we see no empirical evidence of private label growing in any of our markets, really, in any of our categories in a meaningful way,” Kellogg’s CEO Steve Cahillane said. “We see, in fact, quite the opposite in some markets, and where they are growing, they tend to be growing off year-ago comparisons, which were challenged.”

The company has a presence in many different categories including snack foods, cereal, meat substitutes and more. Cahillane contended that these categories are somewhat protected from the belt-tightening consumers have undertaken in other categories, noting that they are “affected less than discretionary consumer goods and travel and dining out” and other non-necessities.

His remarks echo those of Mondelēz International CEO Dirk Van de Put on an earnings call Tuesday (Nov. 1).

“We believe that the spending decrease that we will see from consumers eventually, as inflation keeps hitting them, is going to probably be more in the big-ticket items,” Van de Put said, noting that grocery items seemed to be doing well overall.

However, grocers are telling a different story. Take Kroger, the United States’ largest pure-play grocer. On an earnings call with analysts in September, Chief Financial Officer Gary Millerchip noted that the company’s private-label products have seen marked growth.

“Our brands led the way with identical sales growing 10.2%,” Millerchip said. “We believe the unmatched combination of innovation, quality and value provided by our brands is a clear competitive advantage as inflation remains front of mind for many of our customers.”

Walmart, the world’s largest grocery retailer, is seeing the same.

“In food categories, specifically, the private brand growth rate doubled compared to Q1 levels,” CFO John David Rainey told analysts in August.

A significant share of consumers (but far from the majority) reported taking actions in response to inflation to reduce their spending at the grocery store, including trading down relative to the products they might otherwise buy. Data from the U.S. Bureau of Labor Statistics (BLS) found that consumer grocery prices were up 13% year over year in September.

Consequently, research from the August edition of PYMNTS’ Consumer Inflation Sentiment study “Consumer Inflation Sentiment: Inflation Slowly Ebbs, but Consumer Outlook Remains Gloomy,” which drew from a survey of more than 2,100 U.S. consumers, noted that 37% reported reducing the quality of items they buy at the grocery store in response to rising prices.