Utz Sees Private-Label Competition Continue Amid Consumers’ Ongoing Inflation Concerns

Year-over-year grocery inflation may have slowed from its peak, but name brands continue to face competition from lower-priced private-label options, according to snacking giant Utz.

The food company, which spans many popular brands including its self-titled line, Zapp’s, Bachman and others, shared on a call with analysts Thursday (Aug. 10) discussing its second-quarter FY 2023 financial results that trade-down remains a concern.

“I think it’s very normal in this environment that we start to see private label come back into the conversation. They play an important role for retailers,” Utz CEO Howard Friedman noted, stating that, while these brands represent only 5% of potato chip sales, they remain a source of competition.

Utz, for its part, has a foothold in private label, but these products are lower margin for the company than its branded products.

Similarly, Flowers Foods, parent company of a range of packaged baked goods brands including Wonder, Nature’s Own, Dave’s Killer Bread and others, shared on its earnings call Friday (Aug. 11) that private-label brands continue to gain share in its categories, even though this trend is decelerating.

“Private label still gained share in the quarter, but I think it’s important to note that that growth is slowing,” company President and CEO Ryals McMullian told analysts. “Towards the end of the quarter was the lowest that we’ve seen in terms of gains for private label this year.”

Throughout this inflationary period, many grocery retailers have been touting their in-house brands’ share gains, boosting their margins and securing shoppers’ loyalty. Most recently, Netherlands-based multinational grocer Ahold Delhaize shared in its second-quarter earnings call that private-label penetration is high in Europe and lower but growing in the United States.

“In [the] U.S., we still have an opportunity to grow our total private label sales, which we see now growing. … Both in fresh and in center store, I see an upward potential there, and that is also there to stay,” Ahold Delhaize President and CEO Frans Muller told analysts.

One area, however, where Utz and other name brands may have less private-label competition to worry about than in the past is Amazon’s marketplace. A recent report shows that the eCommerce giant is scaling back its portfolio of in-house brands in an effort to reduce costs and avoid antitrust actions, though it is unclear to what extent these cutbacks will affect its grocery products.

Yet consumers continue to want affordable options, as inflation remains a top-of-mind concern for many. According to data from the latest edition of PYMNTS’ Consumer Inflation Sentiment Report, “Consumer Inflation Sentiment: The Great Resignation is Not Over,” for which we surveyed a census balanced panel of more than 2,200 U.S. consumers last month, shoppers’ purchasing power is 11% lower than two years ago.

Indeed, many consumers have adjusted their grocery shopping habits accordingly. Data from the May installment of the series, “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” revealed that 57% of consumers have cut down on nonessential grocery spending, and 47% have switched to merchants that offer better prices on groceries.

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