Private Labels Rising: Grocery Inflation’s Surprising Winner

Inflation remain stubborn. It is a topic our students understand (in a way that previous generations perhaps did not). This article at Sherwood News “Grocery inflation is bad for almost everybody but the companies that make store brands” (January 7, 2025).

The article describes how grocery inflation forces consumers to rethink their purchasing habits, private-label products have emerged as a clear winner. Data shows that private-label products now account for 25% of grocery baskets, with over 98% of U.S. households buying at least one store-brand item. These items, often manufactured by the same companies producing branded goods, appeal to shoppers seeking value without sacrificing quality. For retailers, private labels are a lucrative opportunity to foster customer loyalty and differentiate themselves in a competitive market.

This shift threatens traditional brand powerhouses like Kellogg’s and Hormel, whose sales decline as private-label penetration grows. Once customers switch to store brands, they rarely return to name brands. As private-label innovation expands, fueled by retailer investments and partnerships with manufacturers, this trend is poised to reshape consumer behavior and the grocery industry.

The article might provide a good foundation for you to discuss inflation (Chapter 3), battle of the brands (Chapter 8) and price (Chapter 17). A first draft of this blog post was generated by ChatGPT.

Class Discussion Ideas

In-Class Activity Suggestions

1. Brand Loyalty Mapping (Chapter 8)
   Students identify grocery items they purchase regularly and categorize them as branded or private-label, discussing factors influencing their choices.
2. Create a Private-Label Strategy (Chapter 8)
   Students act as retail executives designing a private-label product line to compete with established brands in a specific category.
3. Debate: Private Labels vs. National Brands (Chapter 8)
   Divide students into teams to argue for the advantages of private labels or national brands, considering factors like trust, quality, and marketing costs.

Discussion Questions and Answer Ideas

1. What factors contribute to the growing popularity of private-label products? (Chapter 8)
   Answer: Price sensitivity during inflation, perceived quality improvements, and retailer-driven branding efforts increase their appeal.
2. How can private labels use segmentation to target cost-conscious shoppers? (Chapter 4)
   Answer: By identifying demographics most impacted by inflation (e.g., low-income families) and positioning products as affordable yet high-quality alternatives.
3. How do private-label products benefit retailers beyond price competitiveness? (Chapter 12)
   Answer: They foster customer loyalty, increase profit margins, and differentiate retailers in a crowded market.
4. What strategies can national brands use to combat the rise of private labels? (Chapter 8)
   Answer: National brands can focus on innovation, emphasize unique product qualities, and increase marketing to reinforce their value.
5. Why is it challenging for national brands to regain customers lost to private labels? (Chapter 8)
   Answer: Private labels build trust and familiarity, making it harder for customers to justify paying a premium for similar branded products.