TEMPE, Ariz.—Retailers who offer private label save shoppers money, even if those consumers don’t purchase the store brand, according to a new study from W. P. Carey School of Business at Arizona State University.
“Consumers benefit because the whole idea is for retailers to provide a value option to customers,” said Professor Timothy Richards, the Marvin and June Morrison chair of agribusiness and resource management at the W. P. Carey School of Business., in a press release “Also, when grocery stores offer these competitive store-brand products, it forces the brand-name companies to lower the wholesale prices they charge the grocery stores. Part of the savings is then passed on to the customers who buy the brand names.”
The new research by Richards and his colleagues is being published in the Journal of Agricultural and Resource Economics. The study noted private labels now account for almost one-quarter of all consumer spending on food, beverages and personal care items. It also explains that the more similar the “generic” product is to the brand-name offering and the closer it is on the shelf, the more profitable the sales are.
The study also found private labels are becoming a more common way for grocery stores to differentiate themselves in a crowded industry. “Many stores also offer good, better and best labels, like a super-premium brand, to help cater to a wider variety of consumers,” Richards said. “All store brands offer the grocery chain a higher profit margin than the brand-name products.”
Richards explained private label products are often identical to the brand-name versions, even created in the same manufacturing plants when brand companies have spare capacity to cheaply rent out.
While the new study focused on private label ice cream as one type of very successful store-brand product, Richards says his findings translate to all types of items, including cereal, dairy products, condiments and soda, which are also popular store-brand segments.