Brand names are losing ground to private-label goods, regardless of rising incomes

Researchers note that private-label goods are rising as a portion of total consumer goods expenditure, by half a per cent a year


Consumer goods firms can’t simply wait for recessions to blow over and bet that rising incomes will bring market share. Photo: iStock
Consumer goods firms can’t simply wait for recessions to blow over and bet that rising incomes will bring market share. Photo: iStock

According to big consumer goods companies, the Great Recession drove people from branded products to cheaper store-brand options—“private-label” products.

But research suggests other factors may have played a bigger role. Chicago Booth’s Jean-Pierre Dubé and Günter J. Hitsch, and UCLA’s Peter E. Rossi find a relationship between changes in income and wealth and demand for private-label products—but also find the effect is too small to explain a larger movement away from the Coca-Cola, Frito-Lays and Pampers of the world.

The researchers examined household income and wealth fluctuations from 2004 to 2012 and tracked how those fluctuations affected shopping habits, controlling for changes in products’ prices. Where past research has suggested that a 1% fall in real GDP per capita yields a 1.22% annual jump in the private-label share of Americans’ shopping baskets, this study finds household income and wealth have a much smaller impact.

Even so, the researchers note that private-label goods are rising as a portion of total consumer goods expenditure, by half a per cent a year, in a trend that predates the Great Recession.

If income and wealth aren’t driving private-label growth, perhaps private-label manufacturers are making adjustments that lure in customers? The researchers tested whether the introduction of new private-label products or a move towards higher-quality private-label items might have been the root causes of the long-term trend, but find no evidence for either.

What this means for consumer goods companies: at the very least, they can’t simply wait for recessions to blow over and bet that rising incomes will bring market share.
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