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Ever since inflation started to spike last year, a familiar phrase has moved to the top of the list of areas to monitor for many consumer goods executives.
Also known as store brands, private label products are offered by retailers as a lower-price alternative to name brand products. When prices increase for name brand items, consumers may trade down in search of savings. While private label goods have propelled Walmart and Target for years, even emerging retail channels like Gopuff and Gorillas are now launching their own brands. But at CPG companies, the trend brings trepidation. Executives are constantly tracking and analyzing the threshold at which consumers will trade down, and whether they are losing share to private label brands that could eat into margins.
More than a year into this bout of 40-year inflation, there are signs that consumers are equating private label products with lower prices.
Food and cleaning supplies remain the most vulnerable to private label trade-down, as the survey found 96% of consumers buy private label groceries.
But the survey of 6,000 consumers across five countries also found that private label switching is spreading across categories.
Fashion labels are under pressure, as the survey found that 82% of consumers are choosing store-brand apparel. Consumers are also tinkering with gadget-buying habits, as 69% of consumers are buying store brand electronics.
The results come at a time when consumer goods companies have taken multiple rounds of price increases amid inflation. Even as brands like Kraft Heinz halt their hikes and inflation begins to moderate, food prices remain particularly high. Online grocery inflation was up 10.3% in March, even as prices as a whole were in deflation. It’s a leading indicator that shoppers will continue to seek out savings on the digital shelf, even as the economic data shows prices coming down.
As consumers exercise more caution about purchases, the strength of a brand and accrued loyalty matter when it comes to making the decision to continue to buy from a name brand.
But don’t forget the fundamentals. At a time when consumers are taking extra moments to think about buying decisions and considering more options, there’s additional value in making a great product and executing key elements of the digital shelf. The Salsify survey found that product quality was the top factor in maintaining loyalty for 82% of consumers, while 57% prioritized a great online shopping experience.
“Product quality is under much greater scrutiny and more than half of consumers said they wouldn’t buy a product with bad product content that doesn’t include enough information or includes low quality images,” said Cara Wood, head of research at Salsify, in a statement. “In fact, strong product content is so important that shoppers are more likely to purchase products from unfamiliar brands or those with bad reputations than those with missing or bad information.”
The findings indicate that brands have a lot to gain from diving into the details that convey the quality of products in online listings. That means paying close attention to content and reviews. The survey found that 72% of shoppers said descriptions and reviews were the top product page features that helped them decide what to buy, while images rose to the top for 45% of shoppers. About 32% said videos were key to their perception.
And remember: Consumers aren’t just seeing a brand in one place. These details have to be high-quality and consistent in the growing number of channels where consumers shop. Shopping is a journey, from stores and ecommerce marketplaces to search, social media and a brand’s own site.
These channels aren’t only there to raise awareness. The purchase is happening in more places, too. The survey found that 42% of consumers buy directly from social media, while 25% said they used AR or VR shopping tools in the last six months. Consumers are also crossing channels, as 39% of consumers said they plan to seek out buy online, pickup in store options in 2023.
“Expect shoppers to continue looking for great product details on every channel they use,” the survey states. “…If brands and retailers want to win their business, they must deliver the best product experience at every stage — and on every channel — of the buying journey.”
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Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.