At a time when many businesses — especially those in the manufacturing sector — are hurting, facing employee layoffs and severe cutbacks, companies in the food industry are faring better. As 2010 data is released, it paints a picture of a fairly resilient industry, one not as vulnerable to the whims of consumers or the general state of the economy. A Jan. 3 article from Bloomberg News ranks food as one of the strongest industry segments contributing to the steady (if slow) recovery of the U.S. economy.
But despite the overall health of the industry, a December survey of executives from major food companies suggests that change is afoot. The survey — conducted by Deloitte, a professional services organization — reveals that customer brand loyalty may be eroding. Deloitte reports that “about nine in 10 respondents agree that consumers are more open to trying store brands than they were two years ago.” While it’s easy to chalk up this brand shift to a shaky economy, manufacturers and retailers aren’t so sure. The report shows that only “two in 10 respondents from consumer product companies agree that consumers will shift back to national brands when the economy improves.”
Take, for example, a company like Lakeside Foods, which has found great success in the private label business, forgoing its own brand altogether and making food products packaged as store brands for major retailers across the country. But for established companies with branded products already on shelves, there is still room in the private label game.
As I have traveled the country visiting food processing facilities and speaking with you, I’ve begun to notice a trend. Most of the midsized processing facilities I visit produce a combination of branded and private label products. In many cases, the products produced for private label customers are similar to the ones being produced as branded products, thus requiring only minor adjustments in the processing line.
Processing in such a way can offer security and stability to manufacturers as consumers’ attitudes about store brand products continue to evolve. If demand for store brands rises, taking market share from commercially branded products, a processor with a foot in each business will reamain steady. By offering both branded and private label products, a food manufacturing company can cover the field of choices for a specific product, giving consumers options without the risk of losing them in the process.
The Deloitte report notes that “only one in five respondents agree that consumers believe store brands are manufactured by traditional national brands.” If this industry perception of consumer knowledge about store brands is correct, private label business has nowhere to go but up. Already buying store brands in record numbers, consumers are likely beginning to realize that the quality of the products is similar to the branded products they are used to purchasing.
Consumers will always have their pet brands and favorite treats, but as they embrace their ability to choose alternative (and less expensive) options, manufacturers will be there to meet such demand. Or it will be met by someone else.
Are you a store brand convert, or are you holding fast to your private labels? Let me know at Krystal.Gabert@advantagemedia.com.