When economic times get tough, budget-conscious grocery shoppers typically switch from name brands to in-store brands to save money. But the Great Recession flipped that strategy on its head, a new study finds.
In the working paper, "Food Purchases During the Great Recession" by University of Chicago Booth School of Business Professors Sanjay Dhar and Chicago Booth PhD candidate William Cha, researchers found that the last recession failed to spark faster growth in grocery store brands, or so-called private labels. Instead, high unemployment in the U.S. prompted households to shift their shopping trips to discount stores and to use more coupons for national brands.
The study is unusual in that it focuses specifically on the growth of private label sales in relation to the Great Recession. While sales of in-house brands had been increasing as part of a broader consumer shift before the recession began, the researchers found no evidence of further growth in private labels linked to the tough economic times.
"Given the overall growth of private label, grocery stores had been banking on their own in-house brands to carry them through the recession, but that didn't happen," said Chintagunta. "Instead, shoppers switched formats, going to warehouse clubs and discount outlets."
The researchers also found marked differences in how different demographic groups coped with their food budgets in response to the recession. While the volume of food purchases rose during the recession, their analysis suggests that older, more educated, higher income households were more likely employ the money-saving strategy of cooking more meals at home than their younger, lower income, less educated counterparts.
Another surprising finding: While prices increased across all brands during the recession, prices for private label grocery products increased the most—rising an average of 19.2 percent compared to an average increase of 4.8 percent for the top national brands.
While economic contractions were once significant opportunities for retailers to increase their private label shares simply due to cheaper prices, the research suggests that retailers need to be more deliberate about how to position their own products relative to national brands.
"Private labels are much more accepted today by consumers," said Dhar. "They are no longer seen as a cheaper version of a national brand. They are like brands on their own."
Other highlights of the research include:
• Manufacturers of low-priced name brands were in the "sweet spot," as they benefited both from consumers switching to cheaper brands and from expanding distribution beyond grocery stores to discount outlets.
• Sales of top national brands remained relatively insulated from the recession as the name brands were able to raise prices to maintain revenue growth.
• Grocery stores faced mixed results. Food expenditures rose during the recession as more consumers avoided eating out and cooked more meals at home. But, discount chains and warehouse clubs captured much of the increased food purchases.
The study was based on a broad cross section of 31 widely purchased consumer product goods categories and other data for up to 60,000 households. The data spanned 2006 to 2011.
The researchers used consumer panel data from the Kilts-Nielsen data center, a partnership formed in 2012 between Booth's Kilts Center for Marketing and Nielsen Holdings N.V. to house and disseminate data collected on the buying habits of U.S. households. The researchers also analyzed Nielsen retail scanner data encompassing 35,000 stores from 90 retail chains across the U.S. and data from the Bureau of Labor Statistics.
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