Private labels on the rise as US shoppers’ purchasing behavior shift

The sudden economic downturn and high unemployment rate have put a strain on U.S. consumers’ purchasing power, which has now forced them to spend less on groceries and switch to private labels.

Months after the coronavirus hit the United States, consumers’ shopping behavior has dramatically changed from stockpiling to careful budgeting—including a shift to private labels.

Newly gathered data from market research company IRI suggests that shoppers are showing a new buying pattern depicting the troubling impact of the global health crisis on the country’s economy.

The trend, analysts weighed in, also shows a “new normal” on how the average consumers shop amid the pandemic.

Private labels are on the rise

In recent weeks, U.S. shoppers have reportedly spent less on groceries and other essential items. Consumers are making trips to dollar stores more than usual as well.

Below are charts of edible and non-edible private label sales during the pandemic.

Private labels on the rise as US shoppers purchasing behavior shift

Private labels on the rise as US shoppers purchasing behavior shift

According to IRI’s President of Strategic analytics Krishnakumar Davey, the trend is only the beginning.

“As this drags on, you are going to see more recessionary buying behavior coming up,” he said.

Although sales for both categories have increased exponentially, private brands acquired nearly 19% of sales while national brands’ sales were up by 12% only.

Analysts have also been anticipating an upward trend for private labels. They said private brands have plenty of room to grow as well.

Laura McCullough of research firm Nielsen also seconded the trend, citing that the pandemic-induced financial troubles have accelerated consumers’ attention from national brands to private labels.

“As the economic downturn continues, private label has a significant opportunity, particularly within lower price tiers,” she explained further.

On the other hand, private brands in the U.S. make up a smaller market share in terms of dollars and units. As per RRI, it made up nearly 16% of the dollar share this year.

How economic inactivity put a strain on consumers’ purchasing power

During the first month of the coronavirus pandemic, Americans stockpiled basic and essential items such as non-perishable foods, hand sanitizer, and office supplies as most states implemented shelter-at-home measures to curb the virus from spreading further.

The need to stay at home and to stockpile food has resulted in an uptick in grocery spending. IRI said that grocery spending in the week ended May 3 is 27% higher compared to last year.

However, as weeks passed by, the typical purchasing behavior of U.S. shoppers has dwindled.

Analysts found that consumers have become more budget-conscious, forcing them to ditch national brands for private labels that usually are cheaper than their popular counterparts.

Davey said the shift in shopping behavior is a result of the sharp economic downturn brought upon by the coronavirus crisis.

He emphasized how bleak financial picture and the continuous rising of unemployment rate have “affected consumers psychologically.”

Consumers becoming ‘incredibly careful’ in spending amid the pandemic

Furthermore, in a survey conducted by consulting firm McKinsey & Co., almost a third out of 2,105 respondents said their income was affected by the pandemic. Nearly a half also agreed that they need to be “incredibly careful” when it comes to spending money.

Private labels on the rise as US shoppers purchasing behavior shift

In fact, half of the respondents said they already cut back on spending.

Private Label Manufacturers Association (PLMA) President Brian Sharoff also shares the same sentiment. In his recent statement, he said that consumer fears have heavily influenced Americans’ shopping behavior amid the pandemic.

“Nonetheless, the statistics point to greater acceptance of retailer brands as the coronavirus crisis evolves,” he continued.

Store brand sales surge in Q1

Surprisingly, sales of private brands have seen a dramatic increase in the first quarter of the year. According to Nielsen and PLMA, it jumped by double digits during the initial phase of the pandemic.

Based on Nielsen’s data, sales of products under private brands in 2020’s first quarter have soared by $4.9 billion [AU$7.5 billion]—an almost 15% gain.

Unit volume has surged by 13% as well, with an estimated $1.5 billion products sold.

At the same time, overall sales of private labels have reached $38.4 billion.

The surge in sales was initially a result of panic buying according to Davey. But as the country enters the second quarter, he explained that the upward demand is due to financial issues.

He added:

“Do I need to buy that expensive brand, or should I buy something more affordable, but it will meet my needs? That is what we are seeing now. […] There’s a lot more of a hunkering down and spending only on what you need.”

Featured image courtesy of Stokkete/Shutterstock

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