) - The
has sent shivers through U.S. grocery suppliers, but news from store brand-loving Canadians may have a more chilling effect.
According to a survey by
, almost two-thirds of Canadian households said
made up more than 50% of the groceries they purchased within the last year. The same number said they expected store brands to make up more than half of their supermarket haul over the next year.
To be fair, there are more supermarket chains in Canada and store-brand products are advertised more heavily there than in the U.S. But before you dismiss those numbers, ask the folks at
Procter & Gamble
how the recession has made store brands anything but generic.
"It puts pressure on the major brands to compete with store brands," says Joel Gregoire, NPD's food and beverage analyst. "What you may not want to do as a national brand is get into a price war with store brands, because it can adversely impact your profitability."
This message came too late for Procter & Gamble. Earlier this month, the maker of Ivory soap, Crest toothpaste and Pringles potato crisps announced plans to reduce prices after analysts blamed an 18% profit drop last quarter on cash-strapped consumers who switched to store brands. Sara Lee, meanwhile, took a 10% revenue hit last quarter after cutting forecasts earlier this year to account for the shift to store brands.
Kraft, like Sara Lee, adjusted earnings projections earlier this year. The company joins
and other food producers that are trying to regain share lost to downmarket counterparts.
, sales of so-called private label brands in the U.S. grew 7.4% from 2008 to 2009 and make up nearly a quarter of overall grocery sales. Another NPD study released in May says that 97% of American shoppers regularly buy store brands.
To say that nobody saw this coming would be a disservice to supermarket scholars. Store brands may be popular during this recession, but they first appeared on shelves as low-grade, white-labeled products during a recession in the 1970s. Since then, the quality of the products and packaging has evolved into popular brands such as
Kirkland Signature and
Great Value. Even high-end grocer
Whole Foods Market
relies heavily on its house brand, 365 Everyday Value, to compete with products offered by Trader Joe's.
While almost 55% of shoppers in NPD's Canadian survey say they consider store brands equally good or better than name brands, generics are also under siege in the states. Some grocery suppliers have gone as far as introducing private label versions of their products to profit from the trend. Four years ago, a
inquiry revealed that companies such as
Bausch & Lomb
Del Monte Foods
McCormick & Co.
were creating anonymous versions of their products.
"If people are starting to perceive the quality of store brands as being comparable to that of name brands, what else should a name brand focus on?" Gregoire says. "Focus on your brand and the brand's equity."
-- Reported by Jason Notte in Boston
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Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.