Food Deflation Could Hurt Store Bands More Than CPGs

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March 23, 2010

While consumers have willingly migrated to store brands during the recession and will likely remain store brand fans post-recession, some industry pundits say deflation could hurt retailer store brands more than consumer packaged goods companies.

For example, CPG companies have been able to leverage recent food price deflation to their market-share advantage, offering consumers deep discounts and coupons. Meanwhile, store brand retailers don’t have the deep pockets to advertise and promote their brands as heavily as CPG companies can, according to a recent report in the Wall Street Journal.

“Private-label firms, which can't push their brands through advertising, tend to fare best when their household-name competitors are raising prices, leaving a potential opportunity,” the Wall Street Journal wrote.

While deflation may be the current situation, some industry analysts predict price inflation again later this year. Robert Moskow of Credit Suisse predicts a 2.5 percent cost inflation for packaged-food companies in 2010, down from 5 percent forecast at the beginning of the year, according to the report.

“Even as input costs increase, brand-name manufacturers may be reluctant to raise prices in a value-oriented environment. Given heavy marketing expenses, food inputs often account for a small portion of their overall costs, so margins may take only a modest hit if retail prices are kept steady. Private-label players, by contrast, would feel more pain,” the Wall Street Journal reported.

Read These Related Articles:

• Store Brands Drive Differentiation and Profit
• Store Brand Savings Still Beat Aggressive CPG Discounting
• National Brands Prepare for War With Store Brands
• P&G and Other CPGs Cut Prices to Combat Store Brands
• PLMA Live: Nielsen V.P. Says Store Brands Will Remain Strong After the Recession

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