After months of opting for private-label, consumers are turning back toward name brands, PepsiCo says.
The food, snack and beverage giant said Thursday (Feb. 9) in prepared remarks accompanying its fourth-quarter 2022 financial results that it has seen shoppers opting for well-known brands rather than lesser-known, lower-priced competitors.
“The business continues to benefit from strong category trends as consumers navigate towards popular, trusted brands that offer value, convenience, and variety,” CEO Ramon Laguarta and CFO Hugh Johnston stated in their joint remarks. “Many of our large brands delivered double-digit net revenue growth for the fourth quarter.”
This preference for major brands that PepsiCo has observed marks a departure from trends earlier in the year, with inflation prompting consumers to choose lower-priced alternatives, even when it meant abandoning their previous favorite brands.
Barbara Connors, vice president of commercial insights at 84.51°, the marketing insights subsidiary of grocery giant Kroger, spoke to this trend in an interview with PYMNTS in the fall.
“Historically, the reasons why someone may continue to be brand loyal just may not hold anymore because people are being forced due to financial constraints to make tradeoffs that they wouldn’t want to make,” Connors said.
Research from the October edition of the Consumer Inflation Sentiment study, “Consumer Inflation Sentiment: Consumers Buckle Down on Belt-Tightening,” for which PYMNTS surveyed more than 2,600 consumers in September, revealed that 37% of grocery shoppers reported purchasing lower quality products to reduce their expenses in the face of inflation.
Now, brands are split on where consumers stand on the subject of name brands versus private-label alternatives.
For instance, consumer-packaged goods (CPG) giant Colgate-Palmolive noted on an earnings call late last month that while trade-down to private label has flatlined in certain categories, it continues to grow in others.
“Oral care private label in the U.S. [is] roughly flat on the quarter in the fourth quarter and flat on the year, [and in Europe] likewise that share is flat,” CEO Noel Wallace said. “We are seeing a little bit of growth in private-label businesses particularly in Europe on some of the home care businesses.”
Similarly, healthcare giant Johnson & Johnson recently discussed the competition it faces from lower-priced alternatives to its products. For example, its Stelara medication for Crohn’s disease, ulcerative colitis and other conditions may see increased competition from less established brands. CEO Joaquin Duato addressed the sales threat posed by the “evolution of the biosimilar market” (i.e., emergence of comparable competitors) and the “potentially interchangeability” of the product.
Conversely, spices and flavorings giant McCormick is seeing less trade-down to private label and even seeing trade-up to name brands in certain cases.
“We’re starting to see that trade-down moderate through the quarter. That’s kind of an insight, and maybe that’s also a reaction to the macro inflationary factors and seeing them moderate,” CEO Lawrence Kurzius said, adding that the company’s lower-priced Lawry’s line has been seeing consumers “trading up from private label.”
PepsiCo, for its part, may be seeing a preference for name brands but is not promising that that trend will continue throughout the rest of the year.
“While consumers remain resilient, we are diligently monitoring spending patterns and behaviors in this dynamic and volatile macroeconomic environment,” the executives said.