The Impact of Private Label

By Patrick

We’ve all heard of the infamous store brand. In the mid-90s, they gained a significant amount of media attention as one of the largest consumer products good companies lowered the price on their flagship brand to better compete with discount products. Following this decision, the largest 25 consumer packaged-goods companies lost $50 billion in collective value. While big brands still command a significant amount of market share, the American consumer has been exposed to a significant increase in the availability of private-label products.

Even more importantly, the quality of these products has increased exponentially. A consumer reports test revealed that 33 of the 55 store-brand food items they tested tasted as good or better than the leading national brand. Discount grocers like Aldi and Lidl are popping up all over the place, and Kroger has even taken one of their private-label brands, Simple Truth, over to China. Choice and quality have never been better for the American grocery consumer, and this phenomenon can have a significant impact on your financial bottom line with almost no impact to product quality.

Today, I’d like to focus on private label grocery products, and how incorporating some of them into your weekly shopping trip can result in a significant amount of savings. Below, I’ve put together a table of 8 different items that our family generally purchases on a weekly basis. I’ve compared the Wegman’s private-label brand with a leading national brand, and calculated the cost savings of purchasing the store brand:

Category National Brand Private Label Savings
Cheese Slices $3.29 $2.29 $1.00
Bread $3.59 $2.29 $1.30
Applesauce $2.49 $1.69 $0.80
2 Mac N Cheese $2.38 $1.18 $1.20
2 Bags of Chips $6.78 $2.98 $3.80
10 Yogurts $6.99 $4.99 $2.00
Frozen Pizza $6.19 $3.39 $2.80
Butter $5.49 $2.49 $3.00
Total $37.20 $21.30 $15.90

As you can see above, the items that I’ve laid out are things that a family of three could easily go through on a weekly basis. I left off produce and meat as they main factors that effect pricing in those categories will be based upon whether it is organic or not. I also only wanted to include 8 regular items because I wanted to show the impact you could have on your grocery budget focusing on just a handful of different products.

While $15.90 doesn’t seem like a whole bunch on the surface, it’s important to note that this is weekly savings you can easily achieve without have to change much. Over the course of the entire year, that could save your family $826.80. If you took this money and invested it at 7% a year, you would have approximately $84 thousand at the end of the period.

How is this achieved? By simply switching out a national brand with a store brand on eight items you purchase on a weekly basis at the grocery store. You don’t even have to sacrifice quality. As you sample different private label items, you’ll eventually learn which ones you like and which ones you don’t. Once you know that, you just make it a habit to buy the ones you like on a regular basis and you’re on your way to financial freedom!

I was always someone who judged private label brands because I felt national brands provided better quality and I had more of a connection with them. That may have been the case a while back, but private label brands have increased exponentially in quality the last couple of decades, and they can be a great way to build up your wealth. Someone once told me, an investor is constantly evaluating decisions and constantly focusing on making themselves better. This is one of those examples where a little thought can go a long way.

Eric’s Thoughts

When I evaluate purchase decisions, my metric is always “value”.

Personally, I define value as the price paid vs the benefit received. Sometimes this benefit is quantifiable (i.e., a larger quantity of a product) and sometimes the benefit is intangible (i.e., I prefer the taste or a preference on brand/label).

I like to think of the overall value proposition sitting somewhere on this two-by-two matrix:

There are four quadrants of the matrix which I’ve numbered 1-4. Quadrant 1 is High Quality, Low Price. This is where I aim to spend my money. Quadrant 2 is High Quality, High Price. These items are acceptable if the quality or enjoyment is high enough to justify the price tag. Quadrant 3 is Low Quality, Low Price. These are the types of items you’d likely see at the Dollar Tree or similar retail outlet. These can be really efficient purchases if what you’re buying is somewhat disposable. Quadrant 4 is Low Quality, High Price. I try incredibly hard to avoid this type of purchase.

I will spend time in a future post diving deeper into this two-by-two matrix, as I think it is an incredibly valuable decision making tool when shopping. But for purposes of this post, I will speak only to where I see private label products fitting based on my own experiences.

Because private label products generally fall into the lower end of the price spectrum (especially relative to national leading brands), in my mind they fall into either Quadrant 1 or Quadrant 3.

Patrick does a great job above outlining his approach of trying various private label products, deciding which are reasonable alternatives for you and your family, and changing your shopping habits as a result. This is the same approach my wife and I have taken and will continue to take when we shop.

For example, we’ve found private label potato chips to actually be more enjoyable (for us) than the name brands. This certainly won’t be the case for everyone, but because it is the case for us, these private label chips fall into Quadrant 1. Based on our experience with this product, we won’t likely spend the incremental money on national brand potato chips moving forward.

However, you won’t always have that experience. We’ve purchased private label cereal as a substitute for the national brand equivalent and have been significantly disappointed. Sometimes the additional dollar or two is well worth it – mostly because spending less on something you don’t want isn’t really savings.

In the simple example Patrick provides above, you can see how finding a few private label products that fall into your personal Quadrant 1 can create nearly $850 per year in savings. According to the USDA, the average monthly grocery bill can range between $200-$400 per month per person. If you assume the midpoint in that range, the simple switch to a few private label brands could pay for a month of groceries for a family of 3! That’s nearly a 10% reduction in annual grocery spending!

Assuming you can find equivalent private label products to purchase instead, that is an impressive figure for such a small trade-off!


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s