What's the difference between a box of Kraft macaroni and cheese and Cub's Essential Everyday version?
About $0.62, a few ingredients and an emotional connection to the signature blue box that Kraft has cultivated for decades.
Inflation is expected to test many consumers' allegiance to brands that charge more for a similar product. This could give store brands — sometimes called "generic" or "private label" — their best opportunity in years to take market share away from name brands.
For most of the pandemic, many U.S. shoppers had extra savings due to stimulus cash and reduced spending on vacations and dining out. With some financial cushion, they largely stuck with name brands — but the tide is starting to turn.
"I think there's going to be a correction," said Darren Seifer, a food and beverage analyst for the NPD Group. "You've got to eat, and that's a big reason we're always watching our food expenditures; it's not something you can put off."
As student loan payments return and higher costs for everything eat up that extra cash, it's likely more consumers will shift their habits. "That's when consumers start getting squeezed again this year," Seifer said.
Shoppers told IRI in a survey this past fall that they look at taste then price when deciding what to buy, but inflation may cause those priorities to switch.
The cost of food nationally rose 6.5% last year, a result of high demand, supply chain backlogs and companies raising prices to maintain profit margins. Yet store brands paradoxically lost market share during the pandemic.
"Current inflation and economic uncertainty would indicate that growth of private brands should be outpacing that of name brand products, but that's not the case," according to a December report from IRI, a Chicago-based market research firm.
It's typically up to retailers to market their in-house products, which usually happens through advertising inserts or in-store promotions and placement.
"Our eating habits are just that — habits," Seifer said. "When it comes to what we know and love and have been eating for a long time, it's going to take a lot of effort to change that."
University of Minnesota marketing professor Joe Redden routinely has students compare brand name and private label products in a classroom experiment to see if they can identify which is which, and which they prefer.
"You can see a dramatic difference across categories," he said about whether students can tell the difference between major brands and generics in a blind taste test. "Brand name cereal is the one that wins all the time."
There are signs that more shoppers are starting to put less expensive cereal in their carts, said TD Dixon, chief growth officer at Lakeville-based Post Consumer Brands.
"At the end of the day, taste will always reign supreme when it comes to purchase decisions," he said, "but now there are many 'value' options that offer the same high-quality taste as premium brands, so it's making that consumer decision a lot easier."
Europe's private-label market is more developed than the United States. Private brands account for 31% of all consumer packaged goods sales in Europe compared to just 18% in the U.S., according to IRI.
During the pandemic, when name brands are in short supply, UNFI, which owns Cub Foods as well as several well-known private label brands, has been filling empty shelves with its store brands instead.
"We've also seen traction with a new save-everyday pricing program for our value items that are positioned to be attractive, affordable alternatives to national brands," Chris Testa, UNFI president, said in December.
Even as inflation and supply chain problems provide a lucrative opening for store brands, big private label producers like Illinois-based TreeHouse Foods have not been immune to shortages and price hikes.
"While we expect demand for our products to continue, there will certainly be some limits on how much of that demand we will be able to service," TreeHouse chief executive Steven Oakland told investors in the fall.
Consumers are highly unlikely to find a store brand to be superior to be a name brand, according to IRI surveys, but in some categories — salad dressing and salty snacks — shoppers see a high level of similarities, which means a purchase decision could come down solely to price.
That's one reason Hormel Foods sees store brands as a primary competitor for Planters.
"Acting as a big leader in the category ... we need to differentiate versus private label by bringing quality snack offerings," Planters marketing head Rafik Lawendy said in an interview last month.
Private label brands explained
What are store brands/private label?
A store brand or private label product is the in-house alternative to a name brand — think Costco's Kirkland Signature brand, Target's Good & Gather, Walmart's Great Value and nearly everything sold by Aldi and Trader Joe's. While long seen as "knockoff" products, retailers have increasingly looked to innovate and build brand loyalty for these high-margin items.
Why are store brands less expensive?
The price of any product reflects the cost of making it, moving it and selling it at a profit — and any discounts and promotions used to sell more product even at a lower profit margin. Name brands typically go through extensive research and development and launch national, multi-million-dollar advertising campaigns. Store brands often have fewer marketing and R&D expenses and operate nearly "direct to consumer," said Darren Seifer at NPD Group.
"It's up to the retailer to market their private-label store brands," said TD Dixon, chief growth officer at Post Consumer Brands. "When it comes to selling these products, retailers know their customers well and tailor their selections to best meet their needs by market and even by store."
Do major food manufacturers make the store brands they compete with?
Yes and no. Seifer said that "in many cases there are major manufacturers making it," but many food producers rely on co-packers — third-party manufacturing facilities — to process and package their products. These co-packers often produce both name-brand and private label, like Seneca Foods canning Green Giant as well as store brand peas.
In some cases, name brands and store brand operations fall under a corporate umbrella. Last year the parent company of Lakeville-based Post Consumer Brands bought the private label cereal business of TreeHouse Foods for $85 million, giving the country's third-largest cereal producer a larger presence on store shelves.
Tell your story
Has your grocery shopping changed as a result of inflation? As part of our ongoing series, "The New Cost of Living," we want to tell the stories of Minnesotans who are feeling the sting of higher prices and how they are coping. Reach out to email@example.com.