Net impact of inflation on Private Labels and Brands
Whilst inflation impacts both Brands and Private Labels, the net effect on price development and relationships can be quite different
Food price inflation has led to higher % price increases on private labels than brands
Inflation, such as 2008-2012, often results from cost hikes that affect Brands and PLs in a similar way. If these are directly passed through then the relative price change of PL must be higher as the base price is much lower. Whilst this was partially corrected afterwards, the squeeze on lower income households was greater.
But the actual price difference between private label and brands remained very similar
The actual price difference between Private Label and Brands during the inflationary periods from 2008 to 2013, only rose slightly but the price premium for brands reduced as all prices increased by a similar amount.
Private label tends to take share from mid-tier rather than the largest brands
During the 2008 to 2013 high inflation periods, despite the relative price rises, Private Label share increased as shoppers down-traded. Large brands are in a better position because of their equity and higher importance for retailers – but smaller brands are squeezed. It is critical that these brands deliver value for money and true differentiation at these times.