89% of low-income consumers, 90% of millennials, shop private label

Chains Lose Traction And Millennials Are To Blame
Millennials and low-income shoppers are most likely to purchase private-label groceries.

While the economy appears to be healthy, 31% of U.S. households are still struggling to afford groceries, which is up from 28% in the first quarter of 2016. According to an IRI Consumer Connect survey, consumers are counteracting this struggle by turning to more private-label products when shopping for groceries. But private-label items are most popular among two demographics: lower-income and millennial shoppers.

Those having the hardest time are younger and less-wealthy shoppers. Specifically, 59% of households that earn under $35,000 and 36% of millennials are having difficulty affording groceries. As a result, 89% of lower-income shoppers and 90% of millennials are buying private-label items to save money. And more than 80% of both these demographics are willing to try lower-priced brands to save money, versus 73% of consumers in general. 

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“It is no secret that consumers are interested in CPG products that address their wants and needs,” said Susan Viamari, vice president of thought leadership for IRI. “When you look at the uncertainty and financial hardships that many consumers are facing and couple it with their favorable attitudes about the value and quality of private-label products, it all adds up to a positive outlook for private-label success. In fact, value is playing a huge role in the ‘want equation,’ and consumers will buy different brands, including private-label solutions, to get the value that they want.”

So what's the appeal of private label brands? Respondents cited lower cost, equal in quality to national brands, and better value than national brands as their reasons for buying these items. So much so, that 7 out of 10 millennials will seek out stores with a wide selection of private-label products and 66% buy private label over name brands. 

Of those surveyed, two-thirds say they plan to purchase private label more frequently in the next six months, and that number is as high as three-quarters among lower-earning and millennial shoppers. 

"To continue to protect and grow share among older shoppers, retailers must invest to understand and deliver against the unique needs and wants of their key target shoppers," IRI lead researcher on this analysis, Susan Viamari, told FierceRetail. "To treat generations as homogeneous groups is dangerous—it will result in not satisfying anyone well. Retailers must dial in and understand their shoppers on an individual/personalized basis."

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To keep up with the demand, retailers are moving quickly to up their private-label assortments. Costco's private label currently accounts for about 25% of all sales and the company hopes to drive that number to 37%. By 2022, private labels at Aldi and Lidl could have 10% of the grocery share. And even Amazon's private-label sales are expected to top $4 billion this year, which includes $700 million in sales from newly acquired Whole Foods. 

Viamari recommends that retailers continue to invest in private labels. 

"Private label has a lot of upside potential," she said. "Sentiment around value and quality is excellent—but retailers must continue to reinforce and continue to enhance both of these. Further, by digging deep into pockets of opportunity, such as healthier-for-you food and beverage, anti-aging skin care, earth-friendly household cleaners, etc., retailers will drive further penetration and repeat behavior, ultimately driving sales and share up."