Shoppers cut back on gas and food but stick to brand names
Store brands have gained ground among consumers in recent years, a new study shows, but their popularity among thrifty shoppers may be overstated, says Kusum Ailawadi, a professor of marketing at the Tuck School at Dartmouth College and one of the study's authors. "It's not as big as conventional wisdom has it," says Ailawadi, who conducted the study with business-school professors Yu Ma of the University at Alberta in Edmonton, Dinesh Gauri of Syracuse University, and Dhruv Grewal of Babson College in Wellesley, Massachusetts.
Housing, Transportation, Groceries
The study, An Empirical Investigation of the Impact of Gasoline Prices on Grocery Shopping Behavior, studied the everyday phenomenon of how households adjust their food spending to accommodate rising gas prices. It's a common tradeoff, with food and gas being households' two most common everyday expenses. Groceries take the third-largest chunk out of the average U.S. household's budget, after housing and transportation, the study shows.
Researchers studied data from 1,000 Midwestern households of various sizes and economic circumstances from January 2006 to October 2008. Participants used home scanners to record all the groceries they brought home, their prices, and where they bought them, which the researchers then related back to the price of gas at that time. The period covered by the study saw the average price of gas in the U.S. rise from $2.24 per gallon to $3.48, after peaking at $4.11 in July 2008, according to the U.S. Department of Energy.
Some of the findings are what you would expect. For every $1 increase in the price of a gallon of gas, households reduced their shopping trips by 7.5%, spent 4.4% less, and bought 11% fewer items. Larger households reduced their shopping trips more with each gas price hike, while households with lower incomes made more trips, which the researchers suggest was due to financial pressures that made them shop around for deals.
Brands v. Private Label
More eye-opening was how shoppers made those cutbacks. As gas prices rose, the study showed, consumers cut back on shopping at grocery stores and bought more food at supercenters and club stores. With every doubling of gas prices, groceries lost 7% of their dollar share of the households' food budget, while supercenters gained 41% and clubs gained 24%. The researchers theorize that shoppers turned to supercenters because they could save trips by getting all their shopping done in one place, while the clubs gained because they sold gas at low prices.
It looks like the warehouse clubs can't win. Chains such as Wal-Mart Stores' (WMT) Sam's Club, Costco Wholesale Corp. (COST) and BJ's Wholesale Clubs (BJ) had been complaining that shoppers are spending more on low-margin necessities like food and health items, and less on more profitable discretionary items like clothes and electronics.
And while lower gas prices may have attracted shoppers when the U.S. average was peaking, that didn't last. As the price of oil dropped, so did their sales during most of the last 12 months. Most warehouse clubs had seen their same-store sales dragged down by gasoline sales until they passed the anniversary of summer 2008's peak gas prices.
Searching for Sales
Once in the store, shoppers more often reached for national brands on sale to save money, instead of switching to private labels at full price. For every doubling in the gas price, the researchers found, households' share of food budget spent on regular-price items prices dropped by 10% for national brands and 4% for private label items, but the share spent on national brands on sale rose by 39%, while spending for private labels on sale rose 30%.
As factored into the overall households' spending, marked-down national brands gained 6.5 percentage points in market share, while private labels gained only 1 percentage point -- not insignificant in a grocery segment where profit margins are single-digit rates, but not a massive move of the needle for store brands, Ailawadi says.
"If you look in the context of the private labels in the mass media, it is surprising," she says. "It certainly puts in question this conventional wisdom that everybody is shifting to private labels."
Looking at the Recession
Ailawadi acknowledges that some of this behavior may have changed as the recession took hold, and households had to cut deeper. Most reports of private labels gaining ground have come in the last year, as unemployment rose and household incomes dropped.
Although the study didn't factor in the recession that hit the economy as the data collection was ending in October 2008, Ailawadi says she may continue the research, analyzing another year of scanner data to see if households stick with the changes they made, and how they reacted as gas prices came back to earth and the recession bore down.
The average U.S. gas price was down to $2.63 a gallon at the end of November -- and unemployment was up to 10.2%. These days, gas prices may be the least of those households' worries.