Food and Beverage Brands Leverage Supply Chain Advantage to Combat Private-Label Shift

As food and beverage companies continue to lose customers to private-label competitors, many are doubling down on the advantages that they have to hold their own.

Global food and beverage giant Nestlé, for its part, argues that its strength in supply chain relative to private-label brands, at a time when there are so many disruptions and setbacks, helps the company’s products hold their own against grocers’ own-brand offerings.

“Keep in mind that private label supply chains are feeling the pinch too when it comes to their cost inflation, and also some of them are still experiencing some bounce-back problems from the times of COVID,” Nestlé CEO Ulf Mark Schneider said on a call with analysts Thursday (July 28) discussing the company’s half-year financial results for 2022. “Remember, those private label supply chains tended to be more exposed than with large players.”

Additionally, Keurig Dr Pepper, parent company of its self-titled brands as well as a range of other popular food and beverage brands, noted that private label prices are rising too, which will mitigate their advantage over name brands.

“Private label initially was a little slow to take the pricing actions, but when you look to the latest data, that path also has gone up,” Keurig Dr Pepper CFO and President Ozan Dokmecioglu said on a call Thursday discussing the company’s second-quarter fiscal year 2022 results. “Therefore, overall, we are very happy with the resiliency of our owned and licensed brands that have shown and how the consumption is moving across the portfolio with regards to the pricing actions.”

(Keurig Dr Pepper sells to many private-label brands, such that the shift would not compromise its margins as much as food and beverage companies that do not produce for these brands, but name brand sales are significantly more profitable for the company.)

Additionally, the company asserted that the effects of the trade down that many are observing have been overstated, contending that they are, to some extent, a normalization of the exceptional behavior seen during the worst stages of the pandemic.

“If you recall during COVID the reverse [was] true,” company Chairman and CEO Robert Gamgort said of the turn away from premium products and toward private-label brands. “So, it’s almost a reversion back to the long-term trends.”

The Hershey Company, meanwhile, parent company of a wide range of leading snack and confectionery brands, argues that the categories in which it operates protects it from much of the impact of the shift to private label.

“If you look across total food, as budgets are tighter, certainly, private label brands have grown share versus with across snacking, private label has not and consumers tend to like their brands,” Hershey President and CEO Michele Buck said on a call Thursday discussing the company’s second-quarter fiscal year 2022 financial results. “I think that consumers will continue to try new brands, given that they have a real focus on brands within snacking.”

Overall, food brands benefit from a shift in consumers’ food spending away from restaurants toward grocery stores. Payments giant Mastercard’s earnings results, also reported Thursday, revealed that consumers are spending more on groceries and less on discretionary categories like home furnishings, per CEO Michael Miebach’s report.

See also: Mastercard Results Detail Spending ‘Shift’ by Consumers Amid Inflation