Private-label foods trouble big brands
Ralcorp Holdings of St Louis has seen sales surge close to 60% over the last few years, thanks to steady sales of its cereal, crackers, cookies and jellies. But don’t look for the Ralcorp brand name on your supermarket shelves.
The food company is the among the largest “private-label” manufacturers, which make their profits by producing goods that are sold under the labels of various retailers and grocers.
It’s a hot sector because more consumers are beginning to trust these cheaper-store brands, sold under names like Wegman’s or ShopRite, and like paying less than national brands.
Plus, private-label products are getting a boost from some missteps by traditional food manufacturers. Sales of private-label peanut butter at Ralcorp, for instance, got a boost from ConAgra’s recent recall of its Peter Pan and Great Value peanut-butter products amid concerns about salmonella contamination, says BB&T Capital Markets analyst Heather Jones. “It helped consumers to see that there may not be as much difference in private-label and branded products,” she said.
That’s putting pressure on traditional manufacturers of branded-food products to put a cap on prices, spend more on marketing and work harder to differentiate their offerings. Kraft Foods, for instance, has seen its share of some food categories drop amid competition from private labels.