Buzz the Bee says Cheerios are good for your heart…
But the price for a box of the brand-name cereal nearly gave me a heart attack.
The store-brand version of Cheerios, “Toasted Oats”, were right next to Cheerios on the next shelf. And I saw that I could get a bigger box of “Toasted Oats” for a dollar less.
So, I opted for the bigger and cheaper box of my favorite cereal.
How bad could they be? Turns out, not bad at all.
Inflation is hitting everybody’s wallet hard. It’s making savvy shoppers look for better deals. They’re trying – and liking – store brands, also known as “private labels.”
These no-name brands don’t advertise. But they’re among the fastest-growing and most profitable products grocery stores sell.
Today I’ll show you how private labels are helping grocery stores make more money. I’ll also give you one way to cash in on this inflation-driven trend.
The Store Brand/Private Label Inflation Driven Trend
Nobody likes paying more than they have to.
A recent survey by FMI, the Food Industry Association, shows that 96% of shoppers buy store brands (also known as private label products) at least occasionally.
But 60% say that they’ve started buying more private label products in the past year. And 90% say they’ll keep buying private label.
Data from grocery stores backs that up. In 2021, private labels made up 18.5% of grocery sales. Last year that jumped to 19.1%.
Customers are choosing private labels because they offer similar quality at a lower price.
In many cases, the same farms and factories that produce the name brand products also produce the private label brands. They just tweak the recipe and throw on a different label.
Grocery stores don’t have to advertise private labels. They just put them on the shelf next to the brand names and wait for shoppers to notice.
Saving on advertising allows private labels to charge lower prices.
In 2022, the difference between store brands and national brands averaged more than a dollar for many products.
But even though private labels cost less, grocery stores make more profit from them than selling name brand products.
Grocery stores have a profit margin of about 26% for name brand products. That means they keep 26 cents for every dollar you spend. But private label products have much better margins – 35% or higher.
That’s why 82% of grocery chains say that they’re increasing investments in their store brands. They aim to grow their market share from 19.1% to 21.4% over the next few years.
But store brands could grow much more than that over the long term. In Europe, private labels make up 31% of the market. And in some countries like Switzerland, private labels make up nearly half of all products sold.
How to Profit from the Increased Demand for Private Label Products
So how can you take advantage of the growing profits that grocery stores are making on private labels?
Invest in Kroger (KR), one of America’s largest grocers.
Kroger has over 2,700 stores across 35 states. And it’s about to get even bigger. It plans to buy out Albertsons, another grocery chain with over 2,500 stores.
Last year, Kroger sold $30 billion worth of private label products.
And with data from millions of shoppers using their loyalty rewards program, Kroger can easily figure out what people like to buy and develop more private label products based on consumer interest.
Kroger also goes one step further and manufactures 30% of the private label products it sells. This allows it to lower the cost even further and capture more profits.
And these profits will land in your wallet as a shareholder. Kroger is a reliable dividend payer that has increased its payout every year since 2007. That’s a 16-year dividend growth streak.
When inflation drives people to focus on saving money, grocery stores profit.
After all, one of the best ways to save money on a weekly basis is to shop more at grocery stores and eat out less at restaurants.
So when people try to save money, Kroger makes more money.
Right now, Kroger yields 2.6% and trades at less than 10x earnings. That’s a 25% discount compared to its historical average valuation of 13.3x earnings.
And in the past 20 years, shares have never traded under 9x earnings.
That means it’s a fantastic time to add this growing income stream to your portfolio.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
P.S. For members of my Intelligent Income Investor service, there’s an even better company to profit from all the inflation-driven trends in the market. It’s a company that’s a leader not just in America, but all around the world.
The company is making massive profits from the success of Amazon. And it can give you a reliable stream of growing income. In fact, I call it “Amazon’s Secret Royalty Program.”
To find out more, click here.