Raise Prices and Lose Out to Private Label

Pinched by a slowing economy and rising fuel costs, U.S. consumers made the switch to private label products last quarter, according to a recent Bloomberg report.

While Procter & Gamble and Colgate-Palmolive  led U.S. consumer companies in raising prices to counter higher costs, taking the risk that customers would switch to generic brands if they raised them too much. But last quarter, the risk didn’t pay off, as generic brands attracted Americans beset by higher food and fuel costs.

U.S. sales of store-brand household and personal-care products rose 8.9% n the four weeks ended Oct. 4, according to a study by Bernstein Research. By contrast, sales of products such as soap and dish detergent increased by 2.3% at P&G and 1.3% at Colgate, according to the Oct. 17 report. In the year-earlier period, sales of private-label products increased 2.4%, according to Bernstein.

“There is a cyclical nature to private-label based on the economy,” explained Ali Dibadj, a New York-based analyst at Sanford C. Bernstein & Co. and author of the report, said yesterday in a telephone interview. “It’s a balancing act during every downturn,” he said.

Generic brands made up 13.5% of all household and personal-care products in September, a record, according to the report, which used data from research firm AC Nielsen.

Private-label brands increased market share in 15 out of the top 20 household and personal-products categories, according to the Bernstein report.

“Private label is much more mature today than any of the past downturns, and retailers are much more sophisticated in knowing how to use it,” Dibadj said.

The move to generics came as U.S. retail sales fell in September for the third straight month, the longest slump since the government began keeping records in 1992. Consumer confidence as measured by the Reuters/University of Michigan index declined by the most on record last month.

The Washington-based National Retail Federation said this may be the worst holiday selling season in six years, with purchases rising 2.2 percent in the last two months of the year from the same period in 2007.

Huish Detergents Inc., based in Salt Lake City, benefits from a switch to less expensive products. The maker of the Ultra, Bravo, Top Crest and Sun brands is the largest producer of store-brand laundry detergents and fabric softeners in North America and provides products to mass merchandisers like Wal- Mart Stores Inc.