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5 Financial Reasons To Buy Generic Items At The Grocery

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By Ellen Ryan, Next Avenue

Taco Tuesday may bring to mind Old El Paso shells or Pace salsa, and Wednesday might still register for many people as Prince spaghetti day. But if you buy private labels instead, you can enjoy the traditions and have more in your grocery budget at week’s end.

Surprisingly, even after prices jumped last year, consumers directed only about one quarter of their packaged food spending to less expensive private-label brands, says former grocery executive and “The Checkout” podcaster Errol Schweizer.

Shopping for Value

So I went looking for data on value, quality and more and found five yummy reasons to buy the value brand. Let’s start with price:

1. Name brands’ private-label equivalents cost 40% less on average, according to CNET studies of Wegman’s, Stop & Shop and Trader Joe’s published in June — sometimes more, sometimes less. (This summer I found a 56% difference between General Mills
GIS
‘ brand-name Cheerios breakfast cereal and the Giant supermarket chain’s generic version. I also saw that Safeway’s
SWY
private-label black beans cost 37% less than Goya brand beans.)

An average family of four spends $15,674 a year on food at home, according to the USDA. Subtract spending on nonbranded items like produce and products that truly don’t have a generic equivalent; to make calculations easy, suppose that brings the total to $12,000.

Grow Your Own Savings

Assuming the 40% savings holds true, that means our average family could save up to $4,800 (40% of $12,000) by switching from national brands to value brands over one year.

Suppose you set aside one year’s $4,800 in savings and invest it in a growth portfolio of 70% stocks and 30% bonds. “Based on historical returns of about 9.05%, in 20 years that $4,800 could turn into more than $27,000,” says Ryan Viktorin, a financial consultant at Fidelity Investments.

2. Many own-label brands are actually name brands in disguise. Corporations spend piles of money to persuade us that branded products are healthier, tastier, higher in quality and worth more of our food budget.

In fact, some name brands and their off-label “competitors” roll off the same production lines into different packaging. I’ve seen this myself on factory tours in southeastern Pennsylvania, an area known for making pretzels, potato chips, chocolate and sausages.

Quality at a Discount

Naturally, market forces work together to keep a lid on these secrets. For example, “Trader Joe’s orders most of its products from third-party manufacturers (including giants like PepsiCo
PEP
, and Snyder’s-Lance), which agree to sell some of their items under the Trader Joe’s label,” the Eater website divulged in 2017. “The catch is that Trader Joe’s and its suppliers all but swear to keep the agreement secret.”

Nonetheless, journalists have discovered some of these agreements by closely analyzing ingredients or paying close attention to product recalls. Trader Joe’s brand products have been made by Tribe hummus, Wonderful Pistachios & Almonds and Naked Juice smoothies, among others, according to Eater.

Most Costco shoppers have wondered what manufacturers are behind the warehouse store’s own 350 Kirkland-branded products, which Costco aims to be “equal or better quality than national brands.”

Who Made My Jellybean?

The Motley Fool, a private financial and investing advice company, did some research and found that some Kirkland products are exclusive to Costco, but most are made by corporations that sell such name-brand products as Bumble Bee tuna, Ocean Spray
OCESP
cranberry juice, Jelly Belly candy, Starbucks
SBUX
coffee, Reynolds foil wrap and Duracell batteries.

At Costco, though, says Motley Fool writer David Chang, “prices are typically 20% lower than comparative brands, helping you stay on budget.”

3. Value brands have gotten more diverse, better matching customers’ needs. Witness all the organic and premium styles in recent years at retailers Trader Joe’s, Thrive Market, Kroger
KR
and others.

With Kroger’s Simple Truth brand, look for labels indicating “organic,” “fair trade” and “free from [additives].” Whole Foods’ 365 brand uses sustainable oils; you’ll also find fair-trade coffees, teas, and chocolates and cage-free egg products. Target’s
TGT
Good & Gather brand offers organic, plant-based, non-GMO, gluten-free and kosher options. All are free of artificial flavors, colors and sweeteners.

Better than Name Brands

Thrive Market is an online grocer featuring organic, sustainable, and non-GMO products. Last December, the industry recognized Natural Grocers — the country’s largest family-run organic grocer, with nearly 170 stores in the western U.S. — for its “Always Affordable” pricing on its own branded products.

“Such products compete on par or better in quality and taste with many national brand equivalents, particularly when they are higher attribute items such as organic or allergen friendly,” Schweizer, the industry podcaster, wrote in Forbes.

4. Value brands give you more options. In most grocery stores, you have more choices for a product — cherry cola, say, or rotini pasta or toilet paper — than just brand names and a value brand. There is often more than one value brand. In industry parlance, these are called tiers.

Tiers are designed to differ in quality as well as price. You can guess which is which by checking not only the price but the label, which on the second-tier brand tends to be more basic-looking, perhaps less colorful.

What Shoppers Want

The purpose is to meet the budgets of an array of shoppers, says Doug Baker, a vice president at the Food Industry Association, a national trade association. However, the trade group said its research found that shoppers are looking for more than a low price these days; they also want “quality, relevance, convenience and experience.”

So, some value brands, as discussed earlier, have paid more attention to areas such as sustainability, additives and “health and well-being.” To keep prices particularly low, others don’t bother.

Most mainstream groceries carry two tiers of value brands: one often made by a brand-name manufacturer or at least one of similar quality — and one that’s more of a knockoff.

“Kroger Value, Albertsons
ACI
Shoppers Value, A&P’s Savings Plus and Smart Price and Food Lion’s Smart Option are second-tier lines that may be slightly lower quality,” Jacob Clifton wrote in How Stuff Works, though that judgment is up to each shopper.

5. Value brands or private labels even occasionally go on sale — sometimes when the name brand does, sometimes not.

One goal of private labels is to give shoppers an everyday low price. “Whether Great Value or Simple Truth or Hill Country’s Best, they’re supposed to be at rock-bottom prices every day,” Schweizer explains. So if you see a private label discounted, a few things may be happening: The retailer may have a lot of inventory to sell off; it could be discounting the sale items to replace them; or the items could be passing out of date.

Value brands don’t work the same way name brands do, and that includes promotional strategies. “As the owner of the brand, [a retailer is] not working against a contractual agreement with a company on when and how much to promote,” adds Baker. “This provides the retailer the flexibility to promote their brand when market conditions are best for that item.”

The Secret of Low Prices

How can these private labels cost so much less than big-name brands? They’re not spending on advertising, coupons and product placement, and they’re not spending on research and development, either.

“Most store brands don’t have these costs because they simply stick a new label on a product that’s already been developed,” says finance writer Amy Livingston on MoneyCrashers.com.

In addition, says Schweizer, most private label groceries move in higher volume. Retailers can order more at a time, so shipping is more efficient, too.

Overall, the pluses of value or off-label brands are obvious. No less than Eating Well magazine agrees: “The next time you shop, look for the generic option of these foods that our editors swear by. As the saying goes, every penny counts.”

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