NEW YORK — Bill Peterson used to go to Whole Foods or Kroger for fruits, vegetables and milk. Now, he swears by private-label chain Aldi, which sells those items at a fraction of the price.
The Chicago home remodeler is gainfully employed, but says the economy feels fragile. “There’s no job security … everything has gotten stupid expensive,” the 61-year-old said.
Home remodeler Bill Peterson, 61, sits at a bar March 22 in Bardstown, Kentucky.
Inflation remained high for several years, and U.S. consumers became more focused on value. The shift transcends income class, and experts increasingly see it as the start of a deeper retrenchment in how Americans shop, eliminating a long-held stigma among some for private-label goods.
Inflation is just "an accelerant to fundamental shifts already set to unfold," said Sarah Henry, managing partner at Logan Capital Management.
Retailers adjusted by targeting the "trade-down" consumer — a category that includes cash-strapped shoppers who opt for lower-priced essentials, and wealthier consumers looking to save on discretionary items.
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From January through May, value retailers grew sales 11.6% year-over-year, against just 2.3% for conventional retailers, according to researchers at NielsenIQ.
"Shopping smart has become a mindset, not a customer segment," Julie Barber, Walmart's chief merchandising officer, told Reuters.
Walmart, the nation's largest retailer, planned to increase the number of items under its "bettergoods" food label to almost 1,000. David Guggina, the retailer's U.S. CEO, said on an earnings call in May that the label helped Walmart attract new customers, particularly those with higher incomes.
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RBC analyst Nik Modi in June wrote that private brands were elevated “from a defensive tactic to a core growth strategy," saying the trend is a "structural commitment rather than cyclical opportunism."
Aldi is betting that's true. The German chain, which has about 2,700 U.S. stores, is on track to open 180 more this year, and another 400 through 2028.
"High inflation or low inflation, high unemployment or low unemployment, there are always consumers who are looking to save more money," Scott Patton, chief commercial officer of Aldi's U.S. arm, told Reuters. "I think consumers have figured out they don't need national brands."
Amy Fox, a Cincinnati-area business owner, has enough disposable income not to worry day-to-day. Even so, as grocery bills rise — especially with three boys in college — life started to feel like "death by a thousand cuts," she said.
She shifted to using Midwestern supermarket chain Meijer for its private-label beef and chicken, which sell at much lower prices than at Whole Foods. "It just doesn't make sense anymore" to pay top dollar for such items, she said.
A woman walks near food displayed June 17 in an Aldi grocery store in New York City.
A fundamental shift
High inflation and sticker shock from rising energy and grocery bills are driving the hunt for value, said Dana Peterson, chief economist at research group The Conference Board.
However, industry experts see more fundamental factors at work — ones that could make trading down the new normal.
Consumers’ sense of the future was clouded by existential concerns like job loss due to the proliferation of artificial intelligence, while AI itself made bargain-hunting easier than ever, Henry said.
NielsenIQ researchers wrote that value retailers and premium retailers grew faster than mid-market stores, indicating consumers still splurge on specific items, which they called "a more intentional approach to spending." That trend was the same among low-, middle- and high-income households, NielsenIQ found.
Kroger executives said on earnings calls that private-label sales are growing faster than sales of national brands. The company told Reuters it was "investing in our price position in a disciplined way" to deliver "fresh, high-quality food at affordable prices."
Target's owned brands, which account for about 30% of its sales, will add 600 private-label food and beverage items over the next two years, a spokeswoman said, including 400 in its flagship grocery brand Good & Gather.
Dollar General said consumers across income levels prioritize value. The company will roll out new private-brand products and more than 70 back-to-school items priced at $1 or less, it said.
Having grown up without money, Peterson long avoided private labels, distancing himself from a category associated with poor quality. Not anymore.
“That stigma is pretty much gone," he said.
