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Private-Label Brands Gaining Clout — And Pricing Power

Tuesday, 31 Jan 2012 | 3:01 PM ET

Even as big brand-name consumer products companies such as Procter & Gamble report it’s tough to raise prices, out comes another report suggesting products on another shelf don't have that problem.

Consumers are showing an increasing preference for store brands, and it’s not all about the price, according to a report from Hannah Karp of The Wall Street Journal.

In the report, Karp says private-label products cost about 29 percent less than their nationally branded counterparts, but the pace of the price growth in private-label is faster than for branded products.

Prices in the category are up 5.3 percent compared with the industry average, and “can sometimes even be the most expensive product in a category,” Karp said, citing statistics from market-research firm Symphony IRI.

The trend is even more pronounced among perishable foods, where store-brand prices rose 12 percent last year compared with an 8 percent jump for national brands.

Analysts quoted in the report suggest retailers have largely phased out the traditional approach to their private-label brands, shifting these items from being plain, generic white boxes on the shelf to more of an actual brand with attractive packaging. In some cases stores even have two private label brands, with one priced at a premium to the other.

That’s the case at Target , where the company sells its Archer Farms label at a premium to its Market Pantry line, and sometimes even to national brands.

Karp quotes a study from Clarkston Consulting that found Archer Farms Triple Berry instant oatmeal priced at $4.80 a pound, pitted against a box of PepsiCo’s Quaker Oats instant oatmeal, which was priced at $4.22 a pound. The Market Pantry oatmeal sold for $3.99 a pound.

In some cases, there may be national brands benefiting from the trend. Companies such as H.J. Heinz , Hormel Foods , Tyson Foods and Kimberly-Clark all make private-label products.

But don’t expect P&G and others to let the trend get the best of them for too long. Manufacturers have two tools in their belt: One is the merchandising support they give retailers; the other is product innovation.

The trouble is, some of the private-label brands are looking to narrow the score on innovation by offering some items that scream gourmet, not generic.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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