The Great Recession and Private Label Demand

Abstract

We seek to determine how wealth and income influence the demand for private label (hereafter PL) products. In particular, we use the experience of the recent Great Recession to explore how larges changes in wealth and income affect the demand for private label products. Contrary to recent claims that the recession has sparked a sharp increase in Private Label demand, we find a long-term trend toward increasing acceptance of PL products that predates the Great Recession. There is little evidence that the Great Recession has changed the long-term trend. We link our panel data to store level data and establish that the PL trend is demand-based and does not stem from supply side factors such as pricing and availability. We exploit local variation in changes in housing values to estimate a wealth effect on private label demand. To estimate an income effect, we exploit variation in income across time for our panelists, controlling for local economic trends. We estimate significant but small wealth and income effects on Private Label demand. This contrasts sharply with the strong cross-sectional relationships between demographic variables and PL share we establish. We believe these cross-sectional relationships reflect the cumulative experiences of consumers with PL products as well as the impact of education on perceptions of PL quality. We show evidence that the strength of these relationships is deteriorating over time which is consistent with an experienced-based view of PL quality perceptions.