Wal-Mart Stores, Inc. (WMT), H.J. Heinz Company (HNZ): Your Best Investments May Be on Your Grocery List

By opting for Wal-Mart Stores, Inc. (NYSE:WMT)‘s private-label Great Value or Sam’s Choice brands while grocery shopping, I’m able to wring as much bang as possible out of my shopping cart buck. Many times these private-label goods are manufactured by the same companies that produce the branded product, or at the least offer quality equivalent to the brand names.

Yet I’m partial to Hellmann’s brand mayonnaise and H.J. Heinz Company (NYSE:HNZ) ketchup. As brand-name consumer goods, they cost more than their private-label counterparts, and logically they should be no better than the lower-cost option, but I feel I can trade up on these items because I’m pocketing so much in savings on everything else.

Apparently, I’m not alone. According to the market researchers at Rabobank, the “hybrid consumer” more often than not is shopping downmarket for most of his or her groceries but is willing to splurge on certain luxury goods — and it’s having a polarizing effect on the industry. Indeed, it’s evident in the retailers that are most successful. You have Wal-Mart Stores, Inc. (NYSE:WMT) and Aldi discounting prices at one end and Whole Foods Market, Inc. (NASDAQ:WFM) at the other, but both sides are thriving. It’s the mid-tier market that hasn’t fared as well.

Supermarket chain SUPERVALU INC. (NYSE:SVU) lost 40% annually between 2007 and 2012 while Safeway Inc. (NYSE:SWY) lost 10% annually. The Kroger Co. (NYSE:KR), which recognized the value of private-label branding early on, achieved 4% growth.

Between 2007 and 2012, private-label foods maker Ralcorp, which was acquired by ConAgra Foods, Inc. (NYSE:CAG) in January, saw its stock grow at a better than 12% compounded annual rate, outperforming its peer group and the Russell 1000. Cott Corporation (USA) (NYSE:COT), another private-label beverage maker, didn’t fare quite as well as Ralcorp, achieving only 4% compounded annual growth, but it doubled the performance of its peer group, which includes such powerhouse names in the bottling industry as Coca-Cola Enterprises Inc (NYSE:CCE), PepsiCo, Inc. (NYSE:PEP)‘s Pepsi Bottling Group, and National Beverage Corp. (NASDAQ:FIZZ).

The growth of private-label brands has even led to the creation of “premium” off-brand names such as Walgreen Company (NYSE:WAG)‘s Nice! brand and Target Corporation (NYSE:TGT)‘s Archer Farms.

Rabobank would think that’s smart marketing, noting that retailers should create value opportunities in premium categories, and premium options in their value segments. With the rise of the hybrid consumer, the grocery store is going to have to develop hybrid marketing to catch the dollars being spent at both polar extremes. Those like Kroger and Target that keep their finger on the pulse of the consumer will continue to be the ones that perform best.

The article Your Best Investments May Be on Your Grocery List originally appeared on Fool.com.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends H.J. Heinz Company, PepsiCo, and Whole Foods Market. The Motley Fool owns shares of PepsiCo, SUPERVALU, and Whole Foods Market.

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