Inflation may be coming under control, but the cumulative toll of month after month of soaring prices, higher interest rates and swelling debt has wreaked havoc on household finances. Anecdotes shared on retailer conference calls have drawn a portrait of a more selective and cautious shopper. At the low-end, the situation is particularly strained. Dollar General recounted that sales patterns at its stores suggest that its core consumer — a household earning less than $35,000 a year — is running out of cash by the end of the month. Also, the retailer’s survey data suggests about 30% of its customers have maxed out at least one credit card and a quarter expect to miss a payment over the next six months. Wall Street survey data backs this view, and suggests consumers will be looking to trim budgets. Trading down to store brands is one solution. In its August consumer survey, Mizuho said 36% of consumers it polled planned to buy more private-label products over the next six months — a high for the survey. That’s good news for retailers like Walmart and Costco that have invested heavily in their store brands. And while TreeHouse Foods , a pure-play private label product manufacturer, may spring to mind as a way to play the trend, the stock has been an underperformer. Shares recently turned positive for the year, but analysts still have a dim view, with the majority at a hold rating. Also, the average price target implies the stock could pull back 4%. Mizuho food industry analyst John Baumgartner, who has a neutral rating on TreeHouse, said the company’s performance has been very volatile. He explained that TreeHouse’s sales are subject to the needs of the grocery stores, which may be incentivized to promote national brands over store brands from time to time, throwing off TreeHouse’s plans. THS 1Y mountain TreeHouse Foods shares over the past year. But the company is making an effort to gain control of what it can. It’s trimming costs and deleveraging after years of dealmaking. It’s exited low growth and low margin categories as well. When Baumgartner initiated coverage of the stock in June he said TreeHouse was “on the strongest path for growth in its 20-year history.” But it still needs to prove itself as “downside risks to growth are tangible,” he said. Flexing pricing power Investors should consider which branded food manufacturers are likely to take a hit as consumers trade down. Baumgartner sees candymaker Hershey and BellRing Brands , the owner of Premier Protein and PowerBar, as the two companies he covers that are most insulated from exposure to store brands. Wall Street’s view on Hershey is mixed. The stock closed Friday about 1% from its average price target, according to FactSet. Shares fell more than 2% in August, after it lowered its 2024 outlook on the heels of a weak second quarter. But the stock regained ground in recent days as tech stocks swooned. The maker of Reese’s and KitKat has been hurt by rising cocoa costs. While recent price increases have softened the blow, it hasn’t been enough to completely offset the pressure. Stifel analyst Matthew Smith has a neutral rating on Hershey shares but describes his bias as “positive” as he expects Hershey will benefit from cost savings programs and improving sales volume heading into next year. “Hershey’s ability to price sets the company and its category apart from its food peers, providing the potential for differentiated growth in the future. And we believe this category will continue to see favorable levels of elasticity,” Smith wrote in a research note after Hershey reported earnings. It’s exactly that pricing power that protects it from store brands eating into its market share. BellRing Brands has even more clout, according to Baumgartner, who rates the stock an outperform. Shares have gained less than 2% since January, but he expects BellRing will trade at a premium to its peers because it’s still in the early stages of its growth. His $72 price target suggests nearly 28% upside from Friday’s close, and is the Street high. (For comparison, the consensus price target of $46.79 is only 11% above where it currently trades, according to FactSet.) BRBR 1Y mountain Bellring Brands shares over the past year BellRing’s fiscal 2025 sales growth is predicted to be between 10% and 12%, and it has continued to increase pricing at a mid-single digit pace for its Premier brand, according to Mizuho. Baumgartner said investors don’t appreciate the nutrition category’s potential. He expects the category will increase annual sales at a mid-single to high-single digit pace over the next five years. Some of the growth will come from moving into new retail channels, but the company is benefiting from consumers adopting new habits such as chugging a protein shake for breakfast instead of munching on carb-laden cereal. There’s also potential for more product innovation, he said. “We view BRBR among Food’s best pure organic growth stories and also see potential benefits from M & A as the category likely consolidates,” Baumgartner said. It also doesn’t hurt that the company’s name has come up as a potential beneficiary of the rising use of GLP-1 medications like Ozempic, Wegovy and Zepbound. Patients on these weight loss drugs are advised to boost their protein consumption in order to advert muscle loss. Protein bars and shakes are a quick and easy way to accomplish this. On the other hand, some food categories are more prone to encroachment from private label such as coffee and cheese. Baumgartner sees some risk for Hain Celestial , which sells natural and organic brands such as Garden of Eatin’, Earth’s Best and Yves Veggie Cuisine. About a third of analysts rate Hain shares a buy. The rest are at a hold. Hain’s stock has fallen 23% year to date. Walmart’s ‘bettergoods’ Retailers have focused private label innovation in the natural and organic food aisles. This includes not only Whole Foods’ 365, but also Safeway’s O Organics brand and Kroger’s Simple Truth. Earlier this year, Walmart launched bettergoods , a store brand that sells trendier foods as well as products that are plant-based or exclude ingredients such as gluten or antibiotics. In its fiscal second quarter, Walmart said it was seeing increased demand for its store brands, helped by bettergoods. Analysts say the brand, which includes items such as black truffle butter and beef bulgogi empanadas, is helping the retailer gain share among upper income consumers. WMT YTD mountain Walmart shares YTD Analysts are overwhelmingly positive on Walmart’s stock, with 86% rating shares a buy or outperform, according to FactSet. Shares have rise more than 45% year to date. Kearney, a consulting firm, recently fielded a study of private label brands with market researcher Nielsen’s NIQ, and found that private label is gaining market share in many categories, especially salty snacks and cooked meat. The trend is being driven by higher income consumers and Gen Z shoppers. The investment retailers are making in private label seems to be paying off because it is becoming a differentiator, according to Katherine Black, a partner at Kearney, who leads its food, drug and mass market retail practice. Black, who was the lead author of the study, said more than half of consumers say store brands help determine where they will shop. She expects this trend will grow and influence 60% of shoppers’ decisions by 2030. ‘Artisan, but accessible’ Consumers are more willing to veer from national brands because of social media and e-commerce, which has helped fuel the rise of upstart brands that have risen in popularity seemingly overnight, according to Black. There’s also a desire to buy organic products, which can be pricey, and store brands help make these products more accessible. TD Cowen analyst Oliver Chen said the private-label programs are increasingly important to retailers as it helps them to be competitive, build loyalty, provide value and react to the “speed of change.” Consumers are discovering new trends so quickly that retailers need to work hard to prevent being caught flat-footed when behaviors shift, he said. Cowen sees private label as a way shoppers practice “customized moderation,” where they scrimp on some things in order to splurge on others. Walmart’s strong association with value, makes the stock one of the firm’s top picks for the fall. Bettergoods is one of the “more successful” private labels that Walmart has attempted, Chen said, calling it “artisan, but accessible.” “Consumers want to be smart shoppers,” he said, and store brands with “sharp price points” can help with this goal.