Inflation Is Back… Here’s One Way You Can Protect Your Wealth

Colin’s Note: Earlier this week, I featured an issue from colleague and income investing expert Brad Thomas.

And we’re turning to Brad again today… this time with an insight into a safe, reliable way to protect your wealth as inflation – and fears of recession – rise again.

See, as costs rise and folks struggle to afford even basic necessities, they turn more and more to store brands – or “private labels.”

And there’s one company in particular in a critical industry that stands to profit as folks flock to snag its extensive line of private-label products off the shelves…

If you’re sick and tired of high prices, I hear you. Unfortunately, inflation shows no sign of letting up…

Last week, the Bureau of Labor Statistics released its latest Consumer Price Index (CPI) report. It showed that core inflation increased by 0.4% in January 2024. That’s the biggest increase since last May.

If prices keep rising at this rate, inflation will be back up to 4.8% in a year. That’s well above the Fed’s target of 2%.

And it’s a problem for American consumers, who are already having trouble making ends meet…

Credit card debt is at an all-time high of $1.13 trillion. And 9.7% of credit card balances are more than 90 days overdue. That’s as bad as it was in 2020 after the pandemic shut everything down.

So it’s no wonder savvy shoppers are looking for better deals. That’s something we can all relate to as we try to make our dollars stretch further.

And this has led to a notable trend in the consumer space. People are trying – and liking – store brands, also known as “private labels.”

These no-name brands don’t advertise. But they’re among the fastest-growing and most profitable products grocery stores sell.

At Intelligent Income Daily, we use trends like these to pinpoint profitable income investments. They help us find creative ways to earn back what inflation takes away.

That’s why today, I’ll show you how private labels are helping grocery stores make more money. And give you one way to cash in on this trend.

Store Brands Are on the Rise

Nobody likes paying more than they have to.

A survey by FMI, the food industry association, shows that 96% of shoppers buy store brands at least occasionally.

But 60% say they’ve started buying more private label products in the past year. And 90% say they’ll keep buying private labels.

Customers are choosing private labels because they offer similar quality at a lower price.

In many cases, the same farms and factories that produce the name-brand products also produce the private label brands. Companies just tweak the recipe and throw on a different label.

It’s a no-brainer for grocery stores, too. They don’t have to advertise private labels. They just put them on the shelf next to the brand names and wait for shoppers to notice the lower prices.

Saving on advertising allows private labels to charge lower prices. The difference between store brand and national brand averages more than a dollar for many products.

But even though private labels cost less, grocery stores make more profit from selling them than selling name-brand products.

Grocery stores have a profit margin of about 26% for name-brand products. That means they keep 26 cents for every dollar you spend.

But private label products have much better margins – 35% or higher.

And private label products have been growing at a rapid pace. In 2023, sales of private-label salty snacks increased by 26%. Private-label butter sales grew by 34%. And sales of private-label eggs rose 55%.

That’s why 82% of grocery chains say they’re increasing investments in their store brands. They aim to grow their market share from 19.1% to 21.4% over the next few years.

The Best Play in Today’s Market to Profit From Higher Growth Ahead

One way to profit from the growing interest in private-label products is by investing in Kroger (KR).

Kroger is one of America’s largest grocers. It has over 2,700 stores across 35 states. And it’s about to get even bigger, as it is planning to buy out Albertsons.

Last year, Kroger sold $30 billion of private-label products.

With data from millions of shoppers using its loyalty rewards program, Kroger can easily figure out what people like to buy and develop more private-label products.

Kroger even goes one step further and manufactures 30% of the private label products it sells. This allows it to lower the cost even further and capture more profits.

And here’s the best part for income-focused investors like us… Kroger is a reliable dividend payer that has increased its payout yearly since 2007.

Inflation is on the rise again… And it’s bringing back fears of a recession with it. 

But the grocery business does well during recessions. In fact, people tend to shop for groceries more when times are tough because they’re trying to save money by not eating out at restaurants.

When people try to save money, Kroger makes more profits.

And just like consumers looking for good deals, we have a great deal in front of us today for another reason…

Kroger yields 2.6% and trades at 10x earnings. That’s a 25% discount compared to its historical average valuation of 13.3x earnings. And in the past 20 years, shares have never traded under 9x earnings.

That means it’s a great time to add this growing income stream to your portfolio.

Happy SWAN (sleep well at night) investing,

Brad Thomas
Editor, Intelligent Income Daily

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