The Death Of Brands: Passing Up Advil For Aspirin

Who needs Advil when it is more expensive than aspirin and probably does no better at reducing pain? Who needs Starbucks (SBUX) when Maxwell House has just as much caffeine?

A new survey of purchasing data from 23,000 stores conducted by the Pointer Media Network  shows that many shoppers are simply walking away from their favorite brands because they can’t afford them due to high prices during a recession.

According to Reuters, from 2007 to 2008, of shoppers surveyed “33 percent completely defected to another brand.”

The information probably makes some of the most important “branded” companies in the world likely to have sharp earnings declines. That would certainly include huge consumer products companies Colgate (CL) and P&G (PG) and that may put their stocks under pressure. The same holds true of food and soft drink companies such as Coke (KO),  Pepsi (PEP), and General Mills (GIS).

The problem that premium brand companies face may extend will beyond the recession. It is not unlike the challenges faced by GM and Ford (F). Consumers may be getting used to frugality. While the economy may recover, the recovery may be extremely slow. Many Americans still carry too much debt or are worried about their employment. Those consumers may not return to expensive brands. Hyundai’s sales may rise and people favor cheaper goods. Aspirin sales may have a resurgence.

The era of dominant brands fueled by massive marketing campaigns is going into hibernation and it may be a very long winter.

Douglas A. McIntyre