Austalralian retailer Woolworths boss Grant O’Brien unveiled an ambitious plan to double the supermarket group’s sale of private-label products at his strategy today, bringing it closer to supermarkets in Britain and the US where the category dominates shelves and generate premium earnings.
Mr O’Brien, who took over as chief executive of Australia’s biggest supermarket group last month, aims to increase the space allocated to Private Brands to approximately 35% of Woolworths’s sales outside of fresh food.
Neither Woolworths nor Coles reveal how much of their sales are Private Brands but industry expert IBISWorld estimates that brands such as Woolworths ”Select” and ”Macro”make up 23% of sales in the $70 billion grocery market. This is up from 12% five years ago and more than double the category’s market share in the 1990s.
Taking command of Woolworths’ fresh assault on the packaged grocery sector will be the newly appointed director of supermarkets and petrol, Tjeerd Jegen. Mr Jegen is a veteran of British supermarket group Tesco, which has set the international benchmark for private-label penetration. Tesco’s private label accounts for 45% of sales.
Woolworths’ refreshed private-label focus will form one of the pillars of Mr O’Brien’s revamp of the supermarket business, which accounts for more than 80 per cent of profit.
At the first-quarter sales results presentation last week, Mr O’Brien said the next phase of Woolworths’ growth had to be built on better earnings from the non-fresh food offering.
The Private Brand push will draw entrenched opposition from owners of branded grocery goods, who have complained about their incursion onto supermarket shelves, especially when they take away space from their products or sit alongside their items and sell at much lower prices.
In August, global food manufacturer HJ Heinz criticised the market power of Coles and Woolworths for fostering an ”inhospitable environment” for suppliers as they stripped out brands and stocked their shelves with Private Brands.
Earlier this year, Coca-Cola Amatil boss Terry Davis said food manufacturers were finding it hard to compete with imported private-label products.
The push might also attract the attention of Australian Competition and Consumer Commission chairman Rod Sims, who in a speech last month discussed the proliferation of Private Brand.
”Supermarkets sell both branded and their own private-label product,” he said. ”This vertical integration in the supply chain needs close scrutiny to ensure the supermarkets do not misuse their market power under section 46.”
Section 46 of the Trade Practices Act deals with misuse of market power and restrictive behaviour.
Source: The Sydney Morning Herald