This report comes from the European trade magazine the International Supermarket News and is an amalgam of a number of recently published studies and report. It represents an interesting European grocey slant to the conversation.
2012 a good year for Private Label
Private Labels in European food retailing have been evident now for couple of decades. The diffusion and growth of retailer’s brands has stimulated a remarkable reaction in retailing, which has been emphasized through the pro-competitive and anti-competitive effect of
Private Label development, and created the need for the existence of a strategic trade-off between manufacturer’s and retailer’s brands. There is evidence that there has been a shift in the balance of power between manufacturers and retailers. Strong evidence of this is the
proliferation of private labels (also known as store brands). These brands have had an impressive and stable growth in the past several years in many countries and product categories. According to Private Label Manufacturing Association (PLMA; 2011) “private label’s long term future appears especially strong”. Ipsos MORI research found strong support of private label among shoppers from the age category 16-34, who are more frequent buyers of store brands’ products and have a greater awareness of them than middle-aged and older shoppers. Also there has been a study made by GfK/Roper in 2011 for PLMA which highlighted the fact that store brand “image” is changing, resulting in a higher volume of sales of PL products while consumers are doing their main household shopping. The awareness of PL (according to GfK/ Roper’s research) remains very high and successfully increasing to the point that more than 50% of respondents have been “more aware” of PL brands than they were in 2010. According to the current market prognosis, the next 3 years are going to be extremely good for the private label industry, as there are speculations that an increase in the sale of store brands in 2012 may reach up to 23%. Currently, the biggest shares in PL sales are Walmart (largest private label grocery business), Aldi , Costco, Safeway, Loblaw, Target, Kroger and Supervalu which are offering a full range of store label products ( including FMCG, canned foods, bakery & snacks and also pharmaceutical products such as pain remedies and cold remedies which were very successful last year).The result of the expansion of PL products offered by these retailers has established lower marketing costs in 2011 since retailers have been also in control of the shelf space for their store’s brands. The international review reveals that in countries such as the UK, Belgium, Germany, France, Spain, Italy and the US, the share of store brands in total grocery store sales increased substantially – in some cases to over 30% (The Nielsen Co. data). Furthermore, countries as diverse as Canada, Hong Kong, Mexico, Chile and Australia have experienced the same private label phenomenon. Private labels have completely changed the relationship between retailers and manufacturers by placing retailers in a dual position, as both clients and competitors in production with the manufacturers. In 2012 private label development gives retailers a more active role in production decisions, which is likely to result in an increase in both the retailer’s profits in a given product category and store label share if the cross- price sensitivity between the national brands and store brands is high. What is also important is the fact that PL will be increasing the bargain power of retailers vis a vis national brand manufacturers. In the forthcoming year it is likely that most retailers will be more interested in introducing further store brand categories/ products, as as they will provide better profit opportunities in cases where negotiations may not lead to a beneficial agreement in selling national products, due to the Euro Zone Crisis. It could be beneficial to increase private labels in order to counteract high national brand manufacturer bargaining power by decreasing the manufacturer’s incremental contribution to the vertical category structure when they can sell a store brand that is closer substitute of the national brand. Further success of private label products constitute the “slow-down” in a global economy, which affect consumers’ buying decisions to generate savings over their budget, which is why they will much more often choose the cheaper PL product. The price is still the key element in consumer’s buying decisions, but also PL products are perceived to be value – orientated. According to study GfK/ Roper 2011 eight out of ten consumers strongly believe that store brands are either “equal to” or “better than” national brands. Buyers might be even more susceptible to such positive private label attributions due to other factors such as shelf location and media coverage. For example, a recent edition of Consumer Reports (Steenkamp) notes that many manufacturer brands are also produce private label products (H.J. Heinz or ConAgra Foods) and that objective quality differences are often small or non-existent. Retailers typically make product comparison easier by placing PL next to the targeted manufacturer’s brands on the shelf, which enhances the comparable credibility, even if the buyer does not make the effort to examine the ingredient labels. In fact, the purchase process involves very little thought and effort especially in FMCG where private label have made their biggest inroads. 2012 will be a year where retailers will seek an efficient method of communicating the quality improvements of their private labels, because matching the expensive brand building support of manufacturer brands would jeopardize their ability to offer competitive pricing and achieve high margins over the year.