Growth Of Private Brands Create More Competition In South Africa

This article comes from Cape Town, South Africa based Michael van Wyk a Partner at Deloitte in the Western Cape where he is responsible for leading the Consumer Business practice and the newly opened Deloitte office in Stellenbosch. The piece presents an interesting analysis of Private Brands in South Africa.

Global trends have shown that during tough economic times consumers migrate towards private label products, seeing them as a cheaper, more value for money option, as opposed to the better-known national brands. Private labels are the products sold by retailers as house brands (e.g. Pick ‘n Pay’s “No Name Brand”, Checkers “Housebrand” and Shoprite’s “Ritebrand”).

Recent studies have shown that private label goods in South Africa accounts for between 12 and 15 percent of market share. This is very much in keeping with global trends. An independent global Private Label report, released in 2011, showed the global average for private label penetration to be almost 15 percent. Europe is however the exception reporting a mammoth 35 percent of private label market share.

The only South African exception is Woolworths that bucks this trend as it is predominately a private label business and the company reflects a much higher percentage of private label sales compared with other food retailers.

According to the report, private label products should be between 20 percent and 30 percent cheaper than branded goods. In South Africa however this is not the case, where store brands can sometimes be more expensive than branded goods.

Western Cape Consumer Business Leader Michael van Wyk said, “With the economy under severe pressure from the rising costs of living, inflation and underperforming global economies we are starting to see a trend where more South African shoppers are choosing to buy private label goods, seeing some national brands as luxuries. The country is also witnessing the evolution of private label products into brands in their own right.”

Like economic crises, the migration process is a cyclical phenomenon globally. Consumers usually revert to their original buying patterns after the recession period has ended. There are however an increasing number of consumers who choose to remain loyal to the private label products as many retailers have succeeded in achieving a good price/quality ratio. While price is significant, economic value and emotional values have become important factors in a consumer’s ultimate choice of brand. Quality, combined with innovative marketing and creative packaging, has breathed new life into the attraction of private labels. It is this new loyalty to private label products that is placing increasing pressure on national and branded goods.

He said the evolution of private labels to a higher order within a retailers’ product offering is a significant shift in the consumer shopping mentality of yesteryear and is due primarily to the efforts of retailers to establish a level of credibility and a value proposition for their private labels. Historically supermarket private label or ‘no-name brand’ products were viewed by consumers as cheap and of a poor quality. “This characterisation is not totally undeserved as the introduction of the cheaper private label products was aimed at enticing the low budget shopper. The products provided the cheapest alternative with little assurances of quality,” said van Wyk.

He pointed out that private labels, like Woolworths, have evolved into brands themselves. The perception of being endorsed by the retailer lends the private label an air of credibility. Coupled with a strong brand story the private label products have developed and revolutionized the way retailers do business. Communication and aesthetics are yet more tools at the disposal of retailers in gaining consumer confidence.

He said, “By effectively telling the story of the private label brand in marketing, in-store communications and through packaging retailers appeal and cater to consumer needs. Using loyalty programs is yet another way to track consumer spend and determine what it is they want and need. Consumers are becoming more discerning and want to understand the emotional as well as economic value of their purchases. By creating an emotional link to the journey of the product or brand, retailers are able to appeal to customers on a personal level.”

Large retailers have a distinct advantage over national brands in their direct access to consumer information. By analyzing data related to specific shopping trends and patterns they are able to create services and products that cater directly to the needs and choices of consumers. This goes a long way towards creating successful private labels and house brands, said van Wyk.

He pointed out that over time retailers have realized that changing consumer behavior, influenced mainly by the economic clout wielded by the emerging middle class, is driven by the demand for quality at a competitive price. With the variety of goods available on the shelves, private labels compete with national brands not only on price but also in terms of value related to quality. The rapid growth of the private label sector has changed the face of retailing and has seen a significant increase in market share.

This is evident in the number of products and segments in which private label products are available. The segments match and enhance the individual lifestyles of shoppers in the various demographic levels. Retailers now offer private label goods aimed at budget, normal, premium and elite consumers. Each tells its own story, has a defined identity and caters to a particular segment of the market.

Van Wyk said, “National brands must therefore compete against traditional rivals as well as the better informed retailer. This makes for a very interesting battle as national brands seek to overcome the advantages of retailers with more effective marketing campaigns. This is certainly an exciting area for businesses in this sector and is one we should keep a close eye on. Global brands looking to expand into the South African market will also bring valuable international experience in the development of private labels, which will have a significant impact on how business is carried out. Watch this space.”

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Christopher Durham
Christopher Durham is the president of My Private Brand and the co-founder of The Vertex Awards. He is a strategist, author, consultant and retailer who built brands at Delhaize-owned Food Lion, and lead strategy and brand development for Lowe’s Home Improvement. He has consulted with retailers around the world on their private brand portfolios including: Family Dollar, Petco, Staples, Office Depot, Best Buy, Metro (Canada), TLW (Taiwan) and Hola (Taiwan). Durham has published five definitive books on private brands, including his first book, Fifty2: The My Private Brand Project. In 2017, he will debut his newest book, Vanguard: Vintage Originals, a visual tour of innovation and disruption in private brand going back to the mid-1800’s. Dynamic in his presentation while down to earth and frank in his opinions, he has presented at numerous conferences, including FUSE, The Dieline Conference, Packaging that Sells, Omnishopper and PLMA’a annual trade show in Chicago. Durham lives in Charlotte, NC with his wife, Laraine, and two daughters, Olivia and Sarah.