An evolving retail landscape, the rise of the savvy shopper and a fierce price war between retailers has seen the first signs of a slowdown and even a decline in some markets for private label since the start of the recession. This is according to the new Private Label in Western Economies report launched by global market and shopper intelligence firm IRI.
Subtitled ‘Closing the price gap, losing share’, the special report provides an insight into how private label is performing across seven European countries (the UK, France, Germany, Italy, the Netherlands, Spain and Greece) and in the United States. Private label value market share in Europe dropped by 0.1pt in unit and value compared to a year ago, down to 38.7%* of all value sales and 48.9%* in unit sales – still a significant proportion of the total market.
While a year ago, only France saw private label sales decreasing, this year, France, Italy, Spain and the Netherlands have all seen a slowdown and even a decrease in private label share. The report also indicates that in most European countries the decline of private label is coming from the food sector.
“Shoppers have traditionally seen private label as a good value option, helping to lower weekly shopping bills and a way for retailers to boost sales and grow their margins,” according to Tim Eales, author of the report and Strategic Insight Director at IRI. “But the landscape is evolving, driven by smarter shoppers and an aggressive price war being waged by retailers in many countries. Private label appears to have reached a ceiling in places like France, Spain, Italy and the Netherlands with value share slowing down or even in decline for the first time in 7 years.”
The report also points to the closing price gap between national brands and private label, with brands heavily promoting their products while retailers have reduced promotional levels on some private label goods, contributing to some of the share losses in private label at category level. In terms of category trends, frozen food and chilled & fresh food – where there are low levels of penetration of national brands – these have the highest share of value sales for private label, while confectionery, which has strong brand competition, has the lowest private label presence.
“Private label is now in a mature stage and retailers are moving away from aggressive promotions activity and discounting. In fact, price levels have risen to meet the growing demand by consumers for better quality and premium products,” Tim Eales adds.
IRI’s report reveals that in Spain, private label holds the highest share of promoted volume (30.3%) across the countries, partially due to the fact that Spanish retailer, Mercadona, increased promotion levels for its private label for the first time. The UK, with one of the strongest private label presences in Europe, was second with private label holding 23.7% of promoted volume, down 0.7 pt, with brands accounting for the remainder. Only in Greece (16.2%) and Germany (12.1%) did private label increase its share of promoted volume against brands compared with a year ago.
Drawing its conclusions from the Private Label in Western Economies report, IRI believes that winning retailers are the ones that can innovate and differentiate their private label ranges from national brands to meet the changing demands of shoppers, while still offering the advantage of a lower price point. The company also stresses the importance for retailers to optimise product assortment through the use of analytics and greater collaboration with manufacturers to deliver the best product mix between brands and private label to increase shopper satisfaction.
- The UK has the highest share for private label sales in Europe, accounting for over half the market in value.
- Private label declined again in France by 0.5 pt in value share and 0.9 pt in unit share, with retailers reducing private label assortment and increasing national brand promotions
- Private label in Spain faced a slowdown for the first time since the recession with -0.7 pt in value share and -1.2 pt in unit share. Price is not the only influencer in purchasing, but also convenience, value for money and exclusivity
- After almost 5 years, private label stopped growing in Italy (0.0 pt in value and unit shares) due to increased competition from national brands on promotion and a decrease is assortment
- Germany is the exception in Europe with private label growth of +0.7 pt in value share and +0.1 pt in unit share due to improved quality and more promotional activity
- In Greece private label share is still low (15.4% value market share) due to the severe price and promotion war between brands and retailer’s private label
- The Netherlands has seen private label share decrease by -0.2 pt in value share and -0.7 pt in unit share due to a decrease in promotions on private label and reduced price gap with brands
- In the United States, consumers buy a mix of national brands and private label that provide the best value for their individual needs. Private label value sales growth outpaced the FMCG industry average for the year, leading value share growth of +0.1 pt.
The IRI Private Label in Western Economies special report: http://www.iriworldwide.eu/Insights/EuropeanWhitepapers/tabid/262/Default.aspx
*Source: IRI hypermarkets and supermarkets for Spain and Greece; IRI Total Market inc. hard discounters for Germany, Italy, Netherlands and France (inc. Drive); Kantar Worldpanel Total Market UK 52 w/e 2014 September 14