Australia Woolworths

Australian Grocers Profit With Private Brand Growth

\"\"Australian supermarket Private brand sales have soared by 85% in the past five years and will next year account for 25% of the $86 billion Australians spend on groceries, a report has found.

Consumers are making the biggest move to private-label or \’own brand\’ products in staple categories such as butter, milk, sugar and bread, where supermarket house brands now command up to 68%of sales, the report by IbisWorld found.

Karen Dobie, IbisWorld general manager for Australia, said concerns about the state of the economy and low consumer confidence were driving private-label uptake, particularly among families with incomes below $44,000 a year.

\”Households have been reining in spending, paying off debt and increasing savings. This, coupled with an increase in the range of private-label products available, has led many consumers to make the shift to home brands,\” Ms Dobie said.

However, she warned that the short-term benefit of lower prices for consumers will come with a sting in its tail, as Australians eventually face less choice on supermarket shelves.

\”All of this discounting means that someone is paying the cost of purchasing $1 liters of milk and $2 loaves of bread. More often than not, farmer and producer margins are being squeezed as supermarkets discount heavily to increase store traffic,\” she said.

\”In the long term, this trend will primarily benefit the supermarket giants and those producers that are contracted to manufacture private-label products.\”

Woolworths and Wesfarmers-owned Coles, which have 40% and 31% of the national grocery market respectively, according to IbisWorld, have progressively expanded their private-label offerings since the arrival in Australia of Aldi, which has a private-label only model, in 2001.

Since 2007-08, private label products have grown from a 13.5% share of total supermarket sales to 25.2% in 2012-13. IbisWorld estimates that this will grow to 33%, or $31.8bn, by 2017-18.

In the UK, private label sales account for about 45%of supermarket sales.

Private-label products now account for 40%of low-income family grocery spending in Australia, but only 15%of middle and higher-income family budgets.

Ms Dobie said supermarkets were targeting middle and higher-income groups because they represent the best growth opportunities.

\”Major supermarkets are spending big bucks on activities aimed at blurring the lines between branded products and their own in-house fare. These retailers are introducing premium, organic and fair trade products – such as the Select range at Woolworths – to attract private-label buyers from all walks of life,\” she said.

Source: The Australian

Australia Woolworths

Private Brand Drives Profit Increase at Woolworths

\"\"Australian grocer Woolworths is likely to increase its impressive profit margins thanks to a streamlined supply chain and its push into Private Brands.

The supermarket giant, which has bigger margins than global counterparts including Tesco and Walmart, will continue to reap significant dividends from its efficient business model.

In a note to investors, a Deutsche Bank analyst team led by Michael Simotas said the higher margins were not the result of unsustainable mark-ups.

Instead, they were a product of Woolworths\’ investment in programs to improve efficiency.

\”Woolworths enjoys high operating margins largely as a result of its low-cost of doing business,\” the note says.

\”We believe this is an outcome resulting from considerable investment in its supply chain over the period of a decade which would be unlikely to be replicated by a competitor in the short-to-medium term.\”

The analyst team said Woolworths was likely to enjoy further improvements to its underlying pre-tax margin as its supply chain became even more efficient, food prices started to rise again and the supermarket increased its sales of private label products.

But a separate analyst note from the Commonwealth Bank warns that Woolworths\’ store-expansion program could be a drag on future growth.

The CBA team, led by Andrew McLennan, said industry feedback and sales estimates excluding liquor suggested Woolworths was struggling to hold its share of supermarket spend, despite a roll out of 39 new supermarkets flagged for this financial year.

Mr McLennan said the supermarket group had been outpaced for the past 11 quarters by smaller rival Coles on a like-for-like sales basis, which strips out the impact of stores that have opened or closed.

\”Reliance on store expansion to drive sales is coming at a significant cost,\” the note said. \”New stores are not a substitute for comparable store sales growth.\”



Australian Retailers Defend Private Brands in Senate Inquiry


Australian supermarket giants Coles and Woolworths told a Senate inquiry this week that they were not trying to increase sales on Private Brand products at the expense of branded competitors.

Coles merchandise director John Durkan told the Australian Senate inquiry into Australia’s food processing sector that sales for Private Brand products had risen strongly over the last four years.

He said \”customer choice\” was behind the popularity of Private Brand rather than a deliberate strategy by Coles to increase sales margins by acting as both a retailer and producer.

Durkan rejected claims previously put to the Senate inquiry about Coles’ private label strategy, ranging decisions and product sourcing.

“We have seen claims that supermarkets are actively deleting branded products to replace them with private label brands. That is simply not the case in Coles’ supermarkets,” he said.

“Branded products continue to represent over 75 % of overall sales in Coles, and our strong view is that customers will ultimately decide what level of private label products they will buy.

“Shelf space ranging decisions are made on the basis of sophisticated customer preference modelling, not on any strategy to replace branded products with private label.”

Coles also dismissed claims that Private Brand products are increasingly being sourced from overseas suppliers and said Coles’ Private Brand contracts had helped to create almost 10,000 new jobs in the Australian food manufacturing sector in the last four years.

“Again, the facts do not support the claims. Nearly 100% of our fresh produce is grown in Australia, and nearly 90% of our private label grocery products are made in Australia, and we are committed to keeping it that way,” Durkan said.

\”Our strategy involves increasing all of our sales, of which home brands is just one part.\”

He claimed Private Brand products, like milk and bread, weren\’t being given better positions on supermarket shelves or being oversupplied.

\”The way we apportion our space is based on how much volume we sell of a particular product,\” Durkan said.

\”As you can imagine, our whole aim is to be in stock for our customers. We don\’t have enough room to over-space products.\”

The supermarket also took the unusual step of releasing diagrams of its shelf plans to dispute claims that it was promoting private label goods at the expense of branded products.

Durkan said even though Private Brand had seen \”double-digit\” growth over the last few years, branded products still represent over 75% of overall Coles sales.

\”Our strong view is that customers will ultimately decide what level of private label products they will buy.\”

Woolworths was criticized for not making a submission to the inquiry, although the supermarket did attend the hearing in Canberra.

\”I do want to express my disappointment about your engagement with the inquiry,\” committee chair and Liberal senator Richard Colbeck said.

\”I don\’t think you\’ve done yourselves any favor’s at all, to be honest.\”

Ian Dunn, Woolworths head of trade relations, acknowledged that there was “no doubt” that “some sectors” of the food processing industry were facing challenges.

Dunn claimed Woolworths dealt “fairly and honestly” with suppliers and said the supermarket’s relationships with both large and small suppliers were excellent.

He defended the increasing dominance of Woolworth’s Private Brands and said that these ranges supported Australian suppliers.

“Woolworths invests heavily in co-operating with suppliers on new product development. We have a strong bias of support for Australian supply of our Own Brand ranges – Homebrand, Select and Macro – for which we willingly pay a premium, and which has seen considerable investment by us in small- and medium-sized manufacturing around Australia,” said Dunn.

Dunn said the Macro brand was made up of 350 products, more than 80% of which were sourced from Australian suppliers.

“This range is experiencing growth eight times the rest of the market and new products are added to the range largely where there are no other products like it in the Australian market.”

However, Dunn admitted just 6% to 7% of all frozen vegetables sold in its stores were Australian-grown.

He said, of the rest, 30% came from New Zealand, 30% Chinese and 30% from \”the rest of the world\”.

Source: Smart Company


Woolworths Launches Local New Zealand Private Brand Cider

\"\"A cider produced by renowned New Zealand brewers, the McCashin family, is the first ever Private Brand beer or cider sourced by Australian mega retailer Woolworths from New Zealand, and the retailer says it is selling “exceptionally well”.

Saxton Cider was developed for Woolworths by the McCashins, who founded New Zealand’s popular Mac’s beer brand that was eventually sold to Lion Nathan.

Woolworths Liquor Brands’ Brendan Robinson told the Australian Hotel, Bar, Club and Liquor Industry webzine “TheShout” that Saxton Cider had been on sale for two or three months and was selling “exceptionally well” driven largely by in-store tastings.

He said the cider, which comes in apple and pear flavors, is a much tangier, full-flavored style than many of the others on the market, “so it’s appealing to a different consumer”.

Woolworths recently revealed that it introduced more than 100 Private Brand liquor brands to its stores in the last six months of 2011.

SOURCE: TheShout

Australia Woolworths

Coles Bests Woolworths In Private Brand Sales

\"\"Australian grocer, Wesfarmers Ltd – owned Coles has opened up a significant lead over rival Woolworths in the sale of their Private Brands as it expands its portfolio, according to The Australian. The newspaper reported that Coles gained 23% of its sales from Private Brand products last year, compared to Woolworths\’ 18%, according to market researcher Nielsen.

Nielsen further predicts that Private Brand products will account for 40% of the Australian grocery market in the next five years.

Both Coles and Woolworths took issue with the data, saying it did not count certain products included in the Nielsen tally, but even so the figures point to respective 30% and 20% increases in Private Brand sales in the last five years.