Stocks of in-house supermarket brands on the rise
A business forecaster expects private label products to make up around a third of supermarket sales within five years.
IBIS World’s figures indicate that private label, or no-name, groceries currently account for around a quarter of supermarket sales, generating revenue of $21.6 billion.
That is around double IBIS World’s estimate for 2007-08 of $10 billion in revenue and a 13.5 per cent share of sales.
While it expects growth in home brand spending to slowdown over the next five years, the major supermarkets’ own products are expected to hold a 33 per cent market share and account for almost $32 billion in sales by 2017-18.
IBIS World general manager Karen Dobie says the global financial crisis has contributed to the rise in no-name sales.
“The recessive economic climate has been a strong driver of private label growth. Households have been reining in spending, paying off debt and increasing savings,” she observed in the report.
“This, coupled with an increase in the range of private-label products available, has led many consumers to make the shift to home brands.”
The major supermarkets have been increasingly turning to in-house brands to boost margins by controlling more of the supply chain, and also to counter the arrival of foreign competition such as Aldi and Costco.
Bread and butter
Private labels have had varying degrees of success in different categories of grocery.
Over the past decade, the share of private label sales in supermarkets has risen from 24 to 68 per cent of butter, 18 to 56 per cent of bread, 56 to 67 per cent of sugar and 51 to 55 per cent of fresh milk.
Liquor has also moved strongly towards in-house brands, with their share rising from 2 to 8 per cent over the past 10 years.
Ms Dobie says some types of products are more suited to being marketed as private label products.
“Products with a high degree of homogeneity that are staples of grocery baskets have shown the strongest private-label growth,” she noted.
“A particularly interesting product category is eggs. While private-label egg sales still account for over 50 per cent of market share, this has fallen from 61 per cent over the past ten years.
“The decline is mainly due to a switch towards free-range, a segment not adequately represented by private-label players.”
Areas that have a particularly low private label penetration are chocolate, soft drinks, cosmetics and sanitary products.
In those sectors where private label brands are already dominant, or expanding rapidly, Ms Dobie says the most common response has been for the manufacturers of branded goods to lower their prices.
“Branded producers have responded to private-label growth by discounting their products to remain competitive,” she said.
“However, the dominance of Coles and Woolworths means that they are likely to give preference to their own brands in terms of spacing and design allocations – placing continued pressure on the big brands.”
She says, while consumers are getting lower prices in the short-term, in the longer-run primary producers, manufacturers and consumers are all likely to lose out to the benefit of Coles and Woolworths.
However, consumers seem increasingly willing to risk the long-term pain of reduced choice and competition for the immediate gain of lower prices in the short-term.
Those most likely to look for private label savings are unsurprisingly households on low-incomes (less than $44,000 per annum), for whom no-name products make up more than 40 per cent of their grocery spending.
Those households earning more than $75,000 per year typically direct around 15 per cent of their grocery spending to no-name products.
However, this income group is being increasingly targeted by supermarkets offering more expensive private label products that often imitate their branded competitors.
“Major supermarkets are spending big bucks on activities aimed at blurring the lines between branded products and their own in-house fare,” added Ms Dobie.
“These retailers are introducing premium, organic and fair trade products… to attract private-label buyers from all walks of life.”