Rod Street, executive vice president of international consulting at SymphonyIRI Group, analyses the latest private label developments in Europe and the implications for national brands
Across Europe, retailers’ own label products are gaining market share. Europe is the most mature own label market in the world – European shoppers buy nearly as many own label products as they do national brands and, in some countries, they are viewed as equal to, or better than, many branded products. The volume share of private label products at the end of 2011 ranged from 57% of all FMCG products sold in the UK, and 50% in Spain and Germany, to 20% in Italy. This compares to 23% in the USA.
Own label has not been a single proposition for some time but its appeal has become more diverse, making the competitive challenge for national brands more complex, and interesting, than ever before. At its heart, an average 30% discount to national brands provides shoppers with the ability to make savings in their grocery shopping at a time when rising prices, flat salaries and general economic gloom is forcing shoppers to become far more frugal.
However, this has not proved enough to drive share up in the most mature of countries. Here, the rising cost of many grocery products has resulted in consumers – in markets such as the UK and Germany – buying less in their attempt to control the cost of their weekly grocery shop. The result is pressure to innovate further in own label to widen retail margins in tough times. Hence innovations like Tesco’s venture brands with look-a-like national brand positions and features.
This is nothing new. Retailers haven’t just leveraged their understanding of the shoppers’ desire for value with low-cost options; they have created innovative, multi-tiered product ranges with different pricing strategies that sit in the repertoires of shoppers with varying income levels and operating in different shopping modes.
Additionally, recognising price alone is not enough to move even the most price sensitive shopper away from their favourite brands, retailers created value for the consumer by bringing new brand identities, attributes and quality within their price range; and leveraging the attachment shoppers have to the store and to their ownership of retailers’ brand values.
But even here this basic strategy is being reworked. Asda’s consumer taste tested and positioned Chosen by You range at the mid-tier is a well-positioned build on the idea consumers, not the business, own the brand.
The continued stretch on own label means products at the premium end of the spectrum, such as Tesco Finest or Sainsbury’s Taste the Difference, are seen as the most expensive and innovative product on offer.
Where this is well developed it is impacting the pricing for own label brands overall. In Germany, own label is already significantly cheaper than national brands – by nearly 40% – and is purchased mainly in discount stores. In contrast, own label brands in the UK are much closer to the price of national brands – just 20% less.
Nonetheless, the closer own label brands get to being consumer brands, the more the economics and the proposition means they need to emulate good brand practice. This can provide the opportunity to drive additional value where own label looks to have saturated markets. Of course, as this happens and where there is real appeal to the proposition, the more retailers will need to leverage trade promotions; a strategy rarely used when own label was already the cheapest product.
As a result of range expansion, own label products are now available in nine out of every 10 FMCG categories, giving shoppers opportunities at every price point to buy a retailer’s own product.
It is significant, and a reflection of the fact own label brands are real brands in their own right, the market share for own label grew in those categories traditionally dominated by national brands and in which shoppers tend to be strongly attached to favourites such as tea bags, energy drinks, beers and colas. Own label is also strong within segments with less emotional engagement. Where we see personal needs enter the picture, we can spot an increase in brand preference.
Despite the advances and smart brand positioning by retailers for their own label ranges, there is still a high level of loyalty towards national brands. Shoppers like to spend money for good quality and, although own label continues its assault on brands and shoppers have reduced the frequency of buying them, they are able to bounce back by exploiting the identity and affection that shoppers have for them.
With no growth or low growth in European grocery markets; head to head competition in saturated retail and product categories; and the battle for share becoming one and the same as the battle for growth, we can expect to see a tremendous battle over the next few years between national brands and private labels with innovation in strategies and tactics, especially in the most mature markets.
Expect some surprises en route. Retailers will need to be smart about the private and national brand mix though to keep customers happy. And more advanced retailers will need to be careful not to damage category value where they are close to a perceivable ceiling share.