News

Britain tops own-label table

06 March 2006 By db staff writer

The UK supermarkets’ in-depth understanding of their customers is fanning the British love affair with private-label goods. Are private labels a serious threat to brands? Patrick Schmitt reports

The UK is Europe’s largest user of private label according to a recently released report by market analyst Datamonitor.

More than 35% of spending on consumer packaged goods (CPG) last year was on private label food, drinks and personal care products, accounting for some £39 billion. Not only that, but Datamonitor predicts this will increase by a further 25% in the next five years to £48.7bn, threatening the market for branded goods.

There are a number of factors explaining the UK’s anomalously high level of private-label sales, according to Matthew Adams, consumer market analyst and author of the Datamonitor study. One of these is “the high retailer concentration in the UK, with the top four accounting for around 60–70% of the grocery market.” The power of these leading companies and their national reach is significantly greater compared to retailers in regionally divided countries on the continent, like Italy.

As for the forecast growth in private label, Adams believes it will mostly result from further consolidation of the retail environment across Europe. The study also suggests the success of private-label products is partly because “retailers understand their consumers better than famous brands.” As Adams says, “UK supermarkets have a high understanding of consumers from the likes of loyalty cards.” Private label has also proved adept at quickly closing the gap when it comes to branded-product innovations. Datamonitor, for example, highlights Tesco’s recent decision to launch a cholesterol-lowering range under own label.

Less stigma attached
Leading retailers have also “elevated the quality of their offering and therefore there is less of a social stigma about buying private label”, adds Adams. “Private label is becoming less of a discount purchase,” he sums up. “Retailers’ understanding of customers’ purchasing habits has informed their innovation efforts, ensuring that private-label products are much more attuned to consumer needs.”

However, Adams believes brands can fight back. He suggests manufacturers “widen their range of brands to compete with private label,” citing the example of Anheuser Busch in the US, which has introduced the lower price point Busch Beer for multiples and B-to-the-E and Tilt at the premium, “lifestyle” end of the market.

The former is designed to compete with high volume private-label products without affecting the brand status of Budweiser, while the latter two products have specific benefits for consumers. “Brands need to keep concentrating on maintaining their advantage for longer,” says Adams. He also points out that brands should look to the on-trade, where there is less price sensitivity, and to the convenience sector where private label is less dominant. Lastly, he says, focusing on branded alcoholic products, “The good news is that drinks have the second highest emotional involvement between the product and consumer, behind personal care/fragrances.”

Then again, when asked whether some private labels had become brands in their own right, he cited the strength of Sainsbury’s “Taste the Difference” and Tesco “Finest”, as well as M&S, which he describes as “arguably one of the best brands on the high street”.

Nevertheless, as Martin Isark, author of Supermarket Own Brand Guide says, “People are more loyal to a brand than a supermarket. With really hard brands if a retailer doesn’t have them, the shopper will simply go somewhere else.” db March 2006

INSIDER OPINION

“Are private-label drinks a serious threat to branded products?”

Richard Cochrane, director, off-trade sales, Bibendum Wine:
“Firstly, current data I have seen suggests own brand/private label is currently in decline. Secondly, most brand owners have been authors of their own threat. Thirdly, due to the fragmented nature of the wine industry – the biggest global brand has less than 2% share and in the UK the leader, Hardys, has only just nudged over 5% in 2005 – you could argue that the biggest brands by far are in fact the retail brands, Tesco et al rather than proprietary brands. Indeed, the country brands, region and varietals all come well ahead of Hardys on any comparative league table – or so the consumer seems to think. Lastly, an interesting point for me is that own label used to equal cheap and often nasty; yet today Tesco’s Finest and Sainsbury’s Taste the Difference both appear to increasingly offer better consumer value than the lead proprietary brands, which are tied in to deep-cut consumer offers to shift volume.”

John Smith, joint MD, PLB:
“In wine, own label is not increasing; if anything it is shrinking [see table above]. It has been pushed back to an edlp type product because it is not promotable. And if an own-label product is £3.99 there are a lot of offers that bring branded wines to the same price, and because we are such a promotion-driven society, consumers will opt for the branded wine on promotion. Basically, brands have been driven down to own-label prices and the demand is not there for own label at an EDLP price.”

“Can supermarket own-label and branded wine happily co-exist?”

Bill Rolfe, international marketing director, United Wineries:
“Yes, as far as the consumer is concerned the only difference between the two is that one is owned by the producer and the other the retailer. However, it is still very difficult to create strong wine brands because maintaining loyalty is almost impossible due to an over-reliance on discounting, fragmentation and oversupply. Furthermore, I think the modern shopper has lost the habit of sticking with one brand. Take M&S, only a few years ago shoppers wouldn’t dream of buying their essential clothing from anywhere else, then along came the ‘fast fashion’ discounter shops such as Primark, and the rest is history.”

db March 2006

Europe private label share of total CPG spending, by country, 2005 (%)