|Rise and rise of the private label|
|Thursday, 26 July 2012|
Consumers turn to private label products in their hunt for value. When it comes to food they are finding it increasingly in retailers' private label products.
"There is mounting evidence which suggests national brands are losing their hold on the consumer," says Michael van Wyk, Deloitte's Western Cape consumer business leader.
In the private label arena most SA food retailers still lag those in developed economies. A study by research firm Planet Retail indicates private label products will generate about 11% of the SA food retail sector's sales in 2012, which is less than half the 23% global average and far behind countries such as the UK (41%) and Germany (32%).
But most SA consumers are receptive to private label products. In a 2011 survey, research firm AC Nielsen found that 72% of SA consumers see food retailers' own brands as a good alternative to other brands.
This was not too far behind the 78% of European consumers who felt the same way.
Private labels are a win-win option for consumers and retailers. "Our private label lines are 5%-15% cheaper than national brands," says Pick n Pay food merchandising director Peter Arnold. While giving nothing away, he says private label products are more profitable.
According to consultancy Bain & Co, food retailers gain an extra eight to 10 percentage points of gross margin on private label products compared with similar producers' brands. Dutch bank Rabobank draws a similar conclusion. Rabobank also found that acceptance of private label products begins to accelerate when their share of sales reaches about 10%. Pick n Pay's experience appears to support this.
Arnold says Pick n Pay's private label sales grew by 12,2% in 2009, 12,8% in 2010 and 13,8% in 2011. Over the period the retailer grew total sales at an average of 11%/year. So far this year he says private label sales are up by 14,4%. "In grocery lines private labels account for 15% of our sales," says Arnold. If fresh produce such as meat, dairy, fruit and vegetables are included, the level goes to 27%, he adds.
Pick n Pay has a three-tier approach to private labels, says Arnold. At the lower end is the PnP No Name brand launched in 1976; competing with national brands is the PnP range. A third, very upmarket range, PnP Finest, was launched in October 2011.
"With PnP Finest we offer premium products at an acceptable price that offers value," says Arnold. "There are now 121 PnP Finest lines and we are working on increasing that to between 500 and 600 by the end of 2013."
Shoprite plays its private label strategy close to its chest but has provided glimpses of its progress. In a presentation last year Shoprite CEO Whitey Basson said some private label products have a 60% share of sales against the best-selling branded items. In a 2007 presentation he noted that in the frozen vegetable category its private label lines accounted for 88% of sales, in dishwashing liquid for 66% and in tomato sauce 34%.
Spar CEO Wayne Hook says private labels are an important element of its strategy. Spar targets the sector through two product lines. At the lower end are Savemore products, which Hook terms "our price fighters", while Spar-branded products target brand leaders. With Spar products the aim is to offer "as good as the best for less", he says.
The ultimate success is Woolworths, which, in keeping with its close UK ally, Marks & Spencer, generates well over 90% of sales from its private label lines. Woolworths CEO Ian Moir says the strength of its private label strategy lies in a close relationship with suppliers. "Our top 20 suppliers are responsible for 60%-70% of our sales," says Moir.....
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