Which sectors are beginning to claw back market share from private label?
Australians love buying “house brand” cotton wool and sugar but baulk at the thought of deserting trusted brands when it comes to sunscreen and ice-cream. And, while private labels have been a strong growth segment for supermarkets over the past few years, there are a number of product categories in which Australians have tried the no-name option and come back to national brand favourites, according to business information analysts IBISWorld.
Last year house brand sales accounted for about 20% of packaged grocery sales (approx $13 billion), on the back of improved quality and better marketing, with budget European operator ALDI driving the trend while the big names re-launched and expanded their private label selection to attract a greater market share.
But although the private label concept has had huge success with some products – 99.8% of cotton wool purchased is house branded – IBISWorld General Manager (Australia), Mr Robert Bryant, said for others there’s a strong perception that house brands are lower quality or less tasty when it comes to our favourite foods and essential personal items. And, when it comes to purchase decision-making, perception is everything.
While basic goods are often big generic brand sellers, such as sugar (49.7% market share) and eggs (50.9%), the following private label products experienced a drop in market share over the past three years:
Dropping from 12% of the market to 9%, Mr Bryant believes the decline in private label ice-cream consumption is reflective of heightened demand for premium ice-cream, and the fact many customers see it as a treat to be savoured rather than a daily essential item. “People don’t get the same feeling of indulgence from a private label alternative, and house brands often offer standard flavours only, such as vanilla, chocolate or Neapolitan, compared to the raft of gourmet creations available in branded ice-cream, from Connoisseur Chocolate Honey Nougat to Cookies and Cream,” he noted. “And for those at the other end of the spectrum, the health conscious, private label ice-cream doesn’t generally offer the same range of reduced fat ice-cream options. Australia’s favourite ice-cream brands are still Peters, Bulla and Streets.”
With its market share down to 25.4% from 31.9%, Mr Bryant said a perception about quality seemed to be having an impact on our cooking oil purchases, with people seeking a particular taste, largely for oils used as flavouring or in salads.
We have strong brand allegiances when it comes to milk, according to Mr Bryant, with Pauls, Pura and Dairy Farmers stand out favourites. He added that some consumers feel private label milk will taste different, and said the produce differentiation strategies employed by branded milk companies, such as adding vitamins and other health benefits, were heavily marketed and winning many of us over. Despite this, house brand milk still holds a significant 42.6% share of the milk market after making strong inroads in the nineties. This is down from 44% three years ago.
“Customers take quality extremely seriously when it comes to sun care products, and many consumers are reluctant to change brands at all, let alone change to a private label product. The private label products in this segment have lost significant market share, going from 21.1% to just 14.8%, and the brands we’re choosing to slather on instead include Banana Boat, Le Tan, Nivea Sun, UV and of course, the Cancer Council of Australia,” Mr Bryant added.
According to IBISWorld, the high level of advertising among tampon manufacturers has created strong brand loyalty, and their product differentiation tactics also steer customers away from their house brand competitors which are more likely to offer a standard alternative than the often overwhelming product range branded companies put out there. Previously private label tampons held 7.9% of the market, currently it’s down to 4.9%.
Kids are one of the largest consumer groups when it comes to nutritional snacks, such as muesli bars and other lunchbox favourites, and Mr Bryant considers them to be extremely market-savvy and brand aware. “Kids can be teased at school for not having the ‘right’ foods, and there is a perception that house brand alternatives may be ‘cheap’ or ‘not the same’. These products are highly advertised too, particularly on television and during children’s peak viewing periods so there’s no getting around the brands kids think they want,” he claimed.
Key brands in this segment include LCMs, Uncle Toby’s and Kellogg’s Nutri Grain, with LCMs the top seller. However, whilst private labels have lost a little ground in this market, it hasn’t been a steep slide, going from 13.1% to 12.2% market share.
Canned soup and dry pasta
As low priced products, people tend to be happy to pay for the brand they know when it comes to canned soup and dry pasta, said Mr Bryant. He added that the perception about quality was also at play here, together with the strong advertising presence of key brands such as Campbells and Heinz. House brand soup has a market share of 1.3%, down from 2.8%, while private label pasta has 11.1% of the market, a drop of 2.7%.
“Initially generic brands focussed on providing low quality at low price, and it’s becoming obvious that that’s no longer what many consumers want, particularly for products such as those mentioned here where private labels are losing market share,” Mr Bryant suggested. “However there is still significant money to be made in private labels – with 34% of a low income consumer’s grocery bill being taken up by generic brands – and supermarkets will continue to work to copy the innovations of branded products.”
IBISWorld believes the continued roll-out of premium-line private label products is likely to increase interest and growth in product areas where there has been consumer resistance based on quality perceptions. The economic downturn has also put greater pressure on household budgets, with supermarkets reporting greater private label sales this year as consumers look to find ways to reduce their grocery spend. As a result, brand loyalty is now more important than ever.