Almost a quarter of all grocery sales in Australia are now accounted for by private label goods, the latest research from Nielsen shows.

The market researchers discovered that the amount spent by the average Aussie household on store brands reached its highest level ever level in the June quarter – up five per cent on the corresponding period last year, to $172.80.

The Nielsen report, ‘Smart shopping in challenging times‘, discovered that the number of households purchasing private label products across all the major chains has grown, as fears about the global economy and improving perceptions of product quality spur demand. The strong growth rates may not continue in the coming years, but the study suggests that market share inroads made will be unlikely to be fully recovered by branded manufacturers.

Around 57 per cent of consumers said they had been switching to cheaper grocery brands to save on household expenditure over the past year, and over a third (34%) said they would continue to purchase cheaper grocery brands even when economic conditions improve.

“While Private Label was still performing strongly prior to the onset of the GFC – what the economic downturn has done is reinforce the positioning of Private Label as an attractive, cheaper alternative to branded goods; and this proposition has driven awareness, consideration and trial of these products across various demographic groups,” Kosta Conomos, Executive Director – Retailer Services at Nielsen Pacific, contended.

“As consolidation continues within the grocery channel, retailers will increasingly look at the positioning of their Private Label strategy as a means of differentiating their store offer from that of their competitors, with the objective of driving loyalty to their retailer banner.”

The improving perceptions of private label quality have strengthened the potential for retailers to hold on to much of their gains, with younger demographics, in particular, seen to be becoming more responsive to store brand offerings.

A Nielsen Homescan PanelViews Survey undertaken in September 2008 found sixty per cent of households agreeing that ‘today’s Private Label products are much better than those available five years ago’. Among 16-34 year olds, this figure was seven points higher – at 67 per cent.

As of June, young families are the heaviest private label consumers, with 25.8% of their grocery budgets directed to such products – as opposed to the 22.9% of the average household.

“The younger generation would probably not have experienced the old world of Private Label with questionable quality, limited range and bland packaging. Instead, they have been rewarded with a very compelling alternative to proprietary branded goods,” Conomos suggested. “This group and their children represent the largest future growth potential for Private Label over the coming decades. In the Pacific, Private Label products are yet to realise the gains as experienced in Europe.”

“The strong acceptance of Private Label among young households effectively exposes the future opportunity for retailers and conversely, the challenge for proprietary branded manufacturers. However, it is important to remember that this is not a zero-sum game. When strong manufacturer brands meet strong retailer brands – the one that always wins is the one that has the strongest focus on the consumer.”

Nielsen believes the embracing of a range of mediums, especially new technology, is the key to captivate a young audience.

“To engage the younger consumer, manufacturers and retailers should adopt an integrated media strategy across three screens (TV, online and mobile) to provide a combination of maximum reach and frequency of your brand communication,” Conomos concluded.

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