Shift to private label “permanent”, but growth to slow

Posted by Daniel Palmer on 26th August 2009

The growth in private label is likely to slow, although a shift in consumers’ loyalty from branded to own-label lines is “permanent”, according to European research.

A report by retail consultancy Verdict Research showed that, since the fourth quarter of 2008, EU consumers have switched to private label on an “unprecedented scale”, Verdict said, with trading down and switching having become endemic.

As a result, value has become the overriding objective for retailers looking to develop their private labels, with major retailers such as Carrefour, Tesco and Metro Group exploiting this opportunity with “fighter” ranges designed to slow rampant discounter growth, Verdict said.

Daniel Lucht, senior analyst and author of the report, said: “For retailers, H2 2008 and H1 2009 was the optimal time to introduce new lines, as customers were willing to shop around and give new food and near-food ranges (such as disposable paper and household cleaning products) a try.”

However, Verdict predicts that, after the recession, there will be a shift back to the higher-end, private-label ranges, which incorporate premium aspects such as organics or Fairtrade.

Simon Chinn, co-author of the report, added: “As consumer confidence is slowly returning in some markets, consumer purchasing behaviour will become more polarised, with premium private labels gaining more traction again.”

At the value end, Verdict believes the fighter ranges will lose momentum and shelf space, as the novelty factor wears off, although they will not disappear altogether.

Nonetheless, the research company said that, even with fighter brands’ diminishing importance, FMCG producers are not yet through the worst.

Rising unemployment and continued uncertainty about the broader macroeconomic outlook will ensure that private label as a whole will continue to gain share at the expense of branded goods.

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