Private label: Key threat to big name brands

Posted by Nicole Eckersley on 3rd March 2011

canned vegetablesThe big brands on supermarket shelves are under increasing pressure as Asia-Pacific consumers have indicated they will continue to choose own-brand consumer packaged goods, even when finances are not so tight. Spend on private label across Asia-Pacific countries will increase to reach $24.65 billion for food, $11.17 billion for non-alcoholic drinks, $580 million for alcoholic beverages and $370 million for household care products by 2014, according to consumer research group Datamonitor.

The group’s research suggests that 50% of consumers are choosing where to shop based on preferred private labels, with more than two thirds of Asia-Pacific consumers believing own-brand foods are as good as, if not better than, leading famous brands – 50% think they are identical in quality, and 27% say they are superior.

Sales of private labels have increased notably as a result of the recession, with consumers looking for ways to reduce their spend on groceries. However, Datamonitor’s research suggests that many have since found the products to represent very credible alternatives, and as a result have continued this buying behaviour despite the ongoing economic recovery.

The company predicts that private label sales are set to increase across all consumer packaged goods, but particularly for food and alcoholic drinks. Between 2009 and 2014 sales will rise from $420 million to $580 million for alcoholic drinks and from $18.04 billion to $24.65 billion for food.

“One example of the growing success of private label has been Aldi in Australia, which achieved an increase in profits of 30% in 2010. The company’s product range is largely private label, locally sourced and cheaper than its main rivals Coles’ and Woolworths,” said Matthew Jones, a Sydney-based consumer market analyst.

“The company has been recognized throughout the industry – in August 2009 it was awarded the title of 2009 Australian Retail innovation of the Year by Australian Retailers Association, as well as the category as retailer of the year for its food, drink and grocery range.”

“Private label is no longer about offering consumers the cheapest product; instead it is about offering value. Consumers won’t just buy the lowest-priced item on the shelf – they’re looking for products that deliver on their promises and exceed expectations; and this is something that private label has been very successful in doing,” said Datamonitor analyst Mark Whalley.

Datamonitor said it believes that with high levels of satisfaction regarding private labels, national brands face a significant challenge to try to win customers back, even when the economy improves over the next five years.

“Although famous-name brands still dominate the market in consumer packaged goods, they need to consider private labels as serious competition both now and in the future. Consumer perceptions are evolving and no longer is there an overwhelmingly “snobbish” mentality towards supermarket brands. With the amount consumers spend on private label competition is set to increase at an unprecedented rate as brands work hard to differentiate their products from private labels,” said Whalley.