Private label sales up, but price war takes its toll

Posted by Nicole Eckersley on 10th May 2011

canned vegetablesMany of Australia’s supermarkets are moving towards private label groceries, but while consumers are interested, the price drop may be hurting retailers in the long run, according to new research by Nielsen’s Homescan panel.

Private label products grew slightly in the last six months, going from 24.5% to 24.7% of total groceries over two quarters. However, this quarter saw the average spend on private label drop by $5.79 – down from $208.03 in the December quarter to $202.24 in March.

On closer inspection, consumers are not buying less private label goods, but the pricing war between the two major supermarkets has directly impacted bottom lines.

“Shoppers’ store repertoire is not changing significantly, but how they allocate household spend between competing stores and brands is. What we are seeing is a volume shift within categories between branded and private label goods, and branded versus branded goods, which varies depending on the category and the product in question,” said Michael Walton, The Nielsen Company’s executive director for consumer and business intelligence.

Currently, however, there is little evidence that price discounting on branded and private label goods is driving significant increases in foot traffic across the major retailers.

“This is likely due to the fact that one retailer immediately trumps the other as soon as a price reduction is announced. With so many initiatives in play at once it is difficult to isolate a ‘silver bullet’ that is responsible for the growth in share of the major retailers’ this quarter.

“The impact of the price campaigns is being felt by the independent retailers and non-supermarket channels. They have lost share of trade in the most recent quarter and these gains are going to the major retailers,” said Walton.