Private label retailers “disrupting” difficult environment in Western Europe, Nielsen

Posted by AFN Staff Writers on 26th March 2014
Private label products are helping some retailers in Western Europe

Times are changing for Europe’s retail food market, and operators are consequently finding it increasingly difficult to boost sales, according to findings from global market research organisation Nielsen. But some retailers have successfully “disrupted” this environment with their private label food products.

Three agents of change have affected food retailing in Europe over the last twenty years, according to Nielsen. Europe’s markets initially swelled with rapid store expansion and the discount channel boomed. But Nielsen said the “wind fell from the growth sales” when consumer demand weakened following the economic crises of 2008. Recently, the effects of these factors have culminated to stifle growth.

As a result, Nielsen found that the only underlying increases in sales Europe had experienced since 2006 had come from price inflation. Headline consumer packaged goods (CPG) value sales growth across Europe slowed again in 2013, dropping 2.5 per cent with volumes nice again flat (-0.1 per cent). As a result, Nielsen said how well the CPG industry, particularly in Western Europe, handles the next 12 months or more will hinge on how well companies learn to live with flat or negative sales volumes.

Private label retailer disruption

Nielsen said some retailers had responded to this environment with “bold and new initiatives” to the structural limitations for sales growth and an oversupply of stores during the time of falling demand.

While the rise of the modern convenience store and steps into e-commerce are long-term opportunities, Nielsen said retailer disruption around private label was having a more immediate impact on the current reading environment.

In fact, Nielsen said it had observed that the weak economic recovery, resulting low consumers er confidence and falling real incomes since 2009 had a positive effect on consumers’ acceptance of private label goods.

Reasons consumers are buying private label

Private label growth in some countries has been due to retailer “pull”, whereby companies are pulling shoppers into buying private label using methods like advertising and touting value for money. Nielsen said Germany is a good example of a market where discounters have led private label growth. In other countries, such as Spain and Italy, the growth of private label has been fostered by an economic “push”, where conditions are pushing consumers to shop differently.

However, Nielsen said there were some consistent themes across Western Europe, such as:

  • The number of private label items available to the consumer increased 4 per cent

  • The share of sales that private label accounted for grew, increasing to 36 per cent (and growing faster in Italy and Spain)

  • In cases where brands had driven promotional spending, as was the case in the UK, the efforts had effectively acted as a ceiling, capping private label growth.

It’s not just about the cost, or is it?

Nielsen said price was one factor helping bolster private label growth in Europe. Notably, private label could be as much as 30 per cent less expensive than brands across the Big 5 countries (France, Germany, Italy, Spain, the UK).

Across categories, private label had a price index of less than 60 per cent in health, personal care and home care, compared with 90 per cent in fresh foods, where the average prices were much closer to those of brands.

However, the success of private label was not just about cost. Retailers in Europe also created new demand, particularly by offering new premium private label lines and by launching dine-at-home meal offerings with bistro or restaurant quality foods — a trend that is most evident in the UK.

Nielsen identified four steps in this disruption:

  1. Innovation: Retailers push new product development outside their existing CPG private-label categories.

  2. Expand: Retailers expand the broader product portfolio, which leads to a more positive perception of the retail brand.

  3. Embrace: The strengthened retailer brand then creates a “halo” for greater private label acceptance. If a consumer feels good about private label, it can have an emotional impact whereby the consumer feels more positive about the retailer in the process.

  4. Grow: Higher acceptance of private label inspires retailers to further develop and grow private label within CPG.

In addition, in markets where there was stronger growth in private label, the growth often drove bigger basket sales. The consumer segment that preferred private label was typically found to be bigger families with children, which were among the higher-spending segments of all households.

What’s next?

Looking ahead Nielsen anticipated four emerging trends across Western Europe.

  1. Brands will fight lackluster operating conditions with demand-led innovation, giving shoppers the ultimate choice within a category.

  2. As retailers develop premium private-label offerings, the price differential between them and national brands will narrow.

  3. Shoppers will increasingly mix both private-label and branded options baskets, aiming to save money and trade up for the more affordable treats and indulgences when they can.

  4. Digital advertising is gaining momentum and Nielsen said it expected to see the impact of this shift in investment on both shopper sentiment and spend.