Private Label: The Global View

Discussion
Sep 28, 2005
George Anderson

By George Anderson


A new report released by ACNielsen, The Power of Private Label 2005, shows store brands are capturing a greater share of sales worldwide. Between 2003 and 2005, private label brands grew at a five percent rate compared to two percent for manufacturer brands.


Europe remains the leader in terms of private label penetration. Private label accounted for 23 percent of sales across 17 European markets. The top five were Switzerland (45 percent), Germany (30 percent), Great Britain (28 percent), Spain (26 percent) and Belgium (25 percent).

Product Area

Private Label Share

Private Label Growth

1

Refrigerated Food

32%

9%

2

Paper, Plastic & Wraps (PPW)

31%

2%

3

Frozen Food

25%

3%

4

Pet Food

21%

11%

5

Shelf-Stable Food

19%

5%

6

Diapers & Feminine Hygiene

14%

-1%

7

Health Care

14%

3%

8

Non-Alcoholic Beverages

12%

3%

9

Home Care

10%

2%

10

Snacks & Confectionery

9%

8%

11

Alcoholic Beverages

6%

3%

12

Personal Care

5%

3%

13

Cosmetics

2%

23%

14

Baby Food

2%

13%

In North America, private label accounts for 16 percent of sales and is growing at a healthy annual rate of seven percent.


Within individual product categories, refrigerated foods are now the largest private label category worldwide with a 32 percent share, having replaced paper, plastic and wraps in the top spot.


The growing acceptance of refrigerated private label is due to the increasing emphasis retailers are placing on developing premium items while moving away from the commodity mentality of the past, according to Jane Perrin, Managing Director, ACNielsen Global Services and sponsor of the ACNielsen Executive News Reports.


“Strategically, retailers worldwide seem to be placing more and more of an emphasis on branding and marketing their private label wares to match the lifestyles and values of their shoppers,” said Ms. Perrin in a released statement. “From the Tesco Healthy Living range of products to Loblaw’s President’s Choice expansion into organics and health-oriented lines, retailers are expanding their brands far beyond a singular focus on low price points. We are even seeing retailers leverage the equity of their private label brands outside of fast-moving consumer goods into areas such as personal finance, insurance and telecommunications.


The simple fact, supported by ACNielsen’s research, is that consumers increasingly see private label as a viable and, in some cases, preferable alternative to manufacturer brands. Sixty-eight percent of consumers interviewed by ACNielsen either slightly or strongly agreed with the statement: “Private Label brands are a good alternative to other brands.”


“Just how far retailers can grow private label will be the center of much industry debate,” said Ms. Perrin. “Whether worldwide shares will reach those of Switzerland (45 percent), or even if high share markets like Switzerland have reached their peak, is yet to be seen.”


Moderator’s Comment: How is the activity of private label in Europe and elsewhere affecting what is happening in the U.S.? Where do you see the private
label business (food and beyond) going in the U.S.?

George Anderson – Moderator

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15 Comments on "Private Label: The Global View"


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Warren Thayer
Guest
15 years 5 months ago

We go mining for ideas in Europe, just as the Europeans go mining for ideas over here. High penetration rates there provide inspiration to people who want to do likewise here. There’s more genuine idea-swapping now that more retailers are going international. But all in all, I rarely see inspiration turning into real products or merchandising ideas that are different from what already exists. We tend to stand in awe of what the Europeans are doing, when often the private label penetration rates there have less to do with any brilliance in marketing than they do with how the market is structured and mere happenstance. What’s a little comical is that when you go to the European private label shows, they are in awe of the U.S. They pull you aside and ask all about U.S. private label, and listen as if you were an oracle. I tell them that Americans look to Europeans for private label leadership, and many of them look at me as if I’m joking. Really.

W. Frank Dell II
Guest
15 years 5 months ago

Private Label has been far more advanced in Europe due to a number of factors, including CPG firms not taking products abroad and state control of the airwaves. European retailers, just as in the US, want to offer products consumers want. Since the CPG companies were not offering the products, the retailer created them. The result is a more developed Private Label program in most of Europe. This has worked well for them due to industry consolidation that occurred more than a decade before it occurred in the US.

A key strategy in a consolidated marketplace is a true point of difference, which is what Private Label provides. As more retailers grow via international markets, i.e. international consolidation, there will be pressure to be different. The result will be continued Private Label growth.

Michael Richmond, Ph.D.
Guest
Michael Richmond, Ph.D.
15 years 5 months ago
Great topical topic! Europe is and has been the leader in Private Label (PL) for many years. In fact, they provide good benchmarking and best practice opportunities for many organizations. By looking at the numbers in Europe there is the opportunity for PL to double their growth in the US. That should be pretty scary to Branded CPG’s. Retailers have gotten smarter, PL product and package quality has improved significantly over the last 5 years and package graphics and performance is at par with Branded products. So why wouldn’t we expect to see PL continue to grow in the US? PTIS has conducted numerous retail audits that support parity product/package looks on the shelf. The traditional price point differential has been about 1/3 more for branded products. Is the increased price really worth the value? In most cases it is not and that is why PL is growing. I was at the annual IIR Packaging Design conference in Chicago last week and I think the CPG’s are starting to figure out they need to do… Read more »
Mark Lilien
Guest
15 years 5 months ago
I’ve done a lot of work in the kosher grocery business. There are 2 kinds of kosher-specialty food brands. Some are broadly-based brands with dozens of items in many categories, and some are specialty brands with a focused assortment. The former usually manufacture nothing. They act as “branded private label” marketers. The latter manufacture their products, often with higher quality than the competition. The broadly-based brands are losing share because the customers can tell that the quality is mediocre. The specialists with high quality are definitely gaining. A customer purchases food, HBA, and related paper products many times per year, and since the cost is low and the opportunity for comparison sampling frequent, people get to know which items have superior quality. Thirty years ago, private label groceries were often second-rate, so their only appeal was price. These days, if the quality is excellent, the market appeal is to a much greater audience, that audience discovers the quality, and becomes loyal. A famous brand has to prove its superiority every day over a high-quality private… Read more »
Camille P. Schuster, PhD.
Guest
15 years 5 months ago

Private label products in Europe have traditionally been designed to be desirable by consumers (high quality, tasty, reliable, etc..) in contrast to the tradition in the U.S. of being a cost cutting option. As retailers moved to make private label products part of their store’s image, the quality has increased and so have the purchases. Retailers should understand their consumers well since they directly interact with them. As a result, private label (especially refrigerated and frozen) items are being designed to provide meal solutions that are attractive to local consumers. The challenge for manufacturers is to provide that level of local adaptation or store adaptation on a national or international scale. High quality, customized private label products will continue to grow in market share because they better meet consumers’ needs.

Bernice Hurst
Guest
15 years 5 months ago
We have talked many times about trust and I think this is a key issue where private label is concerned. If consumers trust retailers then they will buy private label items. They may or may not have the same confidence in large multinationals any more. The irony, of course, is that many (or most) private label items are (a) made by the same old same old multinationals as the big name brands that consumers may be rejecting and (b) the private label items in a whole range of stores almost certainly come from one and the same factory with only the most minor tweaks to their formula for different retailers and/or audiences. There are, for example, only two or three significant players in the UK for ready meals although taste and price comparisons between supermarkets abound and marketing teams come up with all sorts of differentials to justify shopping in one store or the other and buying Value ranges vs. Treat Yourself ranges. The cheap and nasty connotations of private label are no longer applicable,… Read more »
Ed Dennis
Guest
Ed Dennis
15 years 5 months ago
Private label in the USA has improved in quality rather dramatically over they years. This trend of increasing quality while avoiding marketing cost was probably started by A&P. They were able to spec products whose quality was so high that they actually evolved into a National brand (8 o’clock coffee). Many other retailers have depended on maximized margins from private label to cover poor business practices (one of the many many reasons for the failure of Winn Dixie). I think some are finally seeing the light. Retailers should be looking at Starbucks and realizing that a superior (Private label) product coupled with service and marketing can generate a remarkable revenue stream AND produce a great deal of consumer loyalty. I haven’t studied the numbers and don’t know what the sample looks like, but I suspect that much of the growth in private label is coming on the high end of the pricing spectrum and not on the bottom which has been the traditional location of private label products. However, be wary of statistics for 5%… Read more »
George Anderson
Guest
George Anderson
15 years 5 months ago

If you want to know where private label is headed look to Trader Joe’s and Aldi. The banner is the brand.

Anne Bieler
Guest
Anne Bieler
15 years 5 months ago

There will be continuing growth in US Private Label – it is winning the hearts and minds of consumers by providing choice and quality that meets expectations. Successful retailers like Publix and Wegmans know their customers’ value preferences, starting with the basics. Adding upscale premium store brands works with both young shoppers and boomers.

Lower prices for shoppers and better margins for retailers might be incentive enough. But another lesson from Europe and Canada is the opportunity to build customer loyalty. The EU has 300 million people in 25 countries, meaning small markets as well as much higher food and labor costs than the US. Consolidation was inevitable. Private label strategy which strongly identifies with consumers was key in developing market position.

Richard J. George, Ph.D.
Guest
15 years 5 months ago

My expression is “Think like a brand, act like a retailer.” Unfortunately most retailers view brands as those things that they place on their shelves. When talking with US retailers, private label is often viewed simply as a margin opportunity. However, private label can be a key point of differentiation for retailers. Properly executed, as many of the Europeans have done, private label brand development provides the shopper with a compelling reason to select one retailer over another. The appropriate use of private label can be a key component to making the retailer the “brand.”

David Berg
Guest
David Berg
15 years 5 months ago
Yes, private label is cheaper; however, my experience is that the taste is definitely different and generally not as good. For example I’ve bought cheap cheese slices several times, and I always go back to Kraft even though it costs 3 times as much! When I walk into Fry’s, a lot of times I can’t find the brands I want, because they’ve replaced them with private label. As a consumer, I feel that Fry’s is forcing private label brands on me in order to bolster their low price image while actually increasing their bottom line margins (the store manager confirmed this point of view, and said we weren’t the only ones to complain). Bottom line is that I think private brands are all about minimizing price while reducing cost and increasing overall profitability – by squeezing out the CPG middleman and his need to fund expensive marketing and advertising programs. I also believe things like slotting fees are largely irrelevant. Yes the CPG pays a slotting fee and the private label doesn’t; however the CPG… Read more »
Don Delzell
Guest
Don Delzell
15 years 5 months ago

Perhaps the grocery gurus can validate this thought. I believe that the slotting fee economics prevalent in many food categories are not common in European markets. In addition, I do not believe that large CPG firms are as likely to be Category Managers/Captains in Europe as they are in the US. My limited experience in comparing Sainsbury and several US retailers seems to support this point of view.

I believe that Category Management and slotting allowance economics are the primary barriers to reaching European levels of penetration. Culturally, there is also, I believe I have read, less brand sensitivity. In fact, I recall reading that CPG brand ad spending in Europe is significantly less per capita than in the US, primarily because of this cultural difference.

Bob Houk
Guest
Bob Houk
15 years 5 months ago

Your poll left out a major reason (in my opinion) for the growth of private label — increased concentration. The ACNielsen study showed a strong correlation between retail concentration and PL share.

Retail concentration forces manufacturer concentration, because manufacturers must scale up to be able to serve their biggest customers (see the P&G/Gillette and Nike/Adidas mergers, both of which are being justified in large part on that rationale). The loss of competition leads to a lack of innovation, which creates a commoditized market in which price rules.

The equation works as follows: Retail concentration –> Manufacturer consolidation –> Decline in innovation –> Growth of PL.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
15 years 5 months ago
There is no mystery here. Private label enjoys increasing sales because retailers force it onto their shelves, replacing national brand facings. (Shades of A&P for all of you supermarket historians.) I can no longer find several favorite family items at Safeway, including Campbell’s Chicken Gumbo Soup. Safeway’s checkers are trained to ask, “Did you find everything?” When I say “no,” they either say, “we hear that a lot,” or ignore my response. Their training doesn’t go that far. Very phony and superficial. By eliminating brand middlemen, supermarket retailers make enough profit from private label sales to offset brand slotting fees (and dodge their accompanying increased oversight by the IRS, Commerce Commission, and SEC). In Europe, retailers gained the upper hand over brands more than thirty years ago. Here in the U.S., however, this relationship is still evolving. One of the major reasons is brand advertising. European brand advertising – via broadcast, print, and coupons – is significantly less sophisticated and pervasive than here. Heck, the amount of money spent by brands on Free Standing Inserts… Read more »
Al McClain
Guest
Al McClain
15 years 5 months ago

One impediment to further private label growth is the trust that consumers place in brands, often for good reason. When a consumer purchases a well known branded item, they get what they paid for 99.99% of the time. With private label, there is still the factor of the unknown and the consumer is placing their faith in a retailer, across all categories. Sometimes they are disappointed, as the product is uneven, of poor quality and/or appearance, etc. Point being that if a consumer is disappointed even 5% of the time, it puts that element of doubt in the consumer’s mind, and hinders PL purchases across the board. Another issue is multiple PL brands in the same store, which no doubt perplexes consumers. And, then the retailer changes suppliers, which changes quality levels. So, retailers like Trader Joe’s and Costco do well with their PL because they come closer to the 99.99% satisfaction level of the national brands.

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