Private label: a move upmarket
the leading UK retailers Tesco and Sainsbury are now worth more
than some of the brands they were originally created to emulate,
according to new data from Euromonitor.
Scorned for many years as downmarket versions of brands, private label products have lately taken a move upmarket. Gone are the days when private labels were the main weapon in the price war between the major UK retailers, with most of the groups now concentrating on expanding and improving the range of products they carry.
The top two UK groups Tesco and Sainsbury are at the leading edge of this product development, according to market analysts Euromonitor, with private labels produced by these two companies well on the way to becoming brands in their own right.
Sales of private label packaged food grew by £438 million in 2001 following several years of steady and slow decline, according to Euromonitor, mostly as a result of the introduction of many new products such as the premium range FreeFrom range from Sainsbury, Tesco Finest and the organic food ranges from both retailers.
Segmentation of private label has expanded the offering from one retailer brand to several sub-brands to cover the full spectrum of consumer needs from budget to gourmet to organic to, more recently, special dietary needs, with the launch of FreeFrom by Sainsbury in 2002.
According to Helen Touchais, Sainsbury's marketing manager for own brand innovation, FreeForm was launched with the expectation that it would generate significantly lower sales turnover than other private labels produced by the chain. She said that the value of the sub-brand is in the demographic which it attracts to Sainsbury's stores, namely high per capita spenders who go on to do their weekly shop in Sainsbury's outlets, purchasing across a wide range of product categories. FreeFrom differentiates the retailer from its competitors, Asda and Tesco, and encourages loyalty among a valuable demographic, she told Euromonitor.
"Similarly, Sainsbury's Taste the Difference appeals to a similar group of very food aware consumers who fill their baskets with premium products. Currently one third of Sainsbury's shoppers buy from the Taste the Difference label on a weekly basis. These same 'foodies' go on to purchase premium branded products such as Ben & Jerry's ice cream and Nando's Peri Peri sauces," Euromonitor said.
While Tesco and Sainsbury have begun to add real value to their private label offering, rival chain Safeway has not yet managed to develop its private label brands to the same level. It has instead relied on so-called 'hero pricing' to draw in consumers using what Euromonitor called a hi-lo pricing strategy. "As a result, Safeway customers are highly promiscuous, arriving to purchase the advertised deals and making multiple purchases of those products but leaving without filling their baskets with products not on offer."
According to Judith Batchelor, general manager of NPD at Safeway, the chain generally builds share throughout the year only to lose its shoppers at Christmas when they return to Tesco, Sainsbury's and to a lesser extent Asda to do their main shop. Just last month, Safeway announced it was to end its deep discounting programme and introduce an every day low pricing strategy across all its stores - a clear move towards the strategies employed by its main rivals.
But this will not be an easy task. "If Safeway is to compete on the basis of EDLP rather than hi-lo it will need a well-developed range of private label which attracts consumers' attention and, just as importantly, distinguishes it from Tesco and Sainsbury," said Euromonitor.
On the basis of an evolving private label strategy, Tesco Finest and Sainsbury's Taste the Difference have already developed a level of recognition comparable to many of the UK's top brands. For example, Sainsbury's Taste the Difference was worth an estimated £350 million in retail sales in 2002 according to Euromonitor, and Tesco's Finest was even larger, generating almost £500 million. That makes Sainsbury's Taste the Difference, the smallest of the two, almost twice the size of Avon, three times the size of Boots No. 7 and almost one and a half times the size of Mars including Mars Ice Cream and Mars dairy drinks.
