Confectionery challenge for private label

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Related tags: Private label, Euromonitor

Private labels are yet to make much of an inroad into the
confectionery segment, but new analysis from Euromonitor suggests
that the premium chocolate market could provide a rich vein of
growth for private label in the future.

Private label products have come a long way in recent years, in many countries shrugging off the cheap and cheerful image and now being presented as premium 'brands' in their own right by many retailers.

But one area which is still to see much in the way of private label products is confectionery, but a new report from market analysts Euromonitor​ suggests that the continuing focus on premium private labels may help boost sales in this area too.

The relative lack of confectionery private labels - compared to, say, ready meals or dairy products - is attributed to the large number of impulse sales which take place outside supermarkets and hypermarkets, Euromonitor said. In addition, confectionery is largely regarded as a treat, rather than a necessity, and consumers are consequently more prepared to pay a premium on branded products, especially for gifts.

As a result the market is dominated by advertising aiming to guide and focus impulse decisions. Innovations, limited editions and brand extensions including flavour and texture developments such as Snickers Cruncher (from Mars) or KitKat Orange (from Nestlé) are constantly being launched to sustain consumer interest.

"It is difficult for retailers to maintain the same degree of innovation as multinational manufacturers, tending to opt instead for copy-cat products of successful brands and formats instead. This is in contrast to sectors such as ready meals, where retailers are successfully introducing a very varied range of private label products,"​ the Euromonitor report states.

Globally, private label confectionery sales decreased 2.5 per cent in 2001, mainly due to a dramatic decline in the large UK market. Downward price pressure imposed by retailers on branded confectionery means that profit margins, especially on chocolate, have become so tight that private labels no longer necessarily represent better value for money than many branded items.

But it is not the same in every market, as the report shows. In Germany, the second largest market for private label confectionery products, sales increased by nearly 4 per cent, with private label proving particularly successful in chocolate tablets, as retailers offered the same exotic flavours at a lower price than branded products.

"Indeed some private label brands, such as Knusperkrone from Aldi, have reached brand status in their own right,"​ the report said.

Outside the well-established private label markets, In developing markets, however, where private label sales in general are low, chocolate confectionery is often considered a luxury product, and price is less of an issue for those who can afford it.

Sweet success

If private label can be said to have had any success in the confectionery market at all then it is in the sugar confectionery sector, although even here its penetration is only 3.4 per cent. The most significant sector in terms of actual sales is pastilles, gums, jellies and chews, where penetration of private label accounts for 4 per cent of sales, with liquorice is highest single product with 8 per cent (albeit in a small market segment), the report said.

The success of liquorice as a private label product is due primarily to its popularity in countries such as Germany and the Netherlands, where private label sales as a whole are well developed.

Other products with high levels of penetration, according to Euromonitor, include toffees, caramels and nougat, as well as boiled sweets. In general, private label penetration is highest in countries with a developed retail structure, with western Europe being particularly significant.

"Conversely, in developing regions where sugar confectionery enjoys strong demand, particularly the fast growing Asia Pacific market, private label sales are negligible. Sugar confectionery is extremely cheap in developing regions and manufacturers themselves often sell unbranded or generic products. This leaves little margin for the expanding retail network to simultaneously compete on price and achieve profits,"​ Euromonitor said.

Private label has also made little impact in gum, with negligible sales in functional gum, and very low penetration in bubble gum in particular. The functional gum sector is still very new and is characterised by big brand names such as Aquafresh or Orbit leveraging consumer trust to encourage confidence in functional products, which often contain proprietary technology. Even leading retailers cannot yet achieve the same measure of trust required to sell functional gums, the report claims.

Moreover, gum production in general requires sophisticated technology and many gum manufacturers are unwilling to dilute the power of their brands by producing own labels for retailers. As a consequence, Wrigley only makes minimal third party sales of gum base, while companies such as Gumlink (the only part of Dandy not sold to Cadbury Schweppes) are unlikely to produce enough to have a significant impact on the market.

So if sugar confectionery currently has the largest number of private label products, it is chocolate confectionery which has the greatest potential, according to Euromonitor. Chocolate already represents 51 per cent of total private label value sales in confectionery, and there is significant potential for this sector in developed markets, with developing markets likely to catch up in the long term.

"The key for retailers is to apply the fantasy brand model to confectionery. In the UK, retailers have already started applying their premium and gourmet brand ranges to chocolate. Tesco's 'Finest' range which covers everything from ready meals, cheeses and biscuits also offers luxury 'Belgian' boxed chocolates and after dinner mints, as does Sainsbury's 'Taste the Difference' range,"​ Euromonitor said.

As an example, Euromonitor pointed to Canada, where private label penetration in chocolate is highest globally at over 13 per cent, and where sales jumped in 2001 following an increase in premium and luxury private label products available with a number of retailers importing Belgian luxury chocolates under their own brands.

"This type of activity differentiates typically economy private label ranges from gourmet offerings and enables retailers to set higher prices for these products and increase profits. As such they can compete with premium brands like Lindt and still appear favourably priced without being seen as 'cheap',"​ the report said.

Organic opportunity

There are also opportunities for private label products in the organic or Fairtrade segment - as the UK's Co-op recently did with all its private label chocolate, the first British retailer to stock exclusively fair-trade chocolate under its own name. "This has raised the profile of the retailer and allows it to charge higher prices for its Fairtrade products, with a reasonable assurance that they will sell successfully,"​ Euromonitor stated.

In addition, in many developed markets food scares and concerns over GM food have prompted an increasing interest in organic products and the number of organic food and drink brands is rapidly increasing. Because of a preoccupation with health and 'natural' products, organic chocolates meet the needs of consumers increasingly prepared to pay more for the privilege of eating organic.

Related topics: Market Trends

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