Sales of private label consumer packaged goods are a large and growing global phenomenon, but some parts of the world are far more advanced than others when it comes to developing the category.
A recent report from ACNielsen, the marketing information company, shows that around 15 per cent of all consumer packaged goods sales come from private labels, with Europe and the US well ahead of the rest of the world in terms of diversity and quality. In fact, more than 95 per cent of private label sales are found in Europe and North America.
Europe remains the region with the largest private label share of total retail sales at 22 per cent, according to the report, with North America second at 16 per cent. Even excluding Wal-Mart's private label sales, the United States remains the largest single market for private label sales in dollar terms, while Switzerland has the highest private label share at 38 per cent, mainly due to the strength of retailers such as Migros and Co-op which have always favoured private label over branded products.
The UK was second with a 31 per cent share, followed by Germany with 27 per cent, Belgium with 24 per cent and Spain with 23 per cent.
In terms of the rate of growth for private label products, however, the study revealed a decidedly different picture. Latin America, Asia Pacific and the emerging markets all have very small private label markets in terms of overall retail sales, but are experiencing much more rapid sales growth.
For example, the emerging markets of Czech Republic, Hungary, Poland and South Africa saw a collective growth rate of 48 per cent compared to 2002, while Latin America and Asia Pacific saw year over year growth rates of 16 per cent and 14 per cent respectively. In contrast, European growth was 6 per cent, while North America, excluding Wal-Mart in the US, remained unchanged from 2002.
And, more importantly, overall growth rates for private label products outpaced those of manufacturers in nearly two-thirds of the countries studied (22 of 36).
"The high growth rates for private label in the developing markets are directly related to the expansion of global retailers beyond their traditional geographic borders. As they build infrastructure, they build their private label brands," said noted Jane Perrin, ACNielsen managing director of global services and sponsor of the study, The Power of Private Label - A Review of Growth Trends Around the World.
But the report also showed that private labels are now appearing in a far broader range of product sectors than ever before. Some traditional strongholds still remain - for instance, nearly half (46 per cent) of aluminium foil sales were private label products, while complete ready meals (often offered in a special section of a store) had a 51 per cent private label share and private label milk represented 44 per cent of the total market - but there are distinct trends beginning to emerge in other areas.
In particular, ACNielsen highlighted the emergence of premium 'branded' private label products, which offer consumers a quality private label choice as well as providing retailers an additional selling point for their stores. Some of these quality products may be branded with the retailer's name or even have a brand image all of their own (such as President's Choice in Canadian Loblaw stores).
Due to this premium phenomenon, some categories once deemed unreachable by private label are starting to see significant growth rates. Non-traditional categories such as lip stick/gloss, facial cleansing, eye shadow, baby food, drinking yoghurt and sports energy drinks represent very small actual private label sales, but are all experiencing rapid growth rates versus comparable manufacturer brands.
Private label drinking yoghurt, for example, has an 8 per cent share of sales, but its growth is 38 per cent - more than twice that of branded drinking yoghurt (17 per cent). A similar picture emerges for sports and energy drinks - private label varieties have a 6 per cent overall share, but are growing at 33 per cent a year, well above the 9 per cent registered by branded varieties.
But ACNielsen's survey also showed that there is still growth in more traditional categories. Private label ready meal kits, for example, are showing 20 per cent growth, compared to 13 per cent for manufacturers' brands, while private label flavoured milk is growing at 13 per cent compared to 4 per cent for brands.
In its analysis, ACNielsen found that in the 36 countries and 80 categories studied, private label products were on average 31 per cent cheaper than their manufacturer counterparts. This differential has remained fairly consistent since ACNielsen's previous global study in 1998.
Within the countries and categories studied, however, important variances exist. For instance, in Poland the differential was 50 per cent, where in Hong Kong it was only 10 per cent. Europe, with its private label market share dominance, was home to seven of the top ten countries with the biggest differential between private label and manufacturer brands. The United States had the average differential of 31 per cent.
At the category level, the product categories found in personal care and health care often had the largest price differential (greater than 40 per cent). Private label pain relief products, for example, were found to be 55 per cent cheaper than manufacturer brands. At the other end of the spectrum, categories found within many food areas had the lowest differential, with a category like frozen fish (including shellfish and seafood) offered at less than a 10 per cent difference.
But the price differential is not always a negative one - ACNielsen also found that in some categories private label prices were equal to or even higher than manufacturer branded products.
One of the many drivers behind this trend is the premium phenomenon, of course, but other factors include the presence of private label products sourced from imports and thus more expensive than domestic manufacturer brands, differences in product package sizing, and manufacturer brands being more often found on promotion than private label, thus bringing their average price down.
Despite the increasing power of private labels, there is still plenty of room for growth, according to Perrin. "Growth will continue as retailers become more and more sophisticated marketers and continue to expand to new markets. While the role of 'low price, high volume' for private label will always exist, retailers will also continue to build on the power of private label by offering even more premium priced, higher quality products. Manufacturers of branded products will see private label as a growing competitive threat in the global marketplace," she said.