Manufacturers must work to fight private label threat, warns report

By Anita Awbi

- Last updated on GMT

Related tags: Private label, Marketing

The global private label goods trend will continue to enjoy record
expansion and eat into famous brand profits if manufacturers fail
to adopt winning strategies to combat competition, say analysts.

A report by the UK's Datamonitor highlights the need for leading manufacturers to adapt, as the European private label sector soars to take 23 per cent of the consumer packaged goods (CPG) market.

The report warns that famous brand manufacturers must widen their range to compete, as spending on retailers' own-label goods in Europe has risen 7.4 per cent in the last five years, and 5.3 per cent in the US.

Private label variation is the key to success, with retailers creating value, mainstream and premium product lines under a single private label banner, thus managing to capture all consumer groups.

Datamonitor suggests famous brands may gain from following suit as consumers demand a greater range of choice, and expect similar product quality combined with greater value.

Total European sales of private label goods have now reached €207 billion, accounting for 23 per cent of total CPG consumption, it reveals.

But branded products command a premium price for manufacturers compared to the foods they produce for private label retailers, piling the pressure on iconic brands to compete or lose valuable market share.

A recent study by ACNielsen found that globally 69 per cent of consumers questioned believe private label goods are extremely good value for money, with 62 per cent considering their quality to be at least as good as the big brands.

"From a generic offering with an aggressive price/lower quality positioning, Own Label brands have evolved to become almost equivalent in quality and closer on pricing in the minds of consumers, particularly the highly developed markets in Europe, the Pacific and North America,"​ stated ACNielsen.

By sector refrigerated foods take the lead in growth by value. The category, which includes milk, cheese and complete ready meal products, grew at a rate of nine per cent in the two years to May 2005.

Private labels now have a global market share of 32 per cent in the refrigerated food category.

"The rise of refrigerated food confirms a steady trend in the private label strategy of retailers worldwide - pushing private label products into premium segments that go beyond the "low price-high volume" commodity-driven practices of the past,"​ ACNielsen stated.

Complete ready meals, where retailers provide consumers with all the ingredients for a complete meal in a variety of packaging, styles and recipes, now commands a 49 per cent share of overall category value sales.

"This nearly equal share with branded products in a category that emphasizes quality, freshness and often "healthy choice" clearly demonstrates how retailers can use private label to build loyalty and store equity,"​ ACNielsen stated.

This presents a huge challenge to convenience food manufacturers who are struggling to maintain brand superiority while sticking to familiar formats. Further research and development may be needed to keep up with responsive retailers who adapt well to changing consumer demand.

But some categories seem to be easier for private label producers to penetrate than others, with refrigerated products, dog food, kitchen rolls, sugar and flour all translating well into own-brand lines, while famous-name shampoo, pasta sauce and baby food remain popular.

Yet private label market share continues to grow across almost all categories - and this trend needs addressing by big-brand producers.

Datamonitor states: "To defend their market share, branded manufacturers need both to stress their own advantages and learn from the supermarkets' own innovations."

Related topics: Market Trends

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