With the world in the grip of a deep recession and high food prices on shoppers’ minds, private label has looked like an unstoppable trend.
Indeed, in mid 2008 private label was growing well ahead of the market, according to Eric Sher, research associate for European food at investment firm Berstein. But he believes that private label peaked last summer.
In the four weeks to 24 May, private label goods saw 1.1 per cent growth. Although this remains ahead of market-wide growth, it was the 11th consecutive period of deceleration – and the worst growth period since tracking began.
“Private label gains share in a recession or when prices are up,” Scher told FoodNavigator.com. “Sticker shock”– consumers’ reactions to higher food prices, compounded by the recession – means people switch to private label.
But after that the tendency is for the growth rate and market share gains to start decelerating. Some people may decide they don’t like it the private label version so much, or the sticker shock wears off on the next shopping trip.
“People underestimate the power of brands,” Scher said.
Moreover, big brand manufacturers have not been sitting back idly and watching private label steal their market share.
The likes of P&G, Unilever and Reckitts Benckiser are investing heavily in innovation, and are coming out with value offerings of their own that are competing with private label directly.
“They will come out of this mess a lot stronger,” predicts Scher.
The underlying force is value; and he pointed out that it is not only the price of branded goods that increases when commodity costs are high. Since they are hit by the same high input costs, “in reality, private label products have increased in price too.”
Bernstein’s analysis looks at the five biggest European markets – the UK, Spain, France, Germany and Italy.
Scher conceded that Europe is a vast market, and there are great differences in the state of private label market between them.
In Germany, for instance, he expects hard discount stores to remain a major force and continue to take share. But he pointed out that Nestle has actually launched some products especially for hard retail.
The PPP strategy – popularly positioned products – is also useful in emerging markets: selling very low-priced single serve products, such as a single stick of coffee that allows consumer to buy the brand without paying the price of a whole jar.