After a decade of growth, private label in Europe is declining and according to Euromonitor this signals a "New scenario for packaged food in Europe". We look at some strategies for boosting sales of private labels.
Boom and bust
Daniel Lojo, a research associate at Euromonitor blog said: “During the financial crisis price was the main factor in purchasing, and private label ended up the winner… After a really positive period, growth rates are starting to slow down or even decrease, and a new scenario for packaged food is opening in Europe.”
Value shares of private label have been dropping rapidly – particularly in countries such as Spain, Germany, France and the UK – where private label has traditionally been strongest.
Alexander Kottke, a Euromonitor analyst, explained that whilst the situation relies on a number of factors that vary between different countries, the success or failure of private label will, broadly speaking, rely inversely on the success of the economy.
If the economy does well, disposable income increases and people will turn away from private label and vice versa.
Since consumers are now looking for better quality products, Euromonitor identified several key strategies employed to increase sales of private labels.
Creating ‘fantasy brands’ that play to the image of name products; British supermarket Tesco created seven different fantasy brands themed on fictitious and local-sounding farms, such as -
‘Boswell Farm’ Sausages put across an easy to understand message of quality, local produce. However, this backfired as consumers came to see it as overtly misleading, with many of the products coming from as far afield as Chile.
Another tactic has been to pair private label products with their branded equivalents. This has been shown to increase consumer confidence, but also challenges loyalty to brands and appears as a caricature.
Kottke said: “A host of strategies are employed, such as turning grocery shopping into a more experiential activity or segmenting products more dynamically than the traditional price tiering.”
The Portuguese retailer Pingo Doce for example has attempted to create more immersive experiences by introducing juice machines in-store for shoppers to use with just-bought products.
However, he added that “Whilst this type of activism certainly is warranted and will contribute to lessening the impact of the challenge by the discounters, Euromonitor International is predicting an increase of value share for discounters across Europe by approximately one percentage point in the next five years up to 2021”
Discounter stores that opened during the financial crisis have significantly disrupted the retailing landscape; the value of supermarkets and hypermarkets has dropped whilst discounter stores such as Aldi and Lidl have risen.
The country performing most positively for private labels in Europe is Turkey, whose market continues to perform well in terms of value growth. Elif Polat, a researcher at Euromonitor international said:
“Modern retailing is still developing in Turkey and there is a lot of room for it to grow more as it comes from a low base… With their competitive prices and relatively high quality private label products, discounters managed to attract those who go to local bazaars to do weekly shopping.”