Private labels growth cut into manufacturers' market
More and more retailers are selling their proprietary private label foods in competition with the manufacturers of nationally or globally branded products. Branded products command a premium price for manufacturers compared to producing foods for private label retailers.
An ACNielsen global study conducted in May 2005 across 38 markets found that 68 per cent of consumers either slightly or strongly agreed with the statement that "Private label brands are a good alternative to other brands."
Private label goods make up 17 per cent of total value sales for the 12 months ending the first quarter of 2005, up from the 15 per cent level found in a similar ACNielsen study in 2003. The figures include both food and non-food branded products and track growth rates over the time periods.
In terms of overall growth, the demand for private label products is grew at five per cent over the period, compared to two per cent of manufacturer brands. In more than two-thirds of the markets studied, private label sales by value grew faster than their manufacturer brand counterparts, the market researcher found.
In Europe private labels are growing their market share faster than in any other region. Private label value sales, which includes non-food categories, have a 23 per cent share across 17 markets and a growth rate of four per cent.
Switzerland tops the world, with private label sales now holding 45 per cent of the market, followed by Germany with 30 per cent, the UK with 28 per cent, Spain with 26 per cent and Belgium with 25 per cent.
Private label increased their growth rate faster in emerging markets, made up of Croatia, Czech Republic, Hungary, Slovakia and South Africa. Private label demand grew by 11 per cent in those countries over the study period, although this was achieved from a much smaller base.
By category 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 over the study period.
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,"ACNeilsen stated.
When ACNielsen compared the average price differential between branded and private label products within the 14 product areas, refrigerated foods had the smallest price differential at 16 per cent, compared to a global average of 31 per cent across all categories.
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.
Meanwhile the private label frozen food category holds a 25 per cent market share and grew at three per cent since 2003 based on sales value. Private labels have a 19 per cent share of the shelf stable food market, and grew by five per cent.
In the snacks and confectionary category, private labels hold a nine per cent share and grew by eight per cent. Private label branded alcohol products hold a six per cent market share and grew by three per cent. Baby foods private label brands hold a two per cent share and grew by 13 per cent.
"Strategically, retailers worldwide seem to be placing more and more of an emphasis on branding and marketing their private label wares to match the lifestyles and values of their shoppers,"ACNielsen concludes.
The findings are based on data collected from 14 product areas containing 80 categories in 38 markets.
"Just how far retailers can grow private labels will be the centre of much industry debate."ACNielsen stated. "Whether worldwide shares will reach those of Switzerland, or even if high share markets like Switzerland have reached their peak, is yet to be seen."