Wednesday, 27 July 2011

Supermarkets' Own Brands - An Increasingly Important Battleground

For the first time in a long time supermarkets are struggling to grow food sales. Food inflation of around 5%  plus economic uncertainty equals shoppers trading down, seeking promotions, cutting waste and sticking to a budget. All of which gives a headache to supermarket bosses.

They of course will be twisting their supplier thumbscrews ever tighter, but ultimately there is only so far that cost cutting will take a business. At some stage it needs to grow. And here is where a sound own brand strategy can make a difference.
Own brand is possibly the best weapon in a supermarket’s armoury, if it gets it right.
It is supremely flexible. The name can be applied to thousands of products at various price ranges. Tesco Finest operates at the top end, and Tesco Value at the bottom. Sainsbury has Taste the Difference and Basics,  Asda has Extra Special, Chosen by You and Smart Price. Waitrose Essentials distinguishes their standard range from more expensive variants.

Done well own brands can enhance a retailers reputation, and provide a point of difference from competitors. Marks and Spencer has built a business on great quality, highly innovative food products.
Ultimately though, the reason why supermarkets make such an effort on own brands is that they are  more profitable than national brands, because they deliver a higher margin.

A good own brand range is especially important just now. Lower margin national brands are promoting heavily, drawing sales from own label. And, supermarkets are desperate to provide reasons for people to choose their store rather than a competitor’s, so that they get the highest possible share of a shrinking market.
So, we hear that Morrisons, which has 45% of its sales in own brand, is planning its first own label revamp for four years. Sainsbury is relaunching its 6500 line mid tier range, renaming it “By Sainsbury”.  Apparently around 25% of products across Sainsbury are new each year, so that customers don’t get bored and go elsewhere.

Waitrose is also working on improving its own label offer.

Reportedly Tesco is trying something completely different, registering a number of different brand names, but not displaying on the packaging that the brands in question belong to them.  The products will be premium priced. Chokablok ice cream for example which is said to be one of the new Tesco brands, sells at the same price as Haagen Daz.

The consistent theme through all these upgrades is an emphasis on quality. Supermarkets realise that in order for their own label ranges to succeed competitively they have to offer a combination of quality, price, and something a bit out of the ordinary.

So supermarkets’ own brands are more profitable and a potential differentiator. There is also a new thread emerging. Shopping online has been earmarked as a growth area,  and retailer labels can play a part in enhancing a supermarket’s on line shopping offer. The IGD points out that the web does not suffer the same space constraints as a shop, and so the full range of own label can be highlighted, reinforcing a stores reputation in whatever area they choose be it for innovation, price or quality, or ethical and environmental standards.

Wednesday, 20 July 2011

Renewed Growth of Discount Grocers Prompts Return Visit to Aldi

Discount grocers sales are booming again, with growth levels not seen since the recession of 2008. Aldi is up 21% in the last three months and Lidl not far behind at plus 16%. Their combined market share has reached an all time high of 6.1%. Kantar Worldpanel who monitor this data, say that unlike 2008, the growth is coming mostly from existing customers buying more, rather than new shoppers.
So I went back to Aldi after an absence of three years to look again at what it is that generates such customer loyalty.

Well, the main attraction remains rock bottom prices. At Aldi you can buy a kilo of British beef mince for £2.40 ( at least £4 everywhere else unless very high fat content), a kilo of Jersey Royals for 49p (Tesco’s best price for new potatoes is 69p), and nectarines for less than 18p each compared with 25p at Tesco.

Packaged goods prices are low too, certainly in comparison to the leading brands, with coffee at £1.69p for 100g compared with Nescafe at £2.40p, and jaffa cakes at just over 3p each versus McVities at 8p. Interestingly their jaffa cakes contained 11% orange juice compared with 8% for McVities.

Aldi seems to have improved the feel of shopping in its stores. There are nods to food trends with free range chicken and eggs on sale, and they stock alot of British food. The store was clean and bright and the staff cheerful and helpful.
Aldi’s pursuit of low prices has downsides. Fresh food has to be carefully selected – the strawberries were mouldy today and there was no date code on the potatoes. It stocks few brands you will have heard of, and the range remains limited to essentials.  Quality is not always great. The jaffa cakes were entirely acceptable, but the coffee tasteless.

There are irritations too. It is annoying to have to find a £1 coin to unlock the trolley, but the system ensures no one has to be paid to fetch trolleys back to the store. There are no baskets for doing a small shop, because that would require additional investment. There is no bag packing at the till because that would slow the cashier down. Instead the system requires the shopper to unload the trolley at one end of the belt, fling everything back into the trolley at the other end, and move to a different area to pack.
But having said all that, regular shoppers will have adapted to the system. They will know which products deliver the quality they want and which do not. We know that many people are budgeting more tightly than before, and thinking carefully about how much they spend and where.

Aldi seems to be offering what its loyal shoppers want.

Wednesday, 13 July 2011

Milk Drinking Bolstered by Retail Price Cuts of 5p Per Litre

A dip into Dairyco’s data on the milk market shows that fresh milk volumes have grown by 2.5% in the year to June 2011, but the retail price paid per litre has dropped by 8% , due to the milk price war waged by supermarkets. So far, so not newsworthy.

What is surprising is just how long the price war has been going on. This is far from an occasional tactical practice to encourage people through the supermarket door. In the 12 months to June 2010 the average price per litre of milk was 66p. The average price in the 12 months to June 2011 was 61p.
And even though in the last few weeks some major retailers have put the price back up, ASDA still remains at the lower level, Tesco is selling its Creamfield whole milk at 44p a litre, and Morrisons have just announced that their 1% fat milk is on promotion at 50p for four pints.

All claim that promotional prices have not affected what they pay to farmers, but look at it another way. The fact that supermarkets can reduce prices by so much and for so long shows just how much they were making from fresh milk in the first place. Indeed Dairyco analysis tells us that for every litre of milk sold in 2008/2009 retailers took 18.8p, processors 20.4p, and farmers 25.8p. In the following year, retailers took 22.4p, processors 18.9p, and farmers 23.8p.  

The price reduction has badly hurt sales of organic milk. In the 12 months to June 2011 volumes dropped by 7% as the retail price of organic stayed at 81p per litre, a 33% premium to conventional milk.
Sales of filtered milk,( Cravendale being the best known brand), have now levelled out at 338 million litres, possibly due to a price rise of 2p to 78p, a 28% premium to standard.

Award for best performance goes to the low fat sector, defined as milk containing 1% or .75% fat. Sales grew to 362 million litres,an increase of 24%.

And the one area defying a generally price conscious consumer response is Jersey and Guernsey which maintained its, admittedly tiny, sales level, despite costing nearly £1 per litre.