The Changing Face of Private Label

Ever since the 1980’s when Loblaws Canada introduced a premium private label “Decadent” chocolate chip cookie which tasted miles better than any branded equivalent, private label has ceased to be a poor relation and became a potent weapon in the retailers armoury.

Once an inferior substitute for brands, private label marketing  evolved into the well known tiering strategy of “good, better, best” with most attention paid to “best” because those were days of affluence when consumers shelled out vast sums regardless of whether the quality justified the price, and were happy to pay for the premium label.

Now, in a very different economic  climate retailers are once again rethinking their strategies.

They face multiple challenges to keep customers, and grow sales and profits.

Shopping behaviour is well documented, and few who are interested in the food industry will be unaware of the consumer search for value, and the increasingly creative ways that retailers are responding, like cheaper petrol,  money off in store, bogofs (buy one get one free) or “threefers”, (three for the price of two).

The biggest battle ground has been branded goods. Whether it is Sainsbury’s promise to refund if a branded shop on a given day could be bought cheaper at Tesco or ADSA, ASDA’s promise to be 10% cheaper, Waitrose’s promise to match Tesco on branded goods ( promotional activity excepted), orTesco’s penchant for price promoting, branded goods have become the punchbag of shopping. As a result, depite the pressure put on branded manufactures to fund promotions, retailers are struggling to make profit from branded goods.  

The question facing retailers is how to keep sales and profits rolling, and the answer is through private label.

Private label offers flexibility to address the needs of most shoppers from affluent to cash strapped.  If it gets the quality/price/taste equation right it can be a tremendous tool for generating loyalty. And it does this in an environment where price comparisons between stores are difficult, bordering on  impossible.

So we see £millions being poured into private label development, at the value end of the spectrum where, according to Kantar Worldpanel sales of value lines are rocketing, up 13% in May 2012 compared just 1% last year, and at the premium end which has traditionally been a source of substantial profit but has seen sales performance swing from +10% last year to minus 1% in June of this.

The range of value products is growing as are retailers efforts to explain to customers why they represent a good buy. Tesco say they “are proud to bring you Everyday Value – quality and value for everday eating, cooking and living”. Morrisons M Savers go flat out on communicating price, and visitors to their website are guided by price bands – under 30p, under 50p, and under £1.

At the other end, retailers are busy developing premium ranges that rely on provenance and quality of ingredients, like Sainsbury pasta which comes from a family firm in Puglia, Italy. Morrisons M Kitchen ready meal range has been developed by celebrity chefs.

Private label is also good for retailers in that, with the exception of Morrisons they own few production assets relying instead on suppliers to make the products. So if an idea does not work they do not bear the burden of factories lying idle, or workers laid off because demand was less than hoped.

Expect to see the private label battle intensify over the coming months, and branded suppliers to do much head scratching about how to fund both advertising to keep their brands front of mind with consumers, and cut price promotions demanded by retailers.