02.Private label positives and negatives
Retail experts and the Private Label Manufacturers’ Association say private label lines benefit shoppers because they:
- Are easy to identify. Consistent branding and clearly differentiated tiers allow you to readily identify the varying quality and value levels so you can make an informed decision about what to buy.
- Save you money. Private label prices are generally set at a competitive level, so you can make savings compared to manufacturer brands without waiting for ‘specials’.
- Are quality assured. Much like the big manufacturer brands, retailers say that because their name or symbol is on the package, you’re assured that the product meets their stringent quality standards and specifications. Retailers are also making guarantees that their private label items consist of the same or better ingredients than manufacturer brands.
- Can have value added. In the premium tier, retailers aim to introduce strongly differentiated (unique) products, and give a better choice of better products –– ultimately providing an alternative to shopping in niche stores, such as delicatessens.
With the increase in private label products in supermarkets, two areas of concern for shoppers (as highlighted in some unsolicited comments received by CHOICE, see What consumers think) have been raised:
Supermarkets have limited shelf space, so in order to fit in their own products, they need to cut back slow-selling lines. The top one or two market-leading brands will remain on the shelves, but smaller brands may be squeezed off to make way for the private labels — indeed some already have been. You may not notice it in categories like biscuits, where brands are numerous, or cereals, where there’s such a large choice of products. But where you only have a few options already, like baked beans or tomato paste, the disappearance of a brand is more obvious — particularly if it was your favourite.
Fewer Australian-owned and made products
Both Coles and Woolies say that where possible they will source private label products from local producers, as long as they meet their specifications — which include quality and quantity at the right price. Some industry members say it’s only at the budget end of private label that the retailers are more likely to turn to overseas producers for the volume or price differential they’re after, and that this is no different from how it is now — local producers don’t always compete against overseas suppliers on a level playing field. For example, retailers can source the ingredients for canned vegetables from Belgium at a much lower cost than from local suppliers, because they’re heavily subsidised by the EU. Similarly, a lot of the canned and frozen vegetables sold in Australia come from China, where labour and produce are far cheaper. And with the current high exchange rate of the Australian dollar, local producers are at a further disadvantage. See Does it matter where your food comes from? for more on this.
Options for Australian producers
From Australian producers’ point of view, they have a couple of options in the fight to retain shelf space:
- Rationalise the brands they produce — merging or disposing of non-core brands, and focusing on core brands — to reduce costs, and then strengthen these brands through advertising, quality, value-adding and innovation to help differentiate their products from private label.
- Supply private labels. It can be a struggle for smaller companies to compete with the marketing budgets of big brands, so supplying private labels allows them to reduce their overheads and concentrate on manufacturing.
The full impact of the new private label ranges on Australian producers is hard to judge, but as the Australian Food and Grocery Council told us, “For some companies, depending on their position in the market, private label manufacturing may represent an opportunity, while for others it may represent a threat.”
Ultimately, Coles and Woolworths dominate the supermarket business in Australia and where they lead, it’s hard not to follow. In the UK and USA no single supermarket chain has such a concentration of power — in Britain, for example, the top 12 supermarkets have less than 60% of the packaged goods market, compared to the 70–74% share held in Australia by Woolworths and Coles Myer alone. So any decisions made by Coles and Woolworths have a big impact on both consumers and manufacturers.
What consumers think
A recent global consumer survey by AC Nielsen found that Australian acceptance of private label brands was the highest in the Asia Pacific region, with nearly four in five Australian consumers saying private label products were a good alternative to other brands. And 81% of Australian consumers (compared with 60% across the Asia Pacific region) agreed that the private label products they bought usually offered extremely good value for money. This is obviously very positive news for retailers.
As for the level of quality that private label products offer, generally Australian consumers are less concerned about staples like milk, sugar and flour. But we’re more reluctant to trust the quality of products like ready meals, face cream or baby food, and may prefer a known and trusted brand. It’s this trust and brand loyalty that supermarkets are hoping to gain as they continue to roll out their premium private labels.