04.Where to next?
The dark side
When the going gets tough, brands sometimes turn to manufacturing private label goods for supermarkets. Producing the same product under a private label can make better business sense than producing it under your own – in some cases a manufacturer barely need change a thing.
Chris and Diane’s* product line was deleted from Woolworths. They were told it was no longer wanted, yet soon after the shelf was stocked with the same type of product but made by a multinational.
Woolworths then offered Chris and Diane the opportunity to manufacture the same product for their Select range.
During the negotiation process, Chris and Diane had little say in the final cost price they would be paid, and were required to foot the bill to reformulate recipes and packaging at Woolworths’ request. They estimate these costs ran into the millions.
A month after a second package change, the range was deleted.
The future outlook
Australia is in a relatively early phase of home brand expansion. One of the world leaders is the UK where, according to a 2011 Nielsen report, private label sales account for 52% of supermarket sales.
The UK’s four majors, Tesco, Asda, Sainsbury’s and Morrisons, have a combined market share of about 76%.
Individually, they hold from about 12% to just under 30% of the market. Morris says that while the UK supermarket landscape is generally positive, private label expansion can go too far, as happened in Sainsbury’s a few years ago. “[They] just kept increasing the number of private labels and removing brands.
They tried to jam private label down people’s throats – it was up to 70% in stores. Customers didn’t want to shop there.”
As Sainsbury’s was aggressively expanding its private label offering, its competitors were moving at a slower pace. So customers went to those shops where choice still existed and, Morris says, Sainsbury’s sales dropped and so they had to wind it back.
While Sainsbury’s ventured into an aggressive private label expansion alone, Coles and Woolworths continue their much safer game of follow the leader – each time one launches a new pricing strategy, the other follows. IBISWorld says that “the battle of the private labels is expected to intensify”.
But Australian consumers aren’t powerless, because the war for shelf space is really just a battle for your shopping dollars. Morris says it’s a simple case of money talks. “Say you go shopping one day and your favourite brand of marmalade is gone. If you complain and then go to other stores, the marmalade will return.”
A question of taste
Is the quality of cheaper home brand products consistent with those produced by big-name brands? In our previous large-scale private label versus leading brand taste and nutrition tests (see CHOICE, September and October 2010, or log on to choice.com.au/privatebrand), the results were mixed.
Morris believes home brand quality has been sketchy in the past.
“Australia went through a period of bastardised products. When a brand owner is selling quality they have to draw a line in the sand and say they can’t make it any cheaper than that. When you make private label, the retailer can tell the manufacturer to make it cheaper, and they will.”
Several manufacturers who spoke with CHOICE believe a quality compromise still continues. “I’ll guarantee the best-quality product in the range we’re involved in isn’t a home-branded product,” says Matthew*, CEO of one Australian supplier. “The shift towards private label doesn’t necessarily mean the consumer benefits – they definitely lose choice and sometimes lose quality.”