6 Powers of Private Labels

By Letitia Watson

Do you think that private labels are a passing fad bolstered by a tough economic climate? Here are six reasons why you should think again.

They set retailers apart

In terms of national brands, most grocery and food retailers compete on a level field. Research by Daymon, the global private brand strategist group, shows that on average, 98% of a retailer’s national brand assortment is the same as its competition.

This leaves nearly all product differentiation up to private labels – and that’s a prime driver of these products’ growth amid fierce competition for shoppers’ spending money.

They’re growing, fast

In South Africa, private labels have a 21,1% (20% in 2017) share of the retail sector, according to Nielsen’s State of the Private Label in South Africa 2018 report. But the evidence for growth is global.

Private labels’ market share is the highest (over 50%) and growing most in the UK. While uptake is slower in brand conscious North America, private label sales are increasing across all income and age groups.

In the European Union private label market share is around 40%, with private labels outperforming national brands in the UK, Germany, Italy and Spain, as shown by a report by Information Resources Inc. (IRI) on Private Labels in Western Economies.

They’re on every radar

The rise of private labels in the local market is confirmed by strong sales and investment in private label categories by major retailers.

Woolworths has long been the main player in the sector, but other retailers are moving in, fast. The Shoprite Group reported in its interim results in February that its private label growth is double the pace of all the brands it sells, and participation of turnover is at 16%. At Pick n Pay the participation is at 21% with plans to accelerate it, according to the company’s 2019 annual report.

This growth is also echoed in the results of Libstar, a large supplier of private label goods to Woolworths, Pick n Pay and Shoprite, with private labels contributing 44% to group revenue for the financial year ended December, compared to 41% the previous year.

They’re the kings of convenience

The top 5 private label sellers in South Africa are long life milk, fresh chicken, prepared foods, butter, and sugar, according to Nielsen’s report.

The convenience foods category is one of the fastest movers in the private label sector. In South Africa prepared foods leapt from 12th position to be among the top 5 private label best sellers. Libstar says on-the-go eating and convenience are currently among the fastest-growing trends – and the group is expanding its prepared meal capacity to tap into it.

Convenience is one of the three strongest selling ranges at Pick n Pay. Shoprite, who makes no secret of private labels being one of its major growth drivers, says its convenience products have outgrown the retail market in this category by 4,7 times in 2018.

They unlock value

Consumers no longer believe that well-known, national brands are best. Private label sales are driven by a quest for value, but there is an improved perception of quality. Retailers are focusing on growing their private labels’ share of sales by developing premium and niche products as well as better labelling, says Nielsen.

Shoprite says 51% of its private label product innovation targets upmarket choice. According to IRI the premium tier development helps to sway savvy shoppers from brands to private labels across countries.

They’re here to stay

The value and rising quality perception is not limited to poor economic performance. IRI’s research shows that In Europe and the US private labels are growing even when economic prospects are improving. At the same time, a private label decline in a tougher economic environment seems unlikely, as is evident in the steady rise of private labels in South Africa.

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