The Private Label Revolution

The sale of private label products in South Africa has been on an upward trend since 2016, with spend on this segment growing at almost twice the pace of named brands. And this rise is being fueled by increased innovation and differentiation by retailers and suppliers. 

By Letitia Watson

Consumers spent R49,3 billion on private labels (PL) in 2018, up 11,3% on the previous year, the 2018 Nielsen State of Private Label in South Africa report shows. During the same year, named brands grew 6% to R234,1 billion. Local PL market share is also increasing, with a 21% of total sales in 2018, a gain of 1,1% on 2017. 

“South Africa has always been following the European PL market, where the sector has a market share of over 30%. While growth has lagged behind Europe, this is changing,” says André Naudé, an executive of Libstar, which is overall one of the largest suppliers of various PL grocery and food products to Woolworths, Pick n Pay, Spar and the Shoprite Group. 

Naudé cites an improvement in presentation, availability and quality of PL products by retailers, as well the lower LSM groups beginning to penetrate the sector, opening up a huge consumer group to PL product sales.

In the PL grocery and food sector, Woolworths has always been ahead of the local retail pack. But Pick n Pay and the Shoprite Group both have a clear strategic focus to increase their PL sales with more differentiation, as well as premium products. 

Pick n Pay CEO Richard Brasher has already said in 2018 that the group wants about 30% of its products to be own brands. At Shoprite PL is one of the group’s six pillars for future growth, with 51% of its PL product innovation focused on upmarket products. This effort to develop premium and niche PL and enhanced labelling is also confirmed by Nielsen’s research. 

Abri du Plessis, portfolio manager at Gryphon Asset Management, says retailers realize that private labels won’t necessarily sell just because they are cheaper – quality is becoming increasingly important. “[Retailers] don’t want their own label to be connected to goods of lower quality,” he says.

Consumers’ opinions about PL quality are improving. According to Nielsen 79% of consumers in Africa and the Middle East says their perceptions of PL quality have improved over time, compared to the global average of 71%. In South Africa, improved quality and the perception that that PL products are just as good as named brands, are among the top five purchase drivers of this segment. 

With enhanced quality and presentation, uptake among lower LSM groups is expected to increase. “In the past, the perceived lower quality of PL goods hampered sales among the lower LSMs, which is also South Africa’s mass consumer market,” says Libstar’s André Naudé. “These shoppers simply can’t afford to spend any of their discretionary income on an unknown product of unknown quality. They would rather buy a trusted brand at a premium, because they know their money won’t be wasted.”

In 2018 the biggest growth in PL sales came from the LSM 5 – 8 households. Spending by the LSM 1 – 4 group also increased, although the higher income groups, LSM 7 – 10 consumers, still account for more than half of spending on PL products. Sales in the lower LSM groups are also supported by retailers now expanding product choice in previously underserved areas, according to Nielsen’s report, as well as word of mouth recommendation. 

Most significantly, perhaps, the increased quest for differentiation and innovation by retailers is also changing the PL supplier sector. Retailers increasingly require various PL brands under their own product ranges to appeal to different shoppers. 

“It’s a worldwide trend that suppliers are now partnering with retailers to provide innovative product and brand solutions,” says Naudé. “In South Africa, Libstar is in the unique position of uniting a family of subsidiaries that are producing a variety of products for Woolworths, Spar, Shoprite Group and Pick n Pay which are being sold as part of that particular retailer’s own product range.”

Libstar’s Ambassador Foods, for instance, has supplied nuts under Woolworths’ dealer own brand for approximately 20 years, while Rialto Foods is a preferred pasta supplier to the same retailer. Other examples are Lancewood that provides Shoprite Group with cheese products under the Crystal Valley dealer own brand, Chet Chemicals’ bleach products that are sold under Pick n Pay’s dealer own brand and PL. To name but a few. 

Where once PL targeted low-budget shoppers, its innovation and differentiation is now a sales driver for retailers’ success. “The value offering of private labels is not limited to consumers,” says Du Plessis. “For suppliers and retailers it offers better margins.”

But for consumers the most important characteristic is still good value and price, Nielsen reports. Du Plessis expects the weak economy to boost the popularity of PL products because of their good value and price offering. The 2019 Old Mutual Savings & Investment Monitor confirms that consumers’ belt-tightening leads to changing shopping habits, such as moving to cheaper brands.

With a clear focus from retailers to innovate and develop own product ranges across different categories and price points, the PL sector is set to continue on its growth path – slowly but surely taking up shelf space where brand names used to be.