The rise of private label
“Brands across all sectors are finding the Irish retail landscape more challenging. Traditional retailers have responded to a more competitive marketplace by expanding and improving their own-label lines – and brands and manufacturers are feeling the impact” – David Berry, Director of Kantar Worldpanel Ireland
In the next five years, the development of private label products is going to affect the food industry globally. It will present new challenges for manufacturers and brands, as retailers move away from name brands and develop and market more of their own products. Data gathered by Nielsen (2018) shows that private-label products are continuing to gain share globally. Although the growth in e-commerce has given brands another way to access consumers, private-label growth is also being driven by the greater choice offered by the digital economy. The data gathered by Nielsen shows that between 2015 & 2016 the Value Share Growth of private label increased by 0.9%.
With the developments in technology, consumers now have access to endless information instantly. As a result of this, consumer expectations are changing, and they are beginning to shop in a different way. Consumers in the past felt as though private label brands were not as good quality as multinational brands, however this has changed in recent years and consumers now feel that they are equivalent to multinational brands. We can see this especially in premium private-label products such as coffee, wine and speciality groceries. If we look at the US for example, growth of private label manufacturers overtook that of branded product manufactures towards the end of 2017.
From Nielson’s global Consume Confidence Index reports, we can see that consumer optimism is high. Confidence levels in every region bar Africa/Middle East are up. It is thought that consumers tend to switch to more private label products when the economy is struggling. Private label growth is driven hugely by recessions, as consumer try to save as much as they can. However once the recession is over, consumers who have changed to private label brands often continue to purchase them. Consumers remain cautious in relation to household expenses out of habit of looking for value for money.
The biggest market for private label products are mainly in the more mature European markets. There is however a lot of room for growth, particularly in North America. Private label value is particularly low in Asia as consumers there tend to be more brand loyal. In 2016 private label share was highest in Spain at 42%, followed closely by the UK with 41% (Nielsen, 2018).
Changes in demographics will prove to be a difficult challenge to brands in the future. Millennials now make up 24% of the global population and are expected to replace baby boomers as the generation with the greatest discretionary spend, over the next 5 to 10 years. Millennials are more open-minded in relation to trying new products including private label and as a result brand loyalty can no longer be assumed. In the coming years millennials will drive the growth of FMCG. They are more conscious about value and will buy private label products if they think they are good enough.
The expansion of retail chains has been one of the main drivers of private label growth. Larger stores provide a larger range of products and as a result private label products are given more visibility. National retailers such as Tesco and Mercadona take the time to understand consumer lifestyle choices in the countries in which they operate. They are also committed to providing high quality products at a lower price.
Discount stores such as Aldi and Lidl are also becoming more popular and taking market share from the ‘big four’ whose market share fell by 7% between 2012 & 2016. These stores are able to keep their prices low by limiting their stock to a small selection of private label products. In Europe, discounters now generate 22% of FMCG sales, meaning supermarkets and hypermarkets are losing sales to these stores (Nielsen, 2018).
As FMCG shopping shifts towards a mix of both online and offline purchasing, this could potentially disrupt the relationship consumers have with brands even more. More that 33% of consumers view a product page whilst online shopping, and consumers who research online and buy offline tend to spend more time online building bigger shopping lists. When consumers visit a physical store, they tend to buy more private label products. It is clear that private label products are becoming more popular and retailers will need to pay close attention to this market. In Ireland, private label share of FMCG reached 25% in 2014, with 75% of Irish respondents stating they are very good value for money. 48% also said that some private label products were better quality when compared with named brands (Nielsen, 2018).
Nielsen, 2018. The Rise and Rise Again of Private Label. Retrieved from http://www.nielsen.com/ie/en/insights/reports/2018/the-rise-and-rise-again-of-private-label.html
Green, D. 2017. Private Label Hurting Traditional Brands. Business Insider. Retrieved from http://uk.businessinsider.com/private-label-hurting-traditional-brands?r=US&IR=T