|
|
 |
|
Viewing report
|
|
|
|
Supermarket Own Labels Market Assessment
Key Note Publications Ltd, Jan 2000
The UK has one of the most advanced own-label industries in the world. However, as a consequence of almost two decades of steady and continuous growth, it is now close to maturity and trading conditions - as with the retail sector as a whole - are difficult.
The market for own-label products is driven by a number of competing factors. Perhaps the most important of these is the level of concentration prevalent in the UK's retail sector. The so-called `big four' of Tesco, Sainsbury's, Asda and Safeway accounted for an estimated 67.5% of grocery sales by value in 1999, a 1.2% increase since 1996. This level of concentration is the highest in Europe and has resulted in an extremely competitive grocery trade characterised by widespread price-cutting.
Of the big four, Asda and Tesco have been the clear winners during 1999.
In the early years of development, own label was used as tool whereby retailers could cut their costs and create much higher margins on the goods they sold. As a result, over the past two decades own-label products have been consistently promoted by the supermarket chains and have accordingly represented an increasingly large proportion of their grocery sales. In 1998, it was estimated that the total value of all own-label products sold in the UK was £30bn. This calculation is based on applying the average own-label penetration to the combined turnover of supermarket retailers in that year.
In terms of the rate of penetration, 1999 marked the first year in which the level fell, albeit only slightly. Own-label penetration stood at an estimated 50.3% in 1999, compared with 50.7% in 1998.
The concept of own-label production began in the major retail chains primarily as a mechanism for increasing profitability within a competitive environment. Consequently, it is these operators which continue to enjoy higher average levels of own-label penetration than other types of retail outlet. As their overall share of the grocery market has increased, so accordingly has the average level of own-label penetration. For example, the big four of Tesco, Sainsbury's, Asda and Safeway recorded own-label penetration rates of 54%, 59%, 58% and 53% respectively during 1999, at least three percentage points higher than the industry average. However, it is important to note that even amongst these chains penetration levels are starting to peak.
Indeed, it is generally assumed that most of the major retailers in the UK have imposed an unofficial 50% penetration benchmark on own-label products. This is certainly believed to be true of J. Sainsbury, where an aggressive own-label policy in the early part of the 1990s was thought to have contributed to the chain's fall from its number one position in retailer rankings. At present, of the major store groups only Asda (which is actively promoting its George range of clothing) and Somerfield are growing their presence in the own-label market.
One of the principal features of the own-label market is that it is heavily prevalent in some categories while hardly being present in others. Own-label products tend to be most popular in commodity-type categories such as dairy and bakery goods, where there is less opportunity for differentiation. In categories such as these it is not uncommon for own-label penetration to reach well in excess of 50%. Elsewhere, in categories such as confectionery, where manufacturers make a substantial investment in branding, own-label penetration can be less than 10%.
Notwithstanding the popularity of own-label products towards the lower end of the value chain, some of the leading retailers have recently experimented with introducing premium products. Possibly the best known of these retail brands is Tesco's Finest range of ready meals. Significantly, another important growth area is found among budget own-label products.
As well as the increasing level of caution being exercised by the retailers themselves, another threat to the own-label market has come from the increased self-assurance of some of the leading manufacturers. One way in which this has been demonstrated is in the desire of food and drink manufacturers to move in on the retail market themselves. Having been under relentless pressure from retailers and their growing demands for own-label products over many years, the industry is now looking at the opportunities afforded it by opening up retail sites of its own. Finding a direct route to the consumer, whether via sophisticated marketing campaigns or direct selling through the Internet, is currently a major priority for a number of leading manufacturers.
For consumers, it is undoubtedly true that the own-label market has become increasingly sophisticated. In the late 1990s, retailers were confronted with a new and increasingly competitive trading environment. Consumers are growing concerned at what they see as `rip-off' Britain and as a result retailers are finding themselves locked into a spiral of falling prices while at the same time having to confront consumers who are determined to search out better value.
In the early days of own-label development, it was commonly assumed by consumers that product quality was inferior to that of branded products. This perception has now largely been overturned, with the majority of consumers believing own-label items to be of comparable quality. In addition, a significant proportion of them are now aware that branded and own-label products are often manufactured by the same supplier.
Nonetheless, a sizeable number of consumers still differentiate between own-label and branded products. In a number of categories - the confectionery sector, for example - brands remain extremely powerful. The strength of brands is also demonstrated by the fact that consumer research indicates that there are some categories in which only branded products would satisfy consumers.
The research undertaken by NOP for Market Assessment indicates that the attitude to own-label products varies significantly according to product category. Amongst lower-value items, consumers are happy to choose own-label products where there is no discernible difference between retailer and manufacturer brands. At the higher end of the market, penetration varies depending on factors such as age, social background and geographical location.
Several manufacturers believe that retailers have unfairly sought to blur the boundaries between branded and own-label products through the use of `copycat' techniques. This involves retailers creating virtual copies of manufacturer brands through the use of similar packaging, colour schemes and ingredients. This has led to some manufacturers taking legal action to protect their brands, most notably United Biscuits' legal challenge against Asda when the supermarket chain introduced Puffin biscuits as a competitor to UB's established Penguin brand.
However, research by the Consumers' Association suggests that the importance of copycat branding may be overstated. Its research found that only 3% of consumers bought copycat products mistakenly, which suggests that consumers perceive own label as offering fair competition.
Not surprisingly, there is currently a wide range of strategies adopted by the leading retailers to own label. Asda, for example, is looking to grow its own-label business significantly. Unlike other retailers, the Asda brand retails for around 10% to 15% less than competing brands and this is seen as a key element in the company's strategy of delivering value to its customers.
The Co-op is also refocusing attention on its own-label activities. In August 1999, the group announced a major revamp of its brand and employed a top design consultancy to update its image. Part of this process included the launch of hundreds of new premium product lines and fresh and frozen prepared food.
Of the other major retailers, Tesco has also focused its recent own-label activities on the premium end of the market through its Finest range. Sainsbury's, on the other hand, is attempting to scale back its own-label activities from a peak of around 60%. The company is now seeking to strike a balance between own-label and branded products. Interestingly, however, the company has become the first retailer to sell its own brand products outside its supermarkets through a special scheme designed to help the small High Street shops (and its own sales) meet consumer demand for convenience purchasing.
The importance of own-label advertising varies considerably between retailer and between various years. In the period between 1997 and 1999, own-label advertising expenditure fell from £15.5m to just £6.6m. This difference can be accounted for by Safeway stepping up own-label promotion in 1997 as part of an overall strategy to change consumer perceptions that its stores were more expensive than other grocery multiples.
In future, it seems that the success of own label will depend on the attitude of the major retail chains. Although there are currently signs of a tailing-off in the enthusiasm shown towards own label, there are a number of product categories that continue to provide real opportunities for market growth. These include categories such as frozen desserts, fresh produce and ice cream.
Overall, Market Assessment believes that own-label penetration will not exceed its current level of 50%. This is because supermarket retailers are becoming aware that consumer choice is adversely affected when this level is passed and that consequently consumers may shop elsewhere.
Customers who bought this item also bought
Own Brands Market Report 2007
Supermarket Own Labels Market Assessment 2007
Private Label in Poland 2008
Private Label in Poland 2008
Supermarket Own Labels Market Assessment 2003
Tomorrows Private Label Consumers
Own Brands Market Report 2003
Private Label Shopping Trends in Personal & Household Care
Private Label Trends Worldwide, 2007
Private Label Disposable Baby Products in the United States 2009
Private Label Shopping Trends in Food and Non-Alcoholic Beverages
Own Brands Market Report
|
|
|
|
