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Supermarket Own Labels Market Assessment 2007
Key Note Publications Ltd, June 2007, Pages: 142
Own labels are taking an increasing share of the overall grocery market, driven by the growth of premium products, the expansion of sub-brands such as organic and better-for-you brands, the multiples' expansion into non-food areas, and the growing dominance of retailers over branded-goods suppliers. In 2006, own labels accounted for 40% of grocery sales, according to report estimates, up from 38.5% in 2002.
Own-label premium ranges such as `Finest' and `Taste the Difference' are certainly now integral to the Tesco and Sainsbury's brands, respectively, and draw on a valuable consumer demographic to offer healthcare, beauty, home care, homeware and clothing products, as well as financial services. The multiples are also now increasingly focusing on non-food areas in general and are now intent on increasing sales of their own-branded goods in these areas.
The growing concentration of the retail market has also resulted in a shift in bargaining power in favour of the retailers and away from the suppliers. According to a report for the Competition Commission, the growing tendency to source on a national or international basis has widened the supply base available to grocery retailers and increased the extent to which they can use alternative suppliers, `thus increasing their bargaining power with respect to individual suppliers'.
The rise of own-brand products clearly poses a threat to manufacturers; manufacturers of branded products face increasing competition for shelf space with own brands.
However, the development has also had positive effects, as manufacturers have responded to these new competitive pressures by increasing productivity, consolidating and making efficiency gains. This has kept margins, at least for the larger suppliers, broadly healthy. However, product innovation may have suffered, as retailers' rapid imitation of branded products reduces the rewards for innovation.
Over the past 10 years, the rise of the `branded' own brand has been a major feature of the market. Tesco's Finest and Sainsbury's Taste the Difference are now major brands in their own right and most of these products are also supported with advertising campaigns in the national press and on television. The famous television chef Jamie Oliver has a contract with Sainsbury's and often appears in adverts promoting products from across the own-label ranges.
In the consumer research commissioned exclusively for this report, 85.5% of respondents thought that own labels were cheaper than well-known brands. Only 16.1% believed own labels to be identical to, or higher in price than, well-known brands. Less than half of all respondents said they tried to buy brands rather than own brands where possible and two out of every five consumers said that they were buying more brands than they did 2 years ago.
This report forecasts that the overall share of own labels within the UK grocery market will rise to 42.2% in 2011, reflecting the growth of premium goods and the expansion of own-label penetration into areas where they currently hold a relatively low share of the market. However, we believes that although own brands can continue to make inroads into the branded goods' market share, there are limits on how far own brands can expand. Certain goods seem to have such a strong heritage and high level of brand awareness that they may well be invulnerable; for example, brands such as Coca-Cola and Kellogg's. In addition, consumers are always likely to want a benchmark, which they can use to gauge quality and price. Thus, it is unlikely that the supermarkets will be able to have a mono-brand strategy, such as that of Marks and Spencer.
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