In the run up to Christmas 2018, ESM is proud to present a recap of some of our biggest articles of the year, exclusively for Premium website subscribers. As part of our PLMA preview back in the spring, ESM teamed up with IRI to explore the fastest-moving categories in private label. This article first appeared in ESM Issue 3 2018.
Private label is a phenomenon that has infiltrated every possible nook and cranny of the grocery industry – even the most diverse of categories now has a private-label alternative to its branded category leader – but while private label continues to grow overall, each European market has its own national characteristics, with growth rates differing on both retailer-by-retailer and category-by-category bases.
Following on from the Europe’s Fastest-Growing Categories report, produced earlier this year in association with IRI, ESM has once again teamed up with the market intelligence firm to examine private-label performance across the major grocery categories of six key European markets: the UK, Germany, France, Italy, the Netherlands and Greece.
The data has been sourced from IRI InfoScan® MAT p/e Dec 2017 (Italy MAT p/e Feb 2017) and incorporates the macro categories of Chilled Food, Ambient Food, Frozen Food, Non-Alcoholic Drinks (including Tea and Coffee), Household, Personal Care, Confectionery, Pet Food/Care, and Alcoholic Drinks.
The UK: Private Label Growing Across All Categories
A drop in the price of sterling last year meant that consumer price increases have risen at a faster rate than wages in the UK, meaning that consumers are increasingly turning to private label as a value alternative. Private-label share is growing due, in part, to these price increases, but also as premium ranges show growth and are expanded further.
Private-label share is strongest in the Chilled (60%) and Frozen (44.6%) categories, while it also accounts for close to a third in Ambient (32.1%) and Homecare (29.5%). The latter two categories have seen the biggest increase in private-label share year on year, with the private-label share of Homecare rising by 1.5% and Ambient rising by 1.4%, with Pet not far behind (1.1% growth).
In Ambient, IRI notes, private-label growth has been boosted by range expansion in the savoury and sweet snacking categories, as retailers look to capitalise on increasing consumption and snacking on the go. Crisps, Nuts, Popcorn and Biscuits are all specific segments in which private label is outperforming the market.
Even the Alcohol category is showing private-label growth (0.7%) – all the more impressive, given the strong branded presence in this segment and increased promotional activity by the main players. Private label outperformed in Wines, Sparkling Wines, and the emerging Ready-To-Drink Mixes segment.
The UK is the only market in this study in which private-label share is gaining (or flat) across all markets studied. The Baby, Confectionery and Frozen categories are the only markets in which own-brand has failed to make gains. [Note: The data does not include information relating to the discounters and M&S.]
Germany: Brand Listings In Discounters Impacting Some Categories
Germany is the home of the discounter, and, therefore, private label is very much embedded in the fabric of the country’s retail landscape. However, the increased presence of big brands in some retail categories is impacting private-label growth, with own-brand share actually showing a marginal decline in six of the ten categories featured.
Private label dominates in the Frozen (55.2% market share), Pet (54.2% market share) and Chilled (54.1% market share) categories, in which it accounts for more than half of the market. In the latter category, a hike in dairy prices last year has had an influencing factor, with private-label share rising by 1.6%. The Ambient (43.1% market share for private label) and Baby (25.4%) categories are others that have seen own-brand growth, by 0.5% and 0.3%, respectively.
The high private-label share in the Frozen category has a lot to do with the strength of the hard discounters in this category, accounting for a third of macro-category sales. Here, too, innovation has been key to maintaining a stronghold in private-label SKUs and lessening the need for brand presence.
Of the categories that saw a market share decline for private label last year, Soft Drinks saw a 0.6% decline as a result of poor summer weather in 2017, as well as brand premiumisation of soft drinks and the growing presence of major brands such as Coca-Cola, Red Bull and Pepsi in the discount channel.
Personal Care, which saw a 0.4% decline in private-label market share, has also been influenced by the growing presence of brands in the discount channel, however, private-label SKUs that have homed in on ‘selfie culture’, such as cosmetic facial-/body-care products, have made gains.
Looking forward, on-shelf availability continues to be an issue for key German retailers, possibly providing an opportunity for private label to make further gains.
France: Big-Brand Price Wars Impacting Private Label
For brands looking to fight back against the onward march of private label, France offers a potential olive branch – only one of the ten categories analysed by IRI showed any private-label growth last year. The reason? Big-brand promotions and ‘price wars’ among the major supermarket groups.
While this trend has slowed somewhat in the past year, it has been a constant in the French supermarket landscape since at least 2014.
The Baby category, of which private label accounts for 23.2% share, was the only one to see own-brand share growth last year, by 1.3%, driven mainly by private-label nappy sales and, to a lesser extent, infant milk.
The private-label share decline is most pronounced in Frozen (-1.6%) and Chilled (-0.9%), however, it should be noted that private label accounts for more than a third of the total share in both categories (34.6% in Chilled and 40.0% in Frozen).
According to IRI, the decline in Chilled is due to private-label declines in subcategories such as Milk, Foie Gras and Chilled Meats, with competitive pricing from brand alternatives encouraging consumers to trade up.
In Alcohol – another category that has seen a marked private-label decline (-0.7%) – the trend towards craft beers and the rising prominence of spirits such as gin, whiskey and vodka are having an impact on private-label performance.
Retailers looking to build their private-label operations in the face of such a big brand onslaught can take solace from the fact that the French government is instigating new legislation that will seek to limit the depth of ‘price wars’ on national brands, partly driven by the international publicity around the ‘Nutella riots’ at selected Intermarché stores across France in January.
Italy: Share Growth Evident In Food And Drink Categories
Italian consumers are arguably the most dedicated to provenance in Europe, and as the private-label sector there has evolved, it has embraced authenticity, particularly in food and drink categories. Last year was a strong year for private label in Italy, as consumers were more willing to trade up to premium own-brand lines.
In terms of the main macro categories, while private-label penetration isn’t as high as it is in the other markets in the study, it still accounts for more than a quarter of the Homecare (28.1%) and Chilled (25.2%) categories, with Personal Care (23.4%) and Soft Drinks (20.5%) also seeing significant share.
The Chilled category sees the most notable year-on-year increase in private-label share, of 0.8%, with retailers focusing on healthy eating and convenience in this sector. The private-label Chilled Ready Meals segment saw 65% growth last year, for example. In addition, high price inflation in dairy has further strengthened private label’s value proposition.
Private-label presence in Baby stands at 9.2%, but this category also posted growth last year (0.5%), due to strong sales in own-brand baby wipes and a branded value sales decline in nappies and, to a lesser extent, infant milk. In Frozen, too, private-label share (9.9%) is subdued, compared to the other countries included in this study, and private-label performance here is relatively flat (-0.1%) due to increased promotions from big brands to tie in with the good summer weather in 2017.
Branded promotional activity is accelerating year on year, so retailers will need to maintain their innovation streams and segment expansion, which has seen perceptions around private label improve significantly in recent years, according to IRI.
The Netherlands: Long-Term Private-Label Growth Starting To Stabilise
While it has shown consistent growth over the past few years, there are now signs that private-label penetration is starting to stabilise in the Dutch market, for a number of reasons, according to the IRI data.
Firstly, assortment growth has plateaued. Secondly, more service retailers are adjusting their policies regarding category tiering, which is seeing a shift in focus from value, standard and premium tiers to a single SKU in some categories.
Thirdly, while they continue to make gains in other European markets, in the Netherlands, the discounters have seen growth slow, which, in turn, has reduced private-label momentum.
Private-label penetration is strong in several macro categories. In Chilled, it is as high as 40.6%, while Ambient and Frozen have private-label penetrations of 36.8% and 34.6%, respectively. In terms of growth rates, the market is split, with four of the macro categories seeing private-label penetration increase and six seeing it decline.
The highest private-label growth rate is in Chilled (1.6%), which is largely due to price inflation across dairy categories. In Baby, which saw 1.1% growth, private-label momentum in baby food and baby care is leading to a boost in share. The Confectionery and Ambient categories have seen the highest rate of private-label decline (-0.8% each), with the latter seeing branded savoury snacks gain at the expense of private-label crisp and nut SKUs.
Greece: Brands Aggressively Seek To Gain Share
With Greece showing only tentative signs of economic recovery, consumer demand for low-cost products remains high, which, in recent years, has led to growth in the private-label sector, emboldened by the nascent presence of Lidl in the country.
However, in 2017, private label began to show signs of stabilising, as a result of aggressive promotions from mainstream brands. The exit of grocery chain Marinopoulos from the market also lessened the range of private-label SKUs available to consumers.
Private-label presence is highest in the Homecare category, where it accounts for around a third (32.2%) of total category share, however, a private-label presence is also very strong in Confectionery (31.1%), where it accounts for a higher share of the market than in any of the other five countries featured in the study. Pet (24.3%), Baby (20.7%), Personal Care (19.2%) and Frozen (19.1%) also boast moderately high private-label presences.
Only two categories have demonstrated private-label share growth year on year, and only by a marginal amount (0.1%). Of those that have seen private-label share decline, Pet (-3.3%) has seen the most significant slump, mainly due to brands’ aggressive promotional activity, which has also been the case in Soft Drinks (-1.3%).
In Frozen, which saw private-label share decline by 1.9%, brand wins have been evident in Ready Meals and Frozen Vegetables, while Baby, which posted a private-label share decline of 1.2%, is a category that has seen heavy price deflation in the past year.
As Greek consumers demonstrate more of a willingness to spend in the coming years, it will be interesting to see whether brands or private label will be able to capitalise on that added-value mindset in what has been – at least for the past five years – something of a race to the bottom on price.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
