It’s been an unprecedented year for retail, particularly private label. ESM speaks to leading European retailers about the future for store brands. This article first appeared in ESM Issue 6 2020.
It’s coming up to a year since the first case of COVID-19 was reported, and nine months since its entry into Europe upended our lives and the way we do business. In retail, many of the changes have been dramatic – online shopping has become a core pillar of the grocery landscape, buying directors have learned the importance of maintaining good stock levels of toilet paper, and shoppers across the Continent have become accustomed to donning masks and awaiting entry to stores via digital stop/go mechanisms.
The role of private label in the COVID-19 landscape has similarly gained importance as the pandemic has persisted. We may no longer be panic-buying grocery essentials, but we still demand high-quality, keenly priced everyday items – an area in which store brands excel.
Earlier this year, ESM undertook a comprehensive report on the private-label sector across Europe, as well as looking at what retailers could potentially learn from previous crises – “History has shown, many times before, that in times of economic contraction, private-label market share has grown,” IPLC’s Koen de Jong told us back in May.
Since then, of course, most European countries have emerged out of restrictive lockdowns only to be plunged back into them with the coming of winter, albeit this time underpinned with the optimism that a vaccine is ‘just around the corner’.
On the cusp of what will hopefully be a more positive new year, ESM spoke to a number of top executives from leading European retailers about how the pandemic has influenced private-label development in their businesses.
PEREKRESTOK (Russia)
Vladislav Kurbatov, Chief Executive
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
The pandemic has certainly had an impact on consumer habits, including demand for retailers’ private labels. For Perekrestok, the growth in demand for our private label this year is due to two key factors: first, we invested significant work into expanding our private-label offer; and second, the challenging economic situation has provided an impetus for shoppers to try new products in a variety of categories.
To what degree has private-label innovation and/or new-product development in your business been impacted by the pandemic?
The pandemic has changed the demand profile somewhat – for example, there’s been a boost in demand for hygiene-related goods. This has influenced our private-label offering, and we’ve been stepping up the work we’ve done over the past few years to further develop our immune-boosting and healthy-lifestyle products, such as our Green Line range. On average, we offer several new products per week.
In what ways do you think the pandemic will likely influence your future private-label strategy?
Ongoing demand for lower prices opens new opportunities for us to build long-term relationships with suppliers and to develop our private-label products more quickly, but the pandemic’s influence is not limited to demand for cheap products.
We see a need for private labels, both in the low-price segment and in the mid- and higher-price segments, as the pandemic has led new categories of consumers towards private labels. These consumers are seeking a good balance in terms of price and quality. Producers of private-label goods of a similar quality don’t need to budget for promotional costs, which results in lower prices for the end consumer, with no reduction in quality.
In what product categories do you think private label is currently underdeveloped?
In short, all categories. There is huge growth potential for private-label development in every product segment, even in categories with a high degree of brand loyalty, such as tea, coffee and water. We also think it is important to offer private-label products in all price segments – even the premium segment – including products that we ourselves import directly from large foreign producers.
How important is your private-label offering to the identity of your retail brand?
Private labels are a vital component of our CVP. We strive to offer not just analogues of products that are already widely available, but products that provide customers with desirable and unique features and characteristics. When a customer can find products in our stores that are not available anywhere else, and these are products that the customer will want to come back to purchase again and again, our private-label products differentiate our chain from our competitors’.
ALDI (Ireland)
John Curtin, Group Buying Director
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
Sales volumes of both Aldi private label and brands increased over the initial March-to-May lockdown months. With the majority of businesses closed, including many food and beverage businesses, customers began to spend more on their weekly shop, as consumption transferred into the home.
Since the lifting of the first period of COVID-19 restrictions, we have seen more shoppers favour private label. Price and value are, once again, becoming key purchasing drivers, as opposed to convenience.
What categories or product segments have seen the most growth?
As witnessed by the strong grocery market figures, sales are up across all categories at Aldi. The obvious products, like toilet rolls, tinned foods and cupboard fillers, performed extremely well.
Our Specially Selected range is continuing to grow, as customers look to treat themselves at home. Some other, less obvious categories, like preserves & spreads and medicine, have grown by over 30% over the last 52 weeks.
To what degree has private-label innovation and/or new-product development in your business been impacted by the pandemic?
While COVID-19 has presented many challenges, we have worked very closely with our 200 Irish suppliers and Bord Bia to ensure business continues as normally as possible. Innovation is key to our business. We have all been working on different ways of ensuring we continue to develop new products during these challenging times.
Our ‘Grow with Aldi’ supplier programme helps small and artisanal Irish suppliers develop their products for sale with Aldi, and it is something I would encourage local producers to get in touch and find out more about. We have invested more than €2.5 million in the development programme since 2018.
In what product categories do you think private label is currently underdeveloped?
At Aldi, we already have a full range of private label that offers the quality that customers rightly expect across all categories, offering unbeatable value. We have always known, however, that the strength of our private-label range is rooted in continued development of existing lines, and the constant addition of exciting new products for our customers to try.
Working closely both with our trusted suppliers and new partners ensures that we stay at the forefront of these developments and new trends, offering a dynamic range to our valued customers.
How important is your private-label offering to the identity of your retail brand?
The quality and depth of our private-label offer is the single-biggest reason for the success of Aldi in Ireland over the last two decades. We are committed to stocking the best-quality private-label products at the best prices for our customers.
Customers trust our private range of products, and it is our responsibility to continue to innovate and collaborate with our suppliers, keeping the customer at the centre of our business.
SONAE MC (Portugal)
Ana Alves, Private-Label Brands
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
The demand for private-label products has increased since the beginning of the year. The weight of Continente’s products in overall sales reached high peaks during the lockdown period and has remained above historic levels since then. This behaviour is a consequence of the excellence of our private-label value proposal: the quality-price ratio on our staple foods offer and innovation in categories that top families’ current priorities, like healthy nutrition and disinfection.
What categories or product segments have seen the most growth?
Earlier in the year, food staples and dry groceries, such as milk, rice, pasta, and canned food, grew exponentially and still maintain above-average growth. Also growing on a double-digit basis are hot beverages – namely coffee capsules – frozen food, and ready-to-eat refrigerated meals.
In what ways do you think the pandemic will likely influence your future private-label strategy?
This pandemic is setting consumption trends for the months and years to come, with a direct effect on private-label strategy. This ranges from demand for national and local products, which has been the cornerstone of Continente’s offer since its inception – two out of three private-label products are produced in Portugal – to the present concern with health. For the latter, we’ve responded with the relaunch and rebranding of the Continente Equilíbrio range, which aims to offer ‘nutritionally balanced products at affordable prices’.
In addition, in terms of protection and disinfection solutions, Continente was the first private-label brand in Portugal to offer home-cleaning and personal-hygiene products with disinfecting, antibacterial and fungicidal properties.
We’ve also maintained a strong commitment to sustainability. We’re speeding up initiatives we’ve committed to in the last few years, including recycling, eco-design, and the incorporation of recycled materials, as well as more responsible and fair sourcing.
In what product categories do you think private label is currently underdeveloped?
We’re committed to exploring added-value categories in which private label still has room to grow – the premiumisation of high-quality and differentiated food solutions with the Continente Selection brand, and in beauty, with our exclusive brand, MyLABEL.
How important is your private-label offering to the identity of your retail brand?
Continente’s private label is a central piece in our value proposition. We’ve been investing massively to guarantee our customers products that are recognised for their quality and innovation, always at the lowest prices. On average, we launch a new product per day, every day, prioritising national production and continuously improving the nutritional components of our products, never forgetting the environmental sustainability dimension.
Private label plays an important role in the access-to-quality-products democratisation: it is, and will continue to be, a differentiating factor of the Continente brand.
FIX PRICE (Russia)
Dmitry Kirsanov, Chief Executive
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
More than 4,000 Fix Price stores are operating across Russia and CIS, and private-label products comprise more than 30% of our total assortment. One of our priorities at the start of the COVID-19 pandemic was to ensure an uninterrupted supply of essential items, such as household-cleaning products, personal-hygiene products, and similar essentials.
In particular, demand spiked for our private-label Cotte toilet paper, Homestar cleaning products, and Play the Game toys during the first wave of the pandemic.
What categories or product segments have seen the most growth?
We first noticed increased demand for masks, gloves and hand sanitisers, so we focused all of our efforts on ensuring an uninterrupted supply of those products. Alongside antibacterial cleaning products, demand for developmental toys, arts-and-crafts supplies, colouring books and other children’s books also increased, as families had to find new ways of spending time while forced to stay at home for prolonged periods.
To what degree has private-label innovation and/or new-product development in your business been impacted by the pandemic?
Innovating and developing new products is central to what we do, as it allows us to offer an ever-widening array of quality products to our customers. I’m pleased to note that the pandemic has not derailed our work in this area.
Generally speaking, we have expanded our overall assortment during the pandemic to also include dietary supplements, although these types of products are not part of our private-label offering. Moreover, we have expanded our offering of personal protection equipment, such as masks, gloves and hand sanitizers, paying special attention to ensuring that PPE doesn’t go out of stock in our stores.
In what ways do you think the pandemic will likely influence your future private-label strategy?
We are closely watching the way consumer behaviour is changing as a result of the pandemic and believe that some new trends are likely here to stay. It’s too soon to make definitive forecasts, though, as the situation is evolving quickly.
We have a step-by-step approach to developing our private-label product lines, eventually focusing on building up a broad offering across categories. At the same time, we aim to strike a good balance to also include popular brands, ‘no name’ brands, and our own private-label products in our assortment.
How important is your private-label offering to the identity of your retail brand?
Our private-label offering plays a key role in providing a unique product assortment for our customers, and in ensuring the best quality at the lowest price. The Fix Price portfolio includes some 60 private-label brands that span many different product categories. We are also continuing to develop new products with universal, modern packaging in the food, non-food and cosmetics categories.
SPAR ÖSTERREICH (Austria)
Nicole Berkmann, Head of Group PR and Information
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
The challenge – and, at the same time, the opportunity – in these times is that food retail is the only industry that certainly won’t be confronted with a lockdown. We are a ‘safe haven’ for consumers – we give them a little bit of joy with fresh and fine goods, and make traditional festivities and family get-togethers possible.
Spar Austria has several different private-label lines, and as a result of the COVID crisis, two of them are of great importance: firstly, the low-budget S-Budget line, for those who want to look after every cent; and, secondly, the Spar Premium line, for customers who want to have a little bit of luxury in difficult times.
In what ways do you think the pandemic will likely influence your future private-label strategy?
There are no special product categories – people buy everything as always – but very important at the moment are all kinds of regional and Austrian goods. People feel safer with products from regions they know personally. A global virus causes a kind of uncertainty when it comes to international products.
LENTA (Russia)
Jaap van Vreden, Sourcing and Procurement Director
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
We have a portfolio of 13 private labels that covers all customer segments. For example, our lower-income clients can find affordable goods under our 365 brand without compromising on quality. Overall, Lenta is our largest private-label offering, with a wide range of food and non-food products, and we have also developed our higher-end Dolce Albero brand, which includes coffee, tea, confectionery products, oil, canned fruit, juices, and other products.
Dolce Albero coffee has seen higher demand this year, as customers are treating themselves to high-quality products that they can enjoy at home.
During the so-called ‘stocking up’ period earlier this year, we saw higher demand for our private label, especially for the 365 and Lenta brands. The categories that showed the greatest growth were canned foods, which grew by around 44%, grocery (+62%), spices (almost +70%), stationery (+128%) and cosmetics (almost +50%).
To what degree has private-label innovation and/or new-product development in your business been impacted by the pandemic?
We managed to keep continuity of all of our processes during the pandemic, including private-label management. In the first half of 2020, we introduced 425 new private-label SKUs, which is roughly in line with the previous year. We also launched four Lenta sub-brands – Lenta Eco, Lenta Green, Lenta Premium and Lenta Kids – to strengthen our private-label range and provide a unique offering for all of the different types of customers.
I believe it is essential to have strong relationships with quality suppliers, and we are proud to have such networks in Europe, with EMD enabling a knowledge exchange about private-label food offerings, and with Li & Fung in Hong Kong, which allows us to continue supplying our non-food ranges.
In what ways do you think the pandemic will likely influence your future private-label strategy?
We see that our customers search for price-quality balanced goods. This is what our private label offers, complemented by uniqueness. Customers who are loyal to Lenta’s own brands visit Lenta stores more often. So, we see private label as one of the main drivers of customer loyalty.
I don’t think that the pandemic will change this, so we continue to see private labels as part of our strategic competitive advantage.
In what product categories do you think private label is currently underdeveloped?
It is challenging to develop private label in the categories where there are already strong brands, such as baby food and washing powder, for instance. We prefer to focus on the segments where we can create the most value.
This year, we launched Lenta branded vegetables – an interesting segment for private label – which were very well received by our customers. We also have Little Times, a baby-hygiene private label, which successfully competes with world-renowned brands in this segment.
How important is your private-label offering to the identity of your retail brand?
Our private label is a key differentiator for us. We develop our own brands to create a unique offer for our customers. Lenta’s own brands play a crucial role in retaining loyal clients and attracting new ones. The growth of our private labels outpaces the company’s overall growth, as reflected in its share of total sales.
LIDL (Switzerland)
Corina Milz, Head of Corporate Communications
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
The coronavirus period has brought about various changes in demand in certain product areas. During the lockdown period, we generally noticed an increase in demand for all daily-use products. At the beginning of the coronavirus crisis, products with a long shelf life, such as canned food or pasta, were particularly in demand. In the past few weeks, fresh products, such as fruit, vegetables, bread and meat, have been particularly popular.
To what degree has private-label innovation and/or new-product development in your business been impacted by the pandemic?
We have seen an increased demand for organic products. We have expanded our range of organically produced foods, which recorded a 48% increase in revenue in 2019, and we intend to continue to expand our organic range in the future and strengthen our commitment to organic farming. There are around 300 organic products in Lidl Switzerland’s Bio Organic assortment.
We have also noticed an increasing demand for vegan and vegetarian replacement products. We carry these products under our Vemondo private-label brand. For example, Lidl Switzerland offers more than 70 different vegan and vegetarian alternative products, including an assortment of meat substitutes, such as organic tofu, vegan nuggets and veggie schnitzel, as well as vegan burgers and vegan minced ‘meat’.
ICELAND (UK)
Andrew Staniland, Trading Director, Frozen
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
We saw demand rise by around 30%, as customers sought out better-value alternatives to branded offerings. Frozen commodities that are associated with scratch cooking – raw meat and vegetables – have seen the most growth.
To what degree has private-label innovation and/or new-product development in your business been impacted by the pandemic?
We have remained flexible in our approach to product development by using video conferencing and home sampling to maintain our development programme, so the volume of innovation has not slowed. The pandemic has already influenced the space and range we give to the categories in growth, and made us look to further categories where we can take on the fresh market, offering customers better-value food.
How important is your private-label offering to the identity of your retail brand?
Hugely important. We hold the largest market share in many categories within frozen, and it is paramount to the sustainability of our brand and business that we lead in this arena.
MAGNIT (Russia)
Alexander Kotlyarov, Head of Private Label
Have you seen increased demand for private-label products as a result of the COVID-19 crisis?
We certainly saw increased growth of our private-label product sales during the most acute phase of the COVID-19 pandemic. Demand for certain categories increased by three to four times. Staple food, preserved food, and household-cleaning products have seen the most growth.
To what degree has private-label innovation and/or new-product development in your business been impacted by the pandemic?
Due to the pandemic, we had to adjust our plans to launch new projects, which included postponing some things. That said, we now have more projects aimed at meeting customer demand for products that are most needed during the pandemic, such as hand sanitisers and antiviral wipes.
In what ways do you think the pandemic will likely influence your future private-label strategy?
We do not plan to drastically change our private-label strategy, per se. However, the pandemic will likely influence some of our tactical solutions, such as customer communication channels, types of packaging – with a larger share of family-pack types – and higher growth rates for healthy food items. In any event, we will be closely watching consumer trends and continuing to respond swiftly.
In what product categories do you think private label is currently underdeveloped?
Our private label is currently actively developing across all categories. Traditionally, private label performs worse across product categories with a high emotional element, where, in addition to rational factors, the brand, communication, and product innovation are important.
Make-up products are often given as an example, but we actually have a number of very successful cases with private-label products in this category.
How important is your private-label offering to the identity of your retail brand?
We believe that private-label products are one of the most important factors for differentiation in the competitive market. In our approach to designing our private-label portfolio, we consider a number of factors, including the possibilities for promotion, consumer preferences, and quality control, among others.
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
