ESM sat down with Paul Stainton and Remy Medina of IPLC – International Private Label Consult to discuss the challenges and opportunities open to private label as the retail industry looks forward to a post-pandemic world. This article first appeared in ESM Issue 3 2021.
Approximately one year ago, as the COVID-19 pandemic was starting to take hold, ESM caught up with Koen de Jong, managing partner at International Private Label Consult (IPLC) and author of The Private Label Revolution, to gauge what the impending crisis would mean for the private-label sector.
Would it, like the financial crash of a decade earlier, lead to a dramatic loss in earnings, resulting in a surge in demand for private-label value products? What role would the e-commerce channel – at the time, experiencing unprecedented growth – play in store brand innovation?
As for the trends that were in vogue prior to the crisis – health and wellness, sustainability, food waste – would the forthcoming months see these issues accelerate, or be usurped by more pressing matters?
Via Zoom, ESM editor Stephen Wynne-Jones caught up with two of de Jong’s IPLC colleagues – Paul Stainton (UK) and Remy Medina (France) – to get their perspectives on what the past year has taught the private-label sector, and what the post-pandemic store brand landscape might look like.
ESM: Gentlemen, just over a year on from the start of the pandemic, what is the current prognosis for the private-label sector, as you see it?
Paul: Well – first things first – I would say it’s recovered a bit, because it took a little bit of a hit in the early days of the crisis. When COVID first broke, sales were massive across all staple product categories, and there were big availability issues. When consumers went into stores and panic bought, they would just buy whatever was there. If private label was unavailable, they bought the brand, and if their favourite brand was unavailable, they would buy whatever they possibly could. So – at least in the UK – the statistics show that private label took a bit of a dip in terms of market share. The branded growth rate was higher, in value terms.
In addition, innovation was difficult for a period of time, and there was very little discussion on new-product development. I was still involved in buying at that stage [at Aldi UK], and you couldn’t meet up. Suppliers had to send samples to the buyer and the buyer’s boss, who would then cook these products up and discuss them over Zoom, so there was no great way of developing products quickly.
But what I would say is: I think private label did seize the opportunity of launching products more quickly than brands. The level of new-product development around Christmas, and since Christmas, has surprised a lot of people – in the premium segment, vegan, free-from, meal kits, that sort of thing – so I think private label is in a good place now.
ESM: Remy, have you seen a similar situation in France?
Remy: Actually, what is interesting is that there are some noticeable differences between the markets because, actually, in the French market, 2020 was really a massive success for private label, compared to brands. I mean, brands have also benefitted from the situation, for more or less the same reasons Paul mentioned, but the French market, in general, was a flat market for private label for a couple of years. This is the first year, after four years in a row, where we have seen growth in the market.
All private-label tiers have benefitted from that, but the most significant growth has come from organic – all retailers have put a lot of effort into growing in this category. That’s going to continue in 2021.
Another area in which there has been a bit more focus is on price entry. Again, this is talking specifically about the French market, but a lot of retailers didn’t pay much attention to price-entry products for a number of years, but now, with many people having less to spend, there is a big review taking place on certain price-entry ranges. Carrefour recently launched a brand called Simple, which looks really nice.
It really depends on the market. There is a big variation in share between countries – the French market is still behind the UK market, Dutch market or Swiss market, for example – but there are certain trends that are common to many markets around sustainability, product transparency, and products that are made locally, where possible.
One of the big things that happened last year, when there was a shortage of products, was that people started to realise that certain items or ingredients were travelling a long way. If you can have more products made locally, you can shorten the supply chain, support local businesses, and ensure better product availability.
Paul: That’s a really interesting point. Consumers are definitely looking for local. Because of lockdown, we’ve all been visiting local butchers or craft centres, and we might never have been to them before, so there’s been a drive towards local and regional products.
ESM: One of the things that was evident in private label, leading up to the crisis, was that the middle was a ‘dangerous place to be’ – that the growth was in the premium, value or bespoke tiers, such as organic. Has the pandemic changed that at all?
Remy: At the start of the pandemic, retailers realised pretty quickly that they weren’t going to be able to continue to supply all products, so they were selective, cut some lines, and focused on the biggest-selling items. Based on the end-of-year figures, it looked like a lot of growth was coming from the value-added segment, which includes things like organic, free-from, premium, etc. These are the areas that have seen the most innovation.
Paul: I totally agree. In the UK, we haven’t seen much activity in the value sector. I’m not sure whether that’s COVID influenced, but retailers were already trying to start to get out of the value sector, i.e. the ‘white pack’ offer, and focusing more on value-added private label. A stat I read the other day was that premium private label in the UK grew by 16% last year, compared to overall private-label growth of around 11%.
ESM: Also, on the question of range reductions, retailers were focused on ensuring that they were stocked up on the essentials, and weren’t too concerned about having too many SKUs in too many categories.
Paul: Yes – I think that was more reactive, rather than proactive. As availability became an issue, there were lots of temporary discontinuations across all retailers – for example, ‘We used to have three basmati rices. Now we’ll just concentrate on the one basmati rice.’ That was driven by availability – it wasn’t strategic – and in the UK, Brexit also played a part.
ESM: Do you see it going back to the way it was before? Are retailers going to go back to ‘three basmati rices’, as you say?
Paul: I think, ideally, retailers would not like it to go back to there because they are all seeing the benefit of range rationalisation. Plus, in order to bring in more vegan products, healthy products and organic products, they’re going to have to find the space somewhere. There will be range decisions that will have been helped by some of the forced temporary discontinuations.
Remy: There’s another factor at play, too, in the French market, and this goes for several markets, in that private label is bigger in online channels. With online, you have to seek better margins in order to justify the additional cost, and better margins are coming from private label. As online has picked up, it has also pushed private-label sales.
ESM: The Drive category has been the big winner in France in the past year. Are you seeing more of a private-label focus through this channel?
Remy: Up until recently, the majority of the Drive stores didn’t have any price-entry range – they now all have – but that was not only the case in Drive, but across their online platforms, because they didn’t earn as much from selling these items. Now they are all offering a selection of price-entry products because people want to have the ability to buy these cheap products, regardless of what channel they use.
For French retailers, the challenge has always been to find the balance between having the right specifications in terms of quality and price, and matching what Aldi and Lidl can offer, but, at the same time, they don’t want to cannibalise their own product offering. These days, you don’t see any retailers putting their own logo on these entry-level items, so you don’t have any reference to the supermarket chain.
ESM: So, you’re saying that entry-level private label hasn’t really been promoted through online channels because of the low margins. But is that changing?
Paul: They’re not pushed, but they are on there. If you take Tesco and Sainsbury’s, for example, their entry level now is their discounter brand – their attempt to make a product look like an Aldi or a Lidl brand. At Tesco, that includes brands like Stockwell & Co. Generally, they tend not to be the first product that you see – you have to scan down the page to see them – but I do think that online growth in the UK has affected the share of private label within the marketplace.
Online has grown to 15% of the market in the UK, and when you consider that Aldi and Lidl aren’t operating in that market – and these retailers are 90% to 95% own-label – that means that the overall share of private label gets hit. I think it’s going to be interesting to see how that develops. Private label is growing at a faster rate than brands online, but that’s from a smaller base. Plus, retailers are getting quite a lot of paid advertising. If I go on the Morrisons website and type in ‘tomato ketchup’, I suddenly see a Heinz advert right across the top of the screen.
ESM: One of the trends that we discussed with Koen [de Jong] last year was around how, during the last big global crisis, people flocked to private label because of fears over their financial security. That hasn’t really played out the same way this time – a lot of people have spare cash, and are looking to splash out, on occasion.
Paul: With that in mind, Tesco recently launched the Tesco Finest* Restaurant Collection, which comes in three different products priced between £20 and £25 [€23 to €29]. That’s aimed exactly at the market you describe. Also, Valentine’s Day was a good example. In the days leading up to that, retailers were pushing meal offers – a starter, main course, side dish, dessert, wine – for a set price, and all of the components, sometimes even including the wine, were private label.
ESM: Are there other categories that have seen a surge in demand as a result of the pandemic?
Remy: We’ve seen all the meal components, as well as baking ingredients – flour, eggs, etc. – go through the roof. Also, with more people staying at home, they have tended to be more concerned about nutritional value as well, and private label is leading the way on that.
In France, private label was the first to initiate including Nutri-Score labelling on packaging, and this has led to product reformulation, where they have improved the nutritional quality of products.
In addition, there has been a trend towards more transparency in terms of ingredients, how a product is made, how healthy it is, and what sort of packaging it uses. With people working and eating from home, they are generating a lot more trash, and this has made them more conscious of the amount of packaging being used.
Paul: I totally agree on all counts. Free-from has been big in the UK for a long time. You can walk into a typical retailer and see three full bays of free-from products. Vegetarian has also always been there, but, more recently, plant-based and vegan have just completely exploded. There’s a massive opportunity for private-label manufacturers who can get into that.
Packaging-wise, as Remy said, we’re all a lot more aware of the packaging that we use. I saw a customer survey recently that found that 81% of respondents said that packaging is a key consideration for them in terms of what private-label products they will buy, going forward.
ESM: The drive to reduce packaging has been going on for many years now, but now, given that consumers’ bins are fuller than they have ever been, they are calling for retailers to shoulder more of that responsibility.
Remy: It’s going to become more important, going forward, and will be embedded into private-label policy – how you source and purchase private label. Plus, it ties in with the sustainability agenda that retailers have and want to push forward. Packaging is an aspect that is most visible, and when you see that there is less packaging than before, it can make a visible impact.
ESM: Looking ahead, as we emerge into a post-pandemic world, in what areas should retailers look to capitalise, from a private-label perspective?
Paul: Well, it’s not that I’ve got any interest in the plant-based industry, but that whole ‘alternative’ market – healthy alternatives – has big opportunities. The younger generation, in particular, are very aware about health, a good diet, and sustainability. With meat alternatives, for example, they’re not just thinking that a product is ‘healthier for me’ – they’re thinking that it’s producing fewer carbon emissions for the planet.
There are also a number of areas where coronavirus has given a new lease of life. I think there’s going to be more of a balance between going out and eating out and mixing with people for at least another couple of years, so there’s going to be an opportunity there to develop business.
Remy: There’s one area that I think retailers should put effort into – we talk about plant-based, and this is certainly a market that has seen growth. The side effect of that is that the majority of these plant-based products are ultra-processed. If you look at some of the big companies behind these plant-based initiatives, it’s like a big industry of ingredients – they don’t necessarily care about making something healthy, they just want to sell some ingredients.
In France, we have seen some lobbying of retailers to make sure they pay attention to the level of processing that goes into these products.
That’s a really interesting development, actually, because – especially now that we are going into this plant-based, vegan mindset – I think that there are going to be more questions asked by the quality departments at a lot of different retailers, where they start to say, ‘OK, what are we doing here?’
© 2021 European Supermarket Magazine. Article by Stephen Wynne-Jones. For more Private Label news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.
