The private label sector still has enormous growth potential, as it accounts for only 10% of global grocery value, according to a report from Euromonitor International.
The economic downturn has been a major driver for private label, or own brand, products in the past few years, and the market grew 24% in absolute terms from 2007 to 2012. However, the market’s value fell by 1% in 2012 as major brands attempted to defend their market share with price promotions.
“The somewhat negative economic outlook is a positive for private label because consumers will remain frugal for a while longer. Private label has enormous long-term growth potential since sales are still equal to only 10% of all grocery value globally,” said editorial director at Euromonitor Gina Westbrook on the market research organisation’s blog .
Private label manufacturers have been taking note of tactics used by big brand manufacturers to sell and market their products, establishing cobranding and licensing partnerships, playing up sustainability and ethical credentials, discussing ingredient provenance, and increasing packaging quality.
“As the quality of private labels has improved, their price differential has become narrower,” the report said. “In the US, a 2012 study found that private labels cost an average of 29% less than their national brand counterparts, but their prices had risen faster than brands over the previous year.”
There are some sectors in which the branded food industry has successfully defended its market share, despite increased pressure from the private label sector. These include soft drinks, which saw an increase in private label from 2007 to 2009 before brand dominance returned; Coca-Cola and PepsiCo represented 34% of all global soft drink sales by volume in 2012, the report said.
The private label sector has also found it difficult to penetrate areas dominated by power brands, like Hershey, Mars and Kraft in confectionery, Nescafé in hot drinks, and the baby food category, in which branded products rely on high levels of consumer trust.
Switzerland, Germany, Spain and the UK are among the top global markets for private label goods, while the Russian market has increased rapidly, albeit from a small base.