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Private label under pressure as share of total FMCG market falls

Private label is continuing to come under increasing pressure across Europe, according to a new report – ‘Private Label in Western Economies’ – launched by IRI, the big data and market intelligence expert.

The report analyses private label sales trends and price and promotions across six countries in Europe (France, Germany, Italy, Spain, the Netherlands and the United Kingdom), as well as in the US and Australia.

Private label’s value market share in Europe fell by 0.6 points to 38.3 per cent in 2015, compared to the previous year as a share of the total FMCG market.

Private label share in Australia is lower than in many European countries, with local retailers keen to improve private label presence and share.

This highlights both a downward trend and the fact that retailers and manufacturers are struggling to cope with challenging market conditions, including pressure from a growing discounter channel, as well as national brands pumping large amounts of money into promotions.

Private label market share measured by pack sales also dropped by 0.5 points to 47.4 per cent in 2015. While there are encouraging signs of economic growth in Europe, with GDP up 1.7 per cent for 2015 and signs of unemployment slowing or stabilising, the story for private label tends to differ from country to country, suggesting that shoppers’ decisions about whether to buy private label over national brands vary according to national choices and preferences.

France, for example, saw the highest private label share decrease of all the eight countries in 2015, but still with a robust private label value share at 34.1 per cent, compared to Italy’s 17.2 per cent value share and Australia’s 13.9 per cent value share.

The UK remains the country with the strongest penetration of private label with a value share of 51.8 per cent in 2015, increasing by 0.4 points versus previous year, as measured by Kantar Worldpanel UK, which includes the discounter channel and other big private label food retailers, such as M&S.

The IRI report also points to the fact that supermarkets are losing private label sales to the discounters, primarily from the economy end of their private label ranges.

“The report presents an interesting picture, despite a decrease in private label value and unit market share overall,” said report author, Tim Eales, director of strategic insight at IRI.

“Economy ranges are facing big challenges – not least from the discounters, but also in the minds of shoppers who tend to equate ‘economy’ with ‘low quality’ – but it seems that premium private label is actually growing. This is where retailers should be focusing their attention in order to win shoppers hearts’ and minds when it comes to private label,” Mr Eales said.

The IRI report also highlights that private label assortment is shrinking across Europe, a trend that is also impacting national brands, as FMCG retailers and manufacturers focus on cutting their range and assortment for higher performing categories, brands and point of sales.

“We’ve seen this over abundance of products on the shelves across many of the countries – there is simply too much choice for the average consumer today and private label is often the victim of cuts to products that appear on store shelves.

“Retailers and manufacturers need to put in place the right strategies to help them focus on what shoppers want, but also to understand the impact of their decisions when it comes to reducing assortment and range.”

Insights for Australia
According to the report, private label share in Australia is lower than its share in many European countries. and so retailers are keen to improve private label presence and share.

In addition Aldi’s organic growth and current expansion in two states is leading other retailers to review and adapt their private label strategies. A further challenge may develop in time if Lidl does enter the Australian market.

In a retail environment that is experiencing a major expansion by hard discounters deep discount promotions have become increasingly popular to build sales. However, the stronger promotional strategies from national brands have not strengthened their position versus private label.

In conjunction with an increased private label drive by the major retailers, suppliers have launched these deep discount promotions as a strategic response to the private label pressure they’ve experienced and also as a result of falling consumer confidence and economic growth. Therefore the average unit price (paid in supermarkets) has not increased.

Interestingly with high promotion activity it would be assumed that national brands would regain market share but private label growth is higher than national brand growth.

In 2015 private label increased its share of supermarket sales, continuing its trend of share gains in recent years.

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