The rise and rise of private labels

According to IBISWorld general manager (Australia), Karen Dobie, private-label products have been one of the supermarket industry's fastest growing segments over the past decade. In light of mounting concerns over the cost of living, further exacerbated by the introduction of the carbon tax, more Australians are expected to home in on private labels to make their dollars go further.

"In 2007-08, private labels accounted for just 13.5 per cent of total supermarket sales – meaning the segment has grown by more than 85 per cent over the past five years," Dobie said.

In dollar terms, Australians are expected to spend $85.9 billion on groceries in 2012-13, with IBISWorld tipping $21.6 billion of this will be spent on private-label products, up from $19.7 billion in 2011-12 and $9.96 billion five years ago.

Looking forward, Dobie said this figure is expected hit $31.8 billion by 2017-18, representing growth of nearly 50 per cent when compared to five years ago. 

Private-label spending by Australians

 Source:  IBISWorld 

"The recessive economic climate has been a strong driver of private-label growth. Households have been reining in spending, paying off debt and increasing savings. This, coupled with an increase in the range of private-label products available, has led many consumers to make the shift to home brands," Dobie said.

Playing the product categories

While the entire private-label segment is going from strength to strength, IBISWorld identified a number of product categories that are outperforming the rest – with growth influenced by the strength of supplier brands and the nature of product differentiation within categories.

"Dry grocery items and chilled packaged food categories have been the strongest performers for private-label products – although alcohol has also been a strong contender for Woolworths and Coles," Dobie said.

Comparison of private label share of product categories

Source: Department of Agriculture, Fisheries and Forestry, IBISWorld

"Products with a high degree of homogeneity that are staples of grocery baskets have shown the strongest private-label growth. These include private-label butter, which accounts for 68 per cent of total butter sales; private-label sugar, accounting for 67 per cent of total sales; bread at 56 per cent; and fresh milk at 55 per cent", Dobie said.

"A particularly interesting product category is eggs. While private-label egg sales still account for over 50 per cent of market share, this has fallen from 61 per cent over the past ten years. The decline is mainly due to a switch towards free-range, a segment not adequately represented by private-label players," Dobie said.

IBISWorld highlighted chocolate, confectionery, soft drinks, cosmetics and sanitary products as poor performing segments – citing consumers' ongoing preference for a trusted, quality brand when purchasing these products.

Everyone's pining for private

Talking demographics, IBISWorld says that private labels are most popular with Australia's low-income families (those earning less than $44,000 per annum), accounting for over 40 per cent of their total grocery bill. While families in higher income brackets (those earning above $75,000 per annum) have been slower to adopt private labels, supermarkets are converting these consumers slowly but surely – with private labels currently accounting for about 15 per cent of groceries purchased by high-income earners.

"At present, consumers in middle and higher income groups represent the strongest growth opportunities for retailers looking to push private-label products," Dobie said.

"Major supermarkets are spending big bucks on activities aimed at blurring the lines between branded products and their own in-house fare. These retailers are introducing premium, organic and fair trade products – such as Woolworths' 'Select' range – to attract private-label buyers from all walks of life."

Winners and losers

Growth in premium private-label products is expected to blur the line between home brands and branded products, leading to more-aggressive competition across the grocery industry.

"Branded producers have responded to private-label growth by discounting their products to remain competitive.

"However, the dominance of Coles and Woolworths means that they are likely to give preference to their own brands in terms of spacing and design allocations – placing continued pressure on the big brands," Dobie said.

This can be detrimental to branded producers as their share of shelf space is eroded by home brand products."

Source: IBISWorld