While private labels have been the pick of the bunch for the last five years, a Neilsen report has identified that for the first time household penetration has dramatically fallen.

Nielsen’s annual Retail and Shopper Trends Report reveals in the second quarter this year overall private label penetration drop by 0.7 percent since the same time last year, with the largest drops being in the biscuit (-4.6 per cent), canned fruit/fruit snacks (-3.9 per cent) and cake/pies & fresh pastries (-3.1 per cent) categories. 

According to Kosta Conomos, Nielsen retail industry group executive, the reason for the drop is due to the launch of loyalty campaigns by Coles and Woolworths that put heavy emphasis on branded products.

“There has been a closing of price gaps between branded and private label products recently which is being largely driven by retailer price wars,” he said.

“Shoppers are now seeing zero differentiation between pricing in Coles and Woolworths compared to three years ago when Woolworths was largely given credit for lower prices.”

The report also shows 60 per cent of shoppers in 2012 have a heightened awareness of prices compared to 2010 where less than 50 per cent of shoppers felt confident they knew the prices of the things they bought most often.

“Consumers are becoming a lot more promotionally savvy and decreasing the average price per unit, however this doesn’t necessarily mean we’re buying less.  Australian’s are getting greater value for money through shrewd shopping behaviour,” Conomos said.

Also, the launch of loyalty programs by the supermarket giants has only encouraged more cross-shopping between Coles and Woolworths, which has increased from 87.2 per cent in 2010 to 88.1 per cent this year.

“As retailers continue to focus on the same initiatives such as private label, loyalty reward cards or low shelf prices, shoppers are increasingly seeing them as ‘hygiene factors’,” Conomos said.

“There is a perceived lack of differentiation between major retailers, which leads consumers to look at the intangible benefits of a brand – what is the value proposition?”

Nielsen’s report has advised retailers need to form an emotional connection with shoppers through ‘wow’ factors, which are increasingly driving store choice. These can include ‘proving an enjoyable experience’ and a ‘pleasant shopping environment’. ‘Staff service’ has also significantly increased in importance for shoppers in the past 12 months.

“We live in a fragmented, multicultural society so retailers should therefore be differentiating themselves through more targeted campaigns to meet shoppers’ specific needs.  Unless further differentiation occurs among Australian retailers, we’ll continue to see very high penetration levels and cross-shopping, with low levels of loyalty.”