Consumers are becoming smarter shoppers and this is reflective in the growth of the private label sector.

New research from IBISWorld shows the private label products have been one of the supermarket industry’s fastest growing segments in the past decade. It currently accounts for just over one quarter of total supermarket sales.

IBISWorld Australia general manager Karen Dobie said with growing pressures, Australians are turning to private labels to make their dollars go further.

"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,” she said.

IBISWorld forecasts the share of private-label products will increase strongly in the coming five years, to account for over 30 per cent of supermarkets sales by 2017-18.

"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.

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.

"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.”

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.

Growth in premium private label products is also 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."

In the short term, Dobie said the growth of private labels will benefit consumers through lower prices. However, in the long term, she warned Australians will likely be faced with less choice as the supermarket giants increase their own private-label offerings.