By Aimee Chanthadavong

Sales of private labels have notably increased as a result of the recession when consumers were looking for ways to reduce their spending on groceries. However, many have since found the products to represent very credible alternatives, and as a result have continued this buying behaviour despite the ongoing economic recovery.

In fact, research of the Asia-Pacific region by Datamonitor has revealed that almost half of consumers are choosing to shop based on where they can buy private labels.

The study found that more than two thirds of Asia-Pacific consumers believe private labelled foods are as good as, if not better than, leading brands – 50 per cent think they are identical in quality and 27 per cent go so far as to say that they are superior.

Datamonitor has predicted that the spend on private label across Asia-Pacific countries will increase to $24.65billion for food, $11.17billion for non-alcoholic drinks, $0.58billion for alcoholic beverages and $0.37billion for household care products by 2014.

Datamonitor consumer market analyst Matthew Jones told RetaiBiz that while there will be some migration back to national brands as economic circumstances improve, it is anticipated that it will be less than the private label gain overall.

“Accordingly, retailers have an immense opportunity to convert shoppers to private label for the long term while national brand manufacturers will face ongoing pressure to differentiate,” he said.

“However, retailers need to be cautious in not over-extending their private label programs, especially as it might lead to perceptions of a more constrained choice.

“Relationships with consumers may be diluted over the long-term if shoppers feel their level of choice has been reduced and private label substitutes fail to deliver to expectations. There has been a backlash amongst consumers when too many branded products have been displaced from store shelves – both Coles here and WalMart in the US have been criticised at various junctures for their removal of branded products.”

The current price wars that are being led by Coles and Woolworths are playing their role in driving the market share of private label products, Jones said.

“In this deep rooted period of highly ‘considered consumption’, value conscious consumers have consistently looked to cut costs and a retailer offering basic essentials such as private label milk at lower prices than branded, and it’s competitors in the retail space will, be an attractive proposition to consumers,” he said.

“In that sense, Coles is using a low cost private label staple as a ‘destination brand’ and the product itself reflects the direction of the wider store brand positioning.

“More generally, the price wars squeeze the supply chain – supplier’s profits are being squeezed and this is leading to branded products being displaced by private label.”

Jones also highlighted the success of private labels in Australia has been seen and done by Aldi, which achieved a 30 per cent increase in profits in 2010, where the company’s product range is largely private labels, locally sourced and cheaper than its rivals Coles and Woolworths. 
“The company’s range of private label products are marketed under their own unique brand names, as opposed to being 'Aldi' products. Consumers thus consider their products as credible brands in their own right as opposed to private label products, and this allows the retailer to develop customer loyalty through the broad portfolio of private labels available. Most of the retailers’ products are locally sourced, which in a country such as Australia, where consumers tend to quite strongly favour Australian grown products, this sourcing further drives store loyalty,” he said.

“The company was the first in Australia to develop national pricing – where. the same store in rural Australia would charge the same as one in metropolitan Sydney. The company has also been a pioneer of unit pricing, which offers consumers added transparency via the opportunity of comparing products of different sizes within their stores, or alternatively to rival stores. These two initiatives both demonstrate a willingness to engage with consumers that its rivals have been slow to pick up on.”
Datamonitor believes that with high levels of satisfaction regarding private labels, national brands will face the challenge of winning back customers, even when the economy improves the next five years, particularly as US Costco becomes a prominent player in the Australian supermarket industry.

“Like Aldi, the company has its own branded private labels – its Kirkland Signature range in particular is consistently rated to be high quality. Costco stands to be an effective player in the Australian grocery market providing much needed competition for the market leaders Coles and Woolworths. The company’s low prices but high quality private label range will appeal to consumers already loyal to Aldi.”

Nevertheles, Jones said while branded goods may not have such a large share market, there will always be a place for them in the market.

“Leading branded products will continue to be essential in the retail space; retailers are still wary of competing with brands like Vegemite, due to a deeper rooted loyalty that is hard to re-create for a private label offering. What will become more important for branded products is demonstrating to consumers that the price difference paid for branded products is not merely for advertising – there has to be an emphasis on quality and taste over their private label counterparts.”

“Datamonitor also expects that Australia will witness increased co-branding efforts between retailers and branded products, as the former seek to gain consumer acceptance through using a recognised brand “