House brands: the future

IBISWorld expects the major players in the Australian food industry will seriously ramp up their house brand strategy over the coming couple of years in a bid to catch up with our European counterparts which have taken to the concept with vigour.

House brands have a 31% share of the British market and more than 20% across most European markets.

“The strategy will be to continue with major investment in developing relevant and new private label products to the market,” said IBISWorld (Australia) general manager Jason Baker.

“Since the first generic brands focused on providing low quality at low prices, which is no longer what consumers want.”

“The last five years has seen a noticeable shift in house brand development, with stores aiming to differentiate their private label products from similar offerings on the shelf, and to improve their quality and image.”

Currently cotton wool has the biggest slice of the private label pie but other big generic brand sellers for supermarkets include basic goods such as: sugar (54%); eggs (56%); flour; milk (55%); nuts; dried fruits and small goods; all of which have more than a 20% share of their markets.

House brands in segments that are dominated by very strong and loyal brand awareness, such as soft drinks, do not sell well IBISWorld has reported.

IBISWorld expects the next stage of private labelling in the food sector will target coffee.

Analysis suggests that while all households purchase private label goods, those with more than five members are the biggest buyers of the range.

According to the Australian Food and Grocery Council, the private label targets set by Coles and Woolworths might not have a massive impact on leading labels, but will do a lot of damage to branded manufacturers ranked third and fourth in their category.

Big retailers — where next?

Coles announced plans to boost its private label market share to between 30% and 40% by this year by replacing its existing Savings, Farmland, Coles, Reliance and Persona brands with up to 3000 lines in either the Coles Smart Buy, You’ll Love Coles and George J Coles categories.

And while Woolworths is hanging onto its budget Home Brand label, along with Woolworths Fresh, Organics and Naytura brands, it also plans to bring in an additional 200 lines as part of its premium brand Woolworths Select, which intends to compete with the market leader in each of its product categories.

At the same time, the supermarket will phase out previous private label brands Ark, Bowman’s and Marketta, which were launched in response to ALDI, a European private label supermarket, arriving in Australia.

The growing popularity of ALDI supermarkets, and its push for private label products, can be viewed as both a threat and an opportunity for Australian manufacturers, with as many as 6000 new private label brands likely to hit our shelves within the next five years.

Threat or opportunity?

“While 80% of ALDI’s suppliers are local manufacturers, some segments of the industry fear the ALDI model threatens suppliers as its high demand for private label merchandise means that if a supplier won’t provide their own brand to a retailer’s specifications, then someone else will,” explains Baker.

“On the other hand, suppliers who are willing to be contract manufacturers to ALDI view its market entry as healthy competition,” he added.

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