Own-label food sales to double

30 March 2011

UTRECHT: The share of global value sales secured by own-label products in the packaged food sector is set to double during the period to 2025, a report has argued.

Financial services group Rabobank estimated there are approximately 100,000 segments in this category worldwide at present, with competition between store and national brands intensifying in almost every case.

"The effects of the recession will fuel further private-label expansion across the globe for years to come," the company said.

"It has raised consumer awareness, prompted further expansion of the hard discount format, and increased the competitive pressure on service-oriented supermarkets for lower price and differentiation."

Collectively, these forces are predicted to push the proportion of revenues claimed by own-label food offerings from 25% today to a possible 30% in 2015.

More broadly, the unique contours of development observable in many emerging markets are encouraging divergent trends to those previously experienced in the US and Western Europe.

"It has taken between 50 and 60 years for private label to reach a penetration level of over 40% in the United Kingdom," the study said.

"Central and Eastern European countries like the Czech Republic and Hungary are progressing much faster, taking about 20 years to reach half that level."

By contrast, the nascent character of organised retail in China, India and Mexico means own-label goods have not attained the necessary benchmark to facilitate similar processes as yet.

"Growth in private label seems to accelerate once penetration rates reach between 5% and 10%, e.g. Russia and Turkey," Rabobank said.

Own-label's share gain is anticipated to peak in Poland over the next five years, at 11%, a figure hitting 9% concerning Russia and 8% regarding both Turkey and Italy.

Among mature markets, the Netherlands and Spain should witness 4% improvements, and Germany is likely to deliver a 3% leap, as store brands take in the range of 25% to 40% of revenues in these countries.

By 2025, private-label's share is expected to strike 50%, as supermarkets move into value, mainstream and premium tiers, thus squeezing out secondary national brands.

Extra contributors to this shift include shoppers' rising acceptance of own-label lines, consolidation in the grocery industry, the strengthening of hard discounters, and modern retail's growth in emerging economies.

However, leading big-name brands are due to retain an important status, because of their capacity to drive footfall, and establish new standards in fields like price and packaging.

To ensure continued survival, FMCG companies will need to embrace innovation, covering issues such as taste, texture, ingredients, convenience, indulgence, and health and wellness.

Other strategic priorities involve cultivating emotional bonds with consumers, an area where marketing has a key role.

Achieving differentiation through enhancing sustainability credentials, demonstrating local provenance and letting customers personalise goods must also come under consideration.

Data sourced from Rabobank; additional content by Warc staff