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After a period of economic struggles and social upheaval, the landscape for private label in the Middle East has not changed much according to analysts in and around the region.
Euromonitor International pegs private label penetration in the Middle East at 2.7 percent last year, up just slightly from 2.4 percent in 2007, before the worldwide recession and Arab Spring brought changes to the Middle East.
Daymon Worldwide groups the Middle East and North African countries together in its research, and it pegs Carrefour as the largest retailer in the region, with stores in Egypt, Iran, Morocco, Saudia Arabia, Tunisia and the United Arab Emirates. The Savola Group is next, followed by Shufersal Ltd. in Israel, the Consumer Co-Operative Union in the UAE, and IKEA.
Ashley Batten, a research analyst for the Middle East at Euromonitor, said that Carrefour and other European retailers such as Geant and Spinneys/Waitrose are known for the quality of their private label products, particularly with Western expats in the region.
“Lulu does well in private label, especially cleaning and paper products, due to their extensive retail network and popularity among lower-income consumers,” Batten said.
Across the region, the economic differences in countries helps to define their acceptance of private label, as well as their use of the products. Vasco Brinca, vice president of Europe/North Africa/Middle East for Daymon, said countries hurt more by the recession are more open to private labels.
“Globally, the private label share increased during (the recession) in the Middle East, as consumers were obliged to buy cheaper products,” Brinca said. “Another issue is related with the Western retail companies that invest on those markets – the consumer trusts on them and perceive them as quality.”
Brinca suggested that Carrefour private label products are well accepted by Moroccan consumers because they perceive the product as being international.
In Batten’s view, the fact that products from retailers such as Carrefour or Geant are European-based is a draw for consumers in the region.
“The European origin of the products gives consumers a perception of higher quality compared to private label offerings coming from the Middle East or Asia,” she said. “However, the prices of these European-origin private label products are often not substantially less then leading brands. Thus relatively affluent consumers often choose them because they are looking for something new and different rather than because they are strictly trying to economize.”
But simply being an international retailer is not enough, Brinca said. And the most successful retailers don’t simply rely on their home base to carry their private label message forward.
“More than being close to the West, it’s relevant that Western companies invest there with their own brands,” he said. “The retailers must be able to perceive their market and consumers, and then adapt their strategy to those factors (price, quality). In Saudi Arabia, as the consumer is looking for status, an economy line is not well accepted.”
In that way, private label items in the UAE, for example, are more focused on essentials rather than groceries. And overall, Batten said branded products are still believed to be of higher quality than private label ones.
“The UAE is a highly brand-conscious society, and this extends to shoppers’ grocery and home/personal care purchases as well,” she said. “However, it depends on the product in question. Basic, essential products are perceived to have less of a difference in quality between branded and private label. Thus, private label is relatively more successful in these categories.
“For example, if consumers want to economize they would more readily choose basic private label bleach for cleaning purposes rather than private label laundry detergent due to the perceived differences in cleaning effectiveness.”
Generally, the primary focus for private label in the region is on grocery items, food and non-food. In specific countries, though, items such as beauty care products or electronics have established a foothold with private label.
“There are differences, although the main focus is on grocery,” Brinca said. “The main differences are in countries which the economic downturn wasn’t affecting the consumer power purchasing. There private labels have more difficult in being accepted. Each country will be a specific case, but grocery will be for sure important for private label development for all the countries. The strategy of each retailer will be very important – they can focus on price or on quality. Or even both.”
The economic and retail landscape have been changing because of the Arab Spring, although Batten said its overall impact on private label has been limited.
But the destruction of several shopping malls and stores in Egypt and Oman, for example, affected retailers in the region and has served as a cautionary tale for others, Brinca said.
“Renewed growth and sustained prosperity in all markets across (the Middle East and North Africa) would be dependent upon the region’s ability to nurture investor trust and confidence,” he said.
Beyond the physical challenges, Batten said the changing populations have had an effect as well, with additional tourists and immigrants having “significantly changed the landscape.”
“Tourists are primarily purchasing quite high-value, branded products rather than essential groceries/cleaning items,” she said. “Low-income immigrants/refugees would purchase these things and be attracted to private label, but we have not seen the massive waves of refugees or economic migrants (in the UAE) like Jordan, Lebanon and others have.”
However, Batten said a significant move in the UAE has come as more shoppers spend time at hypermarkets than they have before.
“Hypermarkets are an aspirational shopping experience for many low-income consumers who previously shopped at small, independent grocers in their neighborhoods,” she said. “Thus, private label products are especially attractive for these relatively newer hypermarket customers with limited financial means.”
Daymon projects hypermarkets to be the fastest-growing retail format in the region in 2017, with annual growth of more than 8 percent. Traditional formats for groceries and impulse products are still the most popular choice, a report from the company showed, but discounters and convenience stores are growing rapidly.
On the non-grocery side, retailers selling personal goods such as jewelry, apparel stores, consumer electronics, and health and beauty specialists lead the way. “This shows the appetite of MENA (Middle East North Africa) shoppers for products that reflect style and social status,” the report said.
It did note, though, that those trends were mainly prevalent in the wealthier countries of the region such as Saudi Arabia and the UAE.
The Daymon report broke out private label trends in five countries of the region: Israel, Morocco, Saudi Arabia, Tunisia and Turkey.
In Israel, the success of leading grocery chain Shufersal in pushing private label has led to growth within the country, the report said. It said Shufersal has used private label as a unique selling proposition to its competition.
Part of that trend has been growing private label from basic economy products to more categories in the past two years. “Sophisticated products such as computers, coffee machines and ice cream makers are now produced under private label and sold exclusively,” it said.
The lower price points have attracted more sales as well, and besides Shufersal, DIY and office equipment retailers, pet shops and parapharmacies/drugstores also are growing private label. Still, there is plenty of room to grow – grocery private label share is estimated to be less than 10 percent, with non-grocery penetration much lower.
Discounters are the main source of private label products in Morocco, the report said, and the recession helped push more consumers to the stores and private label. But it cited the efforts of retailers to improve private label quality as a reason for higher sales.
Hypermarkets such as Marjane and Carrefour are leaders in the country when it comes to private label, and the report said the tendency of middle- and high-income consumers to try private label products in the past couple of years puts retailers in a good position for private label growth in the future.
In Saudi Arabia, the report said consumers were brand-conscious and aspirational, leaving private label products struggling to gain traction as they generally were viewed as lower quality. Private label packaged food accounted for just a 2 percent share last year, with much smaller penetrations in areas such as beauty care or hygiene.
Still, it said grocery retailers such as Al Othaim and Al-Azizia Panda are expected to add private label as a means of differentiations and promotions. To do so, though, it expects private label to appear in premium tiers or with value-added positioning to avoid the appearance of being cheap and less quality.
As for Tunisia, retailers such as Monoprix and Carrefour introduced private label in almost all categories in 2012, targeted toward value pricing. The recession hit Tunisia consumers hard, and private label became one of the first answers from retailers.
The report showed growth across grocery and non-grocery private label in Turkey. It cited consumers’ shift toward affordable products as one of the reasons for grocery private label growth, as well as a growing number of chain supermarkets and hypermarkets and discounters who have devoted more shelf space to private label.
It said non-grocery private label has been established because retailers such as Arcelik, which makes electronics and durable goods, and Altinyildiz, which sells clothes and footwear, have only sold private label products.