Cover Story - PL Lessons From Europe
Private Label Thrives Overseas
July 18, 2012
With an average share of 30 percent across the continent, Europe has the most developed private label markets in the world. And despite the recession, retailers are doubling down to provide better quality and value-added items to their private label lines.
The private label industry accounts for about 22.5 percent of unit sales in the United States, a number that has grown over the years as the recession affected buying decisions, and retailers improved the quality and selection of their private label products in stores.
But the U.S. has nothing on Europe.
The continent has about a 30 percent value share, according to a December 2011 report from SymphonyIRI Group in Chicago, much higher than the 18.5 percent value share in the U.S. last year. In some regions, that is much higher — 56.9 percent of all fast-moving consumer goods sold in the United Kingdom are private label products, the report said, and retailers command a 49.2 percent value share in the country.
“Private label in Europe is doing very, very, very well,” says Brian Sharoff, Private Label Manufacturers Association president, whose organization hosted its annual European show in Amsterdam in May. “It has gone up in almost every market, whether it’s Britain or Germany or France or the Eastern European countries or the Scandinavian countries.
|“Private labels are ‘behaving’ like strong brands — with innovations, promotional campaigns, high quality and specialist suppliers — and are increasingly viewed as such by shoppers.”|
Growth in the industry has slowed recently because of the recession, but private label has continued to grow as many other sectors of the economy have
fallen — including national brand sales.
In Ireland, for example, value sales for private label grew 3.4 percent since 2007, as branded products have declined by 2.6 percent.
The recession has helped cost-conscious consumers find private label products, SymphonyIRI said in its report titled Retail Private Label Brands In Europe. It cites an average of a 30 percent price advantage for private label products over national brands on the continent.
“Most shoppers are more price driven than they have ever been in the recent past,” the report states. “They are also more alert to the concept of quality and value. Retailers recognized that price is not the single differentiator for all shoppers and cannot tempt everyone away from national brands. The story in this protracted and potentially double dip economic scenario is not only going to be about a battle between national and retailer brands, but also a battle for the growth of value and share of the shopper’s wallet that will drive the fortunes of both retailers and manufacturers.”
Retailers and manufacturers joined together in Amsterdam in May for the PLMA World of Private Label show. More than 70 countries were represented, Sharoff says, as opposed to the 25 or 30 countries that might attend the group’s Chicago show in November.
Sharoff says it was evident by talking with attendees that the recession played a part in private label growth, but a small one.
“It probably has gone up 2 to 3 percentage points in most countries due to the recession,” he says. “On the other hand, when you already have market share of 30, 35 or 40 percent, that means private label has an unusual base of support — recession or no recession.”
Still, Sharoff says the economic woes have affected the industry in Europe as companies work to build trust and loyalty with customers.
“Even though private label may only account for a 2 or 3 percentage point increase in market share due to the economy, many retailers are trying to find a way to package private label so that it seems to be more savings oriented; more sensitive to people who are affected by the economy.”
Multi-tiered private label platforms are nothing new to European retailers and customers. SymphonyIRI states that the favored three-tier platform has given consumers the ability to buy private label brands at every price range, including many specialized and niche categories.
“And many of these new private label offerings are at the premium end of the market, for example, Tesco Finest,” the report states.
In countries such as the United Kingdom, where Tesco is based, the shift is being made from aggressive promotion and discounting to providing more quality and uniqueness to products, SymphonyIRI notes.
Tesco recently stopped its double club card point initiative, saying it planned to focus on quality going forward. Sainsbury’s and Asda have gone through rebranding programs in their standard private label categories to encourage shoppers to think of them as a better quality product.
And Morrison’s and Co-op launched premium-tier private label lines to promote the concept of “eating out at home,” the report states.
That trend moves across Europe. In Germany, a market that traditionally focused on economy tiers of private label, consumer acceptance for private labels is rising as retailers emphasize quality and roll out premium-tier products.
“Private labels are ‘behaving’ like strong brands — with innovations, promotional campaigns, high quality and specialist suppliers — and are increasingly viewed as such by shoppers,” SymphonyIRI’s report said.
That is as much a function of the retail customers as it is the suppliers and retailers themselves, Sharoff says.
“Consumers in Germany take quality for granted,” he says. “To them, nobody would even dream of offering them a paper product that was not durable and going to stand up to the best that any A brand could produce. It’s just not going to happen. As a result, private label through Aldi and Lidl — they’re discounters, but they don’t discount national brands, they discount private label.”
Store loyalty also plays a role in the devotion of retailers to producing quality private label products, and in their customers’ desire to come back regularly.
“In England, the cultural difference is that there are only five or six retailers or supermarkets who have historically served the people, and the people’s loyalty to these retailers is legendary,” Sharoff says. “In the U.S., if you lived in Boston and shopped at Stop & Shop, if you moved to L.A., now you might shop at Vons. In England, if you live in Cambridge and shop at Sainsbury’s and you move to Brighton, guess what? You still shop at Sainsbury’s.”
Consolidation over the years has left a small group of retailers with dominant shares in European countries, as well. Carrefour is the clear market leader in France and is among the strongest retailers in Spain as well, behind leader Mercadona. Aldi is the primary German retailer even as it has strong penetration in a number of European countries. Tesco is the dominant player in the United Kingdom (more than 2,000 stores), with competitors such as Sainsbury’s (1,000 locations) and Waitrose (243 locations) also major players.
In established markets such as Spain and the United Kingdom, private label penetration is nearly half the share of products sold. According to data compiled by Nielsen for the 2012 PLMA International Private Label Yearbook, Switzerland’s private label market share by volume was 52.6 percent in 2011, with Spain (49.0), the United Kingdom (46.8), Belgium (45.7), Portugal (43.3) and Germany (41.4) all topping the 40 percent share level.
Ireland has a 46 percent value share, says David Berry, an analyst with Kantar WorldPanel who focuses on the country. He says that growth in the private label market was expected to continue.
“I anticipate continued growth for private label goods over the coming years, as consumer sentiment and willingness to spend is likely to remain subdued in Ireland,” he says. “Retailers have shown that they intend to invest in their brands, with significant innovation and development occurring across most of the major retailers.”
That willingness to spend on quality, innovation, and marketing is helping retailers find more ways to connect with their customers, says Natalie Berg, research director at London-based retail consultancy Planet Retail.
“I think private label is one area where it’s great to come to Europe and get inspiration,” Berg says. “The quality has to be there because consumers are savvy. They know the product. You look to Germany, for example, and some of the hard discounters there are using QR codes on their private label products so you can see which farm that chicken was raised on, and you can see the name of the local farmer. We haven’t seen any of that yet in the U.S.”
The tactics are changing the playing field in the industry, where private label is no longer simply a value proposition or the cheapest product available on the market.
“Indeed, in some categories, the private label offer will be the most expensive and innovative product on offer,” SymphonyIRI notes.
But while there is much that the U.S. private label industry could learn from Europe, there is plenty that Europe is taking from the U.S., Sharoff says.
“They are doing a lot of copying of what they see in America, even though they have a larger market share overall,” he says. “Much of what they’re doing in Europe today is in fact copies of U.S. strategies, especially in ethnic and international foods. We’re used to going into a market in the fresh and ready-to-eat category, and there’s Italian, Chinese and Indian food, all in the supermarket. They’re just learning it over there. Take Axfood, which is a Swedish retailer. They had a very solid display of Mexican tacos and fajitas and all sorts of things like that. And if you knew the percentage of the Swedish population that’s of Mexican origin, it ain’t that big. So even in places as far away as Sweden, they’ve seen the tremendous love affair between the U.S. and Mexican foods, and they’re copying that. (The story is) what Europeans and Americans are constantly taking from each other. That’s the more accurate picture.”
And it’s what will continue to happen on the continent, Berg says.
“If you look to Europe, retailers are constantly innovating, constantly bringing out new changes,” she says.
GUEST COMMENTARY: The Future Of Private Label Is In Amsterdam
The PLMA World of Private Label Show in Amsterdam in May offered visitors a global panorama of the ways in which private label has evolved and a glimpse into what the future might look like for North American private brand retailers—and it is, indeed, a bright one.
With 3,700 exhibit spaces sprawling through seven halls at the RAI Exhibition Center, visitors could wander through more than 50 international pavilions. They showcased an incredible range of products, packaging and ideas that demonstrated how private label now is leading innovation throughout Europe.
The numbers tell the story. In the pre-show education program, Tim Simmons of PLMA noted that five European countries already exceeded 40 percent share in private label penetration (Spain, UK, Portugal, Germany, and Belgium), and that share growth is a long way from peaking.
This growth is being driven not just by value, but by retailers continuing to add a far more diverse array of private label selections than ever before. These include many specialized and niche ranges such as glucose-free, lactose-free and bio-organic products; upscale personal care and beauty products; lines of customer-designed items and others ranging from vegan cake decorations to probiotics. Examples could be seen throughout the show.
Presentations given by Richard Wallace from IGD and Cliona Lynch from Verdict/Datamonitor discussed the explosion in online grocery shopping and new smaller format stores popping up throughout Europe. In particular, “click and collect” options and “food-to-go” spinoffs from major chains are changing the retail landscape. Expect these concepts to continue to grow in the U.S. in the coming years.
For an ex-grocer, walking the show floor was a real treat. Packaging, design and new product ideas did not emulate national brands, but rather, exceeded them in many ways. Much of the packaging on display was stunning in design and frequently provided new and different approaches to functionality with features such as windowed cartons, resealable and pourable pouches (replacing cans), elegantly shaped and easy-to-hold containers and many other next-generation packages rarely seen in U.S. private label products.
Many have asked whether it is worthwhile to take in the Amsterdam show. If you wish to be inspired, if you wish to get a glimpse of the future, and if you want to come home with more new ideas about private label than you had ever imagined possible, then the answer is definitely yes.
Jim Wisner is the founder of Wisner Marketing Group in Libertyville, Ill. He has more than 30 years of experience in the food and drug industry, working as a vice president at Jewel Food Stores, Shaw’s Supermarkets and at Topco Associates.