“Private label is losing ground by 0.2% in value terms, compared with +2% for manufacturer brands,” writes Michaël Watine, client business partner with The Nielsen Company.
Figures from the market analyst show that in 2013, products from the major manufacturers, such as Unilever, Nestlé, Mondelez and Danone, accounted for just over half of spend in French supermarkets and hypermarkets, whilst private label took just 29% of the market in value terms - a balance that has remained largely unchanged since 2009.
A French phenomenon
Watine says: “The stagnation of private label is peculiarly French, since in other places they are progressing faster than the average, even in the UK, reputed to be the champion in private label.”
He believes the explanation lies in the present context of French retailing, which is highly competitive.
“Retailers have never placed so much emphasis on manufacturer brands to attract shoppers. Competition between supermarket groups has intensified over the past two years, generating a downward trend in the prices of manufacturer brands and thus a diminishing price difference with respect to private label.”
He adds that the attractiveness of manufacturer brand prices is “intensively emphasised in their [store] media communications and promotions”. This contrasts with two or three years ago when communications by retailer chains were still heavily focused on private label products and their attractive price:quality ratio.
Heavy promotion
This is also reflected in ‘promotional weight’ – a measure of promotional pressure calculated by dividing sales under promotion by total sales. In parallel with the falling prices of non-promoted items, Nielsen reports that the promotional weight of private label is declining, whereas it continues to rise for manufacturer brands, reaching 23.5% in 2013.
The level of discount shoppers receive when buying branded goods is on the up too.
“There are lots of promotions on manufacturer brands in France,” says Watine. “On average, shoppers get a discount of 32% via those promotions, which is slightly more than the non-promoted price difference between private label and manufacturer brands.”
Only households with limited purchasing power, such as young families, are continuing to increase the proportion of private label items in their trolley. Private label has found it particularly difficult to penetrate highly marketed categories, such as pet food, yogurt and laundry, performing better on basic items like sugar, butter, oil and eggs.
Capable of a comeback
But despite the lacklustre performance of the last few years, Watine thinks private label is capable of bouncing back, and could be reinvigorated through product differentiation and penetration of premium segments, but not by focusing on price at the expense of quality.
“Improving quality as perceived by the consumer is a permanent, vital challenge for private label...In this context it no longer seems appropriate for private label to seek to restore their price attractiveness by reducing product quality: using inferior raw materials means taking a real risk.”
He believes retail chains must “enter a new era in their communication” in terms of traceability, and civic and local responsibility. In support of this point he cites the Horsegate scandal of early 2013, which had a greater effect on private label than manufacturer brands.
“More work is required to reassure the consumer,” he says.