The Evolution of Private Label

16th December 2014
From Chris Morrison

woman-reading-label-in-grocery-store[1]The global market for private label food is worth 1.25 trillion Euros a year. While this is a massive opportunity for retailers and manufacturers, consumers are still very much in the driving seat and their behaviour changes by the day. To succeed in this competitive market, retailers and manufacturers will benefit from a closer understanding of both their customers and their competitors.  With the right approach, retailers can keep on top of change and drive revenues in new areas.

Going global

The largest markets for private label are in Europe, with the top eight nations all on the continent. Conversely, in markets such as Brazil, Russia and China, private label products comprise less than 10% of the market, showing that consumer demands can vary significantly. The UK is the birthplace of private label, and over the next five years IGD expects the UK grocery market to grow by 16.3% to £203bn. Interestingly, private label now accounts for 50% or more of sales among the UK’s “big four” retailers (Tesco, Sainsbury’s, ASDA and Morrisons). While the story in the US is different, there is a big opportunity for retailers in the region: the private label grocery market is projected to grow significantly from $98 billion in 2011 to $133 billion in 2016. Private label isn’t a flash in the pan, it’s a global phenomenon.

Consumer incomes

A big driver for private label has been changing consumer spending habits. The global economic downturn has made consumers more accustomed to cutting back on costs, from eating out less and cooking more at home to choosing lower price products at the supermarket. This has led to diversification, with own label product ranges offered to cater for different spending brackets – as well as premium meals such as Heston’s burgers becoming more upmarket. There is now a private label product range aimed at every income and retailers without such an offering running the risk of losing customers to the competition.

The savvy shopper

The modern shopper is savvier than ever and private label has had to change to keep up. Nielsen research looking at shopper behaviour found that, whilst convenience remains paramount, shoppers will weigh up a wider range of considerations. Product packaging has to be attractive and eye grabbing to compete with the standards set previously by national brands. New niches are growing by the day, for instance nearly all express supermarkets will have an aisle for specific dietary requirements such as gluten free. Socially responsible products such as Fair Trade are growing in importance and reflect the diverse number of considerations the savvy shopper makes with every purchase. According to recent research, 83% of consumers demand increased transparency of information for food products. Today’s shopper demands variety, accurate information, accountability and accurate pricing, and if they don’t get it they’ll go elsewhere.

The future of private label

In future, sharing data will become more important as consumers increasingly demand more information on the products they consume. Complete transparency will be needed to ensure information is shared from the supplier right through to the final product. Retailers will also need to share information effectively with manufacturers and designers to facilitate innovation and drive new products to market in a shorter timeframe to beat the competition. Finally, information from consumers will also be leveraged as big data becomes key to anticipating consumer demands and developing more targeted products. Regardless of what the future holds, if retailers collaborate with manufacturers and suppliers to profitably deliver what savvy shoppers want, the future of private label is looking bright.

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