Is private label the only answer?

One of the most pronounced trends in the past few years has been that consumption has shifted to cheaper private labels within most categories. In some categories own label has increased in just a few years from 45% to 55% share, and this is probably only the beginning; there is a certain reaction time from the decision to implementation in that new PL alternatives must first be developed as branded goods are correspondingly phased out. It is rarely a negotiation, but rather an irreversible decision. This is a shame because branded suppliers potentially could contribute with valuable input and solutions.

Now some interesting perspectives come into play. A new survey that Norstat has carried out on behalf of the Retail Institute Scandinavia shows that the decisions that the chains make today can have long-term consequences for which customers will choose to shop in their stores in the future.

According to the survey conducted among 2,000 Danish consumers, 56% say that they consciously choose branded goods when they shop. This applies especially to the very young, and among Gen Z (born after 2001) the share is as much as 76%, while the same applies to 63% of the slightly older Generation Y (born from 1983-2000).

Young people are also the group that has the greatest confidence in quality when choosing branded goods.

• 70% of all consumers say that the quality of branded goods is good or very good, and again young people stand out significantly in this regard. Twice as many from Gen Z than the general population indicate that they think the quality of branded goods is “really good”.

Once a year, Swedish supplier organization “Livsmedelsföretagen” asks its member companies which consumer trends affect their business the most. At the top of this year’s survey are Private Label (39%) and low-cost alternatives (27%). Private Label is at the same time the most difficult to manage for many producers. I hear that it is often felt like an uneven competition leaving no opportunities to make the argument for brands. Shelves are rebuilt without notice and the values of the products on the shelves are reduced by an average 10-15% . Brands fight back with deep cut promotions which are more popular than ever before. I notice that decisions are often made by retail management and not in combined efforts with branded suppliers.

The focus on PL as the only answer gives rise to some considerations:

• It’s worth remembering that only a handful of suppliers do deliver most of the private labels across Europe
• Is there a risk that the same PL products supplied by the same suppliers to more chains could mean less consumer choice and could there be risks in terms of consumer quality and safety issues?
• Is the PL focus undermining value long term and turning the trade into a decline spiral where only a few will survive.
• What actions can suppliers take to change a threatening development?
• If value is decreasing suppliers will have lower margins and eventually there will be fewer suppliers.
• It seems like retailer strategy fundamentally conflicts with branded suppliers strategy – conflict rather than a joint effort.

For branded suppliers I think it is critical to work on having the right assortment offer, to invest in developing new products, to rationalize production, to secure their ingredients at lower prices, and to focus on establishing the export markets. As for retailers, they should let suppliers into the discussion at management and buying levels to understand the full consequences of actions that are launched. The strategy to completely focus on low value private labels products has the potential to undermine the value found in offering a varied assortment, not least from a societal perspective.

If the future is more private label and at the same time the younger consumes has a less positive view on private labels, then the above questions are even more relevant for keeping long term value.

Jakob True Managing Director

Greenseed Nordic

To get in touch with our Nordic team