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What does the rising popularity of supermarket own-label ranges mean for brands?

Supermarket own-brand products now account for over 50% of sales, but there remains plenty of room for brands to make their mark on consumers amid the cost-of-living crisis, analysts say.

Brands need to help consumers navigate the cost-of-living crisis to set themselves apart from private label goods, analysts advise, as supermarket own-brands begin to dominate shopping baskets.

According to recent research from Kantar, the proportion of consumer spend spent on private label goods is on the rise, while the proportion spent on brands is falling. While private label (or own-brand) sales are down in line with the wider market, their share of spend has now grown to 50.6%, up from 49.9% this time last year.

Recent figures from Nielsen IQ draw a similar conclusion, claiming the share of sales for private label products has risen from 52.4% to 53.2% compared to a year ago. Sales of branded FMCG products have declined -5.1%, whilst overall sales of private label products are down just -1.9%.

Alongside this trend, UK supermarkets have been increasingly investing in their own-brand ranges. Last month Asda announced it was launching Just Essentials by Asda, which it claims is the largest budget-friendly staples offer in the market. The grocer has invested £45m in developing the range.

M&S, which is best known for its premium own-brand offering, is also investing significantly in its value range, Remarkable. The retailer announced this week it would be bringing down the prices of the range, and has invested over £100million in its value position over the last three years.

“The really innovative FMCG brands are thinking about how they can help consumers navigate the cost-of-living crisis.”

Elsewhere, value retailers Aldi and Lidl sell almost exclusively own-brand products, a tactic that has clearly proven popular with budget-conscious shoppers. According to data from Kantar over the 12-weeks to 20 March 2022, both discounters saw an increase of 3.6% in consumer spend, compared to the same period last year. This growth is higher than any other supermarket over the same period.

At the same time, the OBR has suggested the fallout from the war in Ukraine could push inflation to a 40-year high of 8.7% in the final three months of 2022. Retail Economics CEO Richard Lim says brands can expect a repeat of consumer behaviour seen during the periods of inflation that followed the 2008 financial crisis, which means people will cut back on branded FMCG products and look instead to cheaper own-brand and private labels.

Mark Field, director and founder of Prof. Consulting Group notes that the pandemic has meant that the brands consumers have been accustomed to haven’t always been on the shelves, whether that was due to supply chain issues or the panic buying seen at the start of the pandemic. This has contributed towards the shift to private labels, he suggests.

However, Ananda Roy, international senior vice president, strategic growth insights at FMCG data and analytics firm IRI, is cautious about drawing direct comparisons between the current state of play and what happened post-2008.
The current crisis is “heavily influenced by supply side problems”, he notes, adding that many FMCG companies are “significantly constrained” in using price promotions to sell at this time.

In any case, the current growth of private label goods compared to brands may be overstated in some cases, Roy argues. He says there was something of an “artificial” jump for FMCG brands during the pandemic, with sales boosted unusually high.

“With chaos and uncertainty around us, we were buying well-recognised brands,” he says. Now, as pandemic restrictions ease, FMCG brand sales are reverting to normal levels.

The opportunity for brands

Nevertheless, the increasing proportion of spend going towards private-label goods means a shrinking pool of spend for brands, which poses a significant challenge as the cost-of-living crisis peaks.

Yet, rather than asking themselves how they can protect profits, brands should be “flipping” the equation and asking what they can do to help consumers, says Roy. Where brands can make savings, the emphasis should be on passing the value onto consumers.

“I would suggest the majority [of brands] are looking at mitigating losses. But the really innovative FMCG brands are thinking about how they can help consumers navigate the cost-of-living crisis,” Roy says.

Yet, it won’t necessarily be the cheapest products that win out during this time of inflation, Roy adds. While customers are looking to save money and find deals, they are still discerning about brand ethics and values.

For example, consumers are still looking for brands that have strong sustainability credentials, Roy claims.
Sustainability is a part of the ethos of many UK consumers,” he says. “Just because you have an inflationary environment, you don’t jettison something that is a part of your ethos.”

Field, meanwhile, points out that FMCG brands typically perform better at the more premium end of the market, giving the example of Gillette razors against private label alternatives. He says brands shouldn’t try to compete with private label brands at the lowest end of the price spectrum.

“If you’re a brand owner, why would you want to be positioned as the entry tier?” he says. “I would really question what the benefits would be for you.”

However, Field still believes the brands which will come out on top in the current crisis will be those that work to minimise the cost to customers.

“It really challenges the FMCG brands to ask what tools are there to enable us to take costs out of our supply chain?” Field says. “So that when we do need to pass the cost on to the consumer, it’s a minimum increase.”

Field’s suggestions include reducing the amount of packaging, as well as examining waste in the supply chain. Relationships with retailers. As the situation with inflation and higher costs of living unfolds, brands will be watching to see how their share of the market develops compared to supermarkets’ own goods. However, the relationship between supermarkets and FMCG brands should be seen as collaborative rather than oppositional. “Brands will be working with the supermarkets to ensure they stay relevant through promotions and price offers,” says Honor Strachan, lead retail analyst at Global Data. She gives the example of Tesco working together with big-name brands “to see what prices they can offer Clubcard members”.

Through initiatives like Tesco’s Clubcard, or Sainsbury’s Nectar Card, retailers often have access to valuable first-party data. This data can be used by FMCG brands to target offers or to tailor product experiences.

“The FMCG brands want access to that first-party data, and that’s why they want to work with retailers,” says the IRI’s Roy.

As much as brands need retailers, retailers also rely on big name products to bring in customers. Field says: “If your local supermarket decided it was only going to stock Pepsi instead of Coca-Cola, the data suggests that people who buy Coca-Cola will go to a different supermarket.”

While it might be beneficial for supermarkets to increase the market share of their own white-label goods, it is also in their interest that brands be available and affordable to their customers.

It looks like the current crisis will affect both supermarkets and brands for a long time, says Roy. The phrase “unprecedented times” has been used a lot in the past two years, but the combination of a pandemic, subsequent inflation and a war is something no-one could have predicted and brings truly unchartered territory for brands “The true brands and category leaders are now having to prove the strength of their strategy, the equity in their brands and whether they are consumer focused,” he says.

Brands often claim to be “consumer obsessed”, he adds, but the true test will be which of them are genuinely invested in helping consumers navigate these difficult times, rather than maintaining profits at all costs.