Big brands get the flick as shoppers go for private labels

The private label market is exploding and it isn’t going to stop any time soon.

According to new research from IBISWorld, the share of private-label products has grown from just 13.5% in 2007-08, to 25.2% in 2012-13. And that’s set to grow again to 33% by 2017-18, representing $31.8 billion worth of spending on private label products.

But that rise in private label shopping will come at a price, as middlemen and suppliers currently under pressure will only see their problems exacerbated, especially as supermarkets begin diverging into new categories and price points.

“Most certainly the winners in the short term will be consumers, with the state of aggressive discounting and a bunch of new products at cheap prices,” analyst Naren Sivasailam told SmartCompany this morning.

“But, in the long term, someone will have to pay the price and inevitably it will be the farmers and wholesalers who are being bypassed.”

IBISWorld argues the current economic climate has been a huge driver for private-label, especially as households pay off debt. This is particularly true among low-income consumers, with families earning under $40,000 the most frequent purchasers of private label goods.

The most popular items are identified as dry groceries and chilled packaged foods, along with alcohol.

As of 2012-13, sugar holds the highest market share at 67% among private label foods, up from 56% in 2002-03, but other categories have seen much bigger growth.

Butter has risen from 24% to 68%, bread from 18% to 56%, fresh milk from 51% to 55%, and canned fruit from 20% to 34%.

Eggs have fallen from 61% to 53%, which IBISWorld attributes to the growing demand for free-range eggs. Other categories such as chocolate, confectionery and cosmetics have remained in low demand, with consumers opting to trust more established brands.

But while low-income families are the quickest to adopt private label goods, families in higher income brackets are coming around. Private labels now account for 15% of shopping bought by higher income families.

And that’s set to continue as supermarkets move into new categories, Sivasailam says.

“The introduction of more premium products will certainly become a trend,” he says. “Consumers obviously see little difference between bread baked in stores as opposed to being made elsewhere. And that will continue.”

IBISWorld general manager Karen Dobie says the dominance of Coles and Woolworths also means an increasing amount of shelf space will be dedicated to these private labels, which becomes even more of a problem as the number of categories grows.

“This can be detrimental to branded producers as their share of shelf space is eroded by home brand products.”

Dobie says suppliers and wholesalers will continue to feel increased pressure over the next few years.

“Margins have been continuously squeezed dry across dairy and bread. Someone is going to pay the price for that, and there is an understanding that this is just not sustainable.”

“The downside, really, is a lack of choice if Woolworths and Coles continue to erode the share of branded products.”