Big brands under siege from private labels

Colin Kruger
July 18, 2012
The Age

Australians are now spending $20 billion a year on the private label products of the major supermarket chains like Coles and Woolworths and this is set to increase another $10 billion over the next five years as cost of living concerns squeeze household budgets.

“The recessive economic climate has been a strong driver of private-label growth,” said IBISWorld general manager Karen Dobie.

“Households have been reining in spending, paying off debt and increasing savings. This, coupled with an increase in the range of private-label products available, has led many consumers to make the shift to home brands.”

The market research firm said Australians are expected to spend $85.9 billion on groceries this year ending June 30, 2013 with $21.6 billion of this being spent on private label products, up from around $10 billion five years ago.

This spend is expected to hit $31.8 billion by 2017/18.

She said products with a high degree of homogeneity like butter, sugar, bread and fresh milk are now dominated by home brands. Private label market share of sugar and butter is 67 and 68 per cent respectively.

With private labels accounting for 40 per cent of the grocery bill of low-income households, IBISWorld says higher income households represent the strong growth opportunity for the supermarkets which are investing in strategies that blur the distinction between branded products and their own private labels.

“These retailers are introducing premium, organic and fair trade products – such as Woolworths’ ‘Select’ range – to attract private label buyers,” Ms Dobie said.

IBISWorld said the big losers are expected to be the big brands which have been forced to discount prices to remain competitive and will increasingly be fighting for shelf space with Coles and Woolworths.

“All of this discounting means that someone is paying the cost of purchasing $1 litres of milk and $2 loaves of bread. More often than not, farmer and producer margins are being squeezed as the supermarkets discount heavily to increase store traffic,” Ms Dobie said.

The news comes as the competition watchdog confirmed it was investigating the deep discounts by the major supermarket chains on their fuel discount schemes.

In 2007 the Australian Competition and Consumer Commission ruled that the supermarkets’ 4 cent a litre discounts were benefited consumers and promoted competition but the chains have since expanded the offers and increased the discounts to as much as 30 cents a litre

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