Coles on top of Woolies

Blair Speedy
The Australian
April 10, 2012

WESFARMERS-owned supermarket chain Coles is streaking ahead of arch rival Woolworths in the push to expand its portfolio of house-branded groceries.

Coles drew 23 per cent of its sales from private label products last year, compared with 18 per cent at Woolworths, according to market researcher Neilsen, which forecasts private label products will account for 40 per cent of the market in five years.

The figures include sales of packaged fresh produce, meat and bakery goods not usually considered private label products.

“That’s not the way we look at private label — our in-house brands of Woolworths Select, Macro and Home Brand make up about 10 per cent of our sales; we don’t classify bags of fruit as private label products,” Woolworths’ head of private label, Gordon Duncan, said.

A Coles spokesman said the Neilsen figures “do not tally with our own internal data”.

Nonetheless, the figures still point to a rise of about 30 per cent in Coles’ private label sales during the past five years, while Woolworths’ rose by about 20 per cent.

“We certainly haven’t been as aggressive as Coles; they’ve really been pushing hard in that space and have taken the lead,” Mr Duncan said.

According to the Neilsen figures, private label products already account for one in three items in a shopper’s basket and 25 per cent of packaged grocery sales by value — a figure the firm predicted could rise to 40 per cent within five years as shoppers accept a concept that once carried an air of cheapness.

While Mr Duncan said such forecasts were unlikely to be achieved, similar predictions have prompted concerns among local manufacturers that the supermarkets will source the bulk of their private label goods offshore — where Woolworths already sources about 50 per cent of its house-branded products.

The Australian Food and Grocery Council has blamed competition from supermarkets’ in-house products for the decision by US food group Heinz to close its Victorian tomato sauce factory in January with the loss of 146 jobs.

SPC Ardmona, frozen food producer McCain, dairy processor Murray Goulburn and British-owned soap-maker Cussons have also announced plant closures, prompting accusations the growth of private label products was making it impossible to manufacture profitably here.

Mr Duncan said about 80 per cent of Woolies’ Macro health food and organic line was sourced in Australia, while the discount Home Brand line was purchased primarily on price and was more likely to be sourced offshore.

Woolworths aimed to price its private label products about 20 per cent cheaper than its branded equivalent, but the price competition could see even higher discounts applied, he said.

Coles boss Ian McLeod has said that his private label products were priced at between 10 and 30 per cent below similar branded goods, while a company spokesman said 86 per cent of the chain’s private label grocery products were made in Australia.
“Private label represents just one in five products on our shelves and only customers will decide how that changes in the future,” the spokesman said.

The Neilsen figures also show that, despite complaints from suppliers over the dominance of the major supermarkets, Coles and Woolies had not increased their overall share of the grocery market in the past 10 years, although Woolies had gained market share at the expense of Coles.

The biggest loser over the past decade was NSW-based chain Franklins, which accounted for 13 per cent of the market in 2001, but had just 1 per cent last year, when it was sold to wholesaler Metcash for $215 million.

Metcash last week announced it would close up to 15 of the 80 Franklins stores acquired as part of the deal, with the rest to be rebranded under Metcash’s IGA banner and sold.

The biggest winner has been German discounter Aldi, which first entered the Australian market in 2001 and now accounts for 7 per cent of the market.

Aldi’s product range is almost entirely made up of in-house brands, something Mr Duncan credited with boosting the acceptance and growth of private label products in the Australian market.

“Customers have noticed a real improvement in the quality of the products — if we put something out that doesn’t perform well it comes off the shelf pretty quick,” he said.