And retailers are reporting substantial growth in sales of in store brands, popularly known as “no name” brands, of everything from washing powder to packaged vegetables.
Besides Woolworths — probably the first retailer to introduce private labels, although targeted at top-end shoppers — other retailers like Shoprite, Pick n Pay and Spar have also introduced their own in-store brands, with varying degrees of success.
Shoprite, which mainly targets the lower end of the market, says its private label brands represent more than 10% of the total range of products in its groceries and perishable category range.
“Over the past year more and more price-sensitive consumers turned to private labels as an alternative to make the budget balance,” says Shoprite's marketing director, Brian Weyers.
Weyers says the growth in private labels has been strong enough to allow the store to negotiate lower prices with suppliers of branded products.
“Private labels provide affordable alternatives to hard-pressed consumers as they do not have to pay for the millions of rands that well-known brands annually spend on marketing.”
Pick n Pay also acknowledges that in-store brand sales have been positive, with over 10% of goods available being corporate (in-store) brands, making it the largest brand in Pick n Pay.
“Corporate brand sales have outperformed total store sales consistently over the years and have experienced a further rise in sales from September 2008,” says Pick n Pay GM Cindy Jenks. “This can be attributed to the fact that Pick n Pay's corporate brand products offer consumers guaranteed quality at a better price.”
Pick n Pay's private label, called the No-Name brand, was launched in 1976, starting with only 14 products and offering consumers a 17% saving over equivalent brands. By 2007, it had more than 500 lines under this brand.
The retailer launched the “Choice” brand in 1994, with 210 products. By 2007, it covered more than 950 products, Jenks says.
One of the key benefits of private labels is that they earn higher margins than branded products.
“Private labels don't have VAT costs and they tend to have a cheap look, and as a result the profits are relatively higher,” says Absa asset management analyst Christopher Gilmour.
But Weyers says: “Shoprite does not earn higher margins on these products (private labels) as the lower marketing and packaging costs of private labels and house brands are passed on to consumers to assist them in the current economic downswing.”
Spar CEO Wayne Hook says the group has also witnessed a growing acceptance of private label products, as seen in the growth of sales compared with those of other branded products during the past two years.
Gilmour says that although there might be an upward trend in the private label market in SA, there was still a long way to go. “As a country we are still brand conscious and consumers are not likely to choose private labels over branded products, particularly if it's not a great price differential.”
Source: Business Day
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