Dynamic evolution of private label brands

Global trends have shown that during tough economic times, consumers migrate towards private label products, seeing them as a cheaper, more value for money option, as opposed to the better known national brands. Private labels are the products sold by retailers as house brands (e.g. Pick 'n Pay's 'No Name Brand', Checkers 'Housebrand' and Shoprite's 'Ritebrand').

Recent studies have shown that private label goods in South Africa accounts for between 12-15% of market share. This is very much in keeping with global trends. An independent global Private Label report, released in 2011, showed the global average for private label penetration to be almost 15%. Europe is the exception however, reporting 35% of private label market share.

The only South African exception is Woolworths that bucks this trend, as it is predominately a private label business and the company reflects a much higher percentage of private label sales compared with other food retailers.

South African private labels not cheaper

According to the report, private label products should be between 20% and 30% cheaper than branded goods. In South Africa, however this is not the case, where store brands can sometimes be more expensive than branded goods.

With the economy under severe pressure from the rising costs of living, inflation and underperforming global economies, we are starting to see a trend where more South African shoppers are choosing to buy private label goods, seeing some national brands as luxuries. The country is also witnessing the evolution of private label products into brands in their own right.

Like economic crises, the migration process is a cyclical phenomenon globally. Consumers usually revert to their original buying patterns after the recession period has ended. There are however an increasing number of consumers who choose to remain loyal to the private label products as many retailers have succeeded in achieving a good price/quality ratio. While price is significant, economic value and emotional values have become important factors in a consumer's ultimate choice of brand. Quality, combined with innovative marketing and creative packaging, has breathed new life into the attraction of private labels. This new loyalty to private label products is placing increasing pressure on national and branded goods.

Move to quality

The evolution of private labels to a higher order within a retailers' product offering is a significant shift in the consumer shopping mentality of yesteryear and is due primarily to the efforts of retailers to establish a level of credibility and a value proposition for their private labels. Historically, consumers viewed supermarket private label or 'no-name brand' products as cheap and of a poor quality. This characterisation is not undeserved as the introduction of the cheaper private label products was aimed at enticing the low budget shopper. The products provided the cheapest alternative with little assurances of quality.

However, private labels, like Woolworths, have evolved into brands themselves. The perception of being endorsed by the retailer lends the private label an air of credibility. Coupled with a strong brand story the private label products have developed and revolutionised the way retailers do business. Communication and aesthetics are yet more tools at the disposal of retailers in gaining consumer confidence.

Marketing is key

By effectively telling the story of the private label brand in marketing, in-store communications and through packaging retailers appeal and cater to consumer needs. Using loyalty programmes is yet another way to track consumer spend and determine what it is they want and need. Consumers are becoming more discerning and want to understand the emotional as well as economic value of their purchases. By creating an emotional link to the journey of the product or brand, retailers are able to appeal to customers on a personal level.

Large retailers have a distinct advantage over national brands in their direct access to consumer information. By analysing data related to specific shopping trends and patterns, they are able to create services and products that cater directly to the needs and choices of consumers. This goes a long way towards creating successful private labels and house brands.

Market share increases

He pointed out that over time retailers have realised that changing consumer behaviour, influenced mainly by the economic influence wielded by the emerging middle class, is driven by the demand for quality at a competitive price. With the variety of goods available on the shelves, private labels compete with national brands not only on price but also in terms of value related to quality. The rapid growth of the private label sector has changed the face of retailing and has seen a significant increase in market share.

This is evident in the number of products and segments in which private label products are available. The segments match and enhance the individual lifestyles of shoppers in the various demographic levels. Retailers now offer private label goods aimed at budget, normal, premium and elite consumers. Each tells its own story, has a defined identity and caters to a particular segment of the market.

National brands must therefore compete against traditional rivals as well as the better-informed retailer. This makes for a very interesting battle as national brands seek to overcome the advantages of retailers with more effective marketing campaigns. This is certainly an exciting area for businesses in this sector and is one we should keep a close eye on. Global brands looking to expand into the South African market will also bring valuable international experience in the development of private labels, which will have a significant impact on how business is carried out.