Consumers are no longer seeing ‘no-name brands’ as the cheaper alternative and the sales numbers prove it.
R53.9 billion: that is how much is being spent on private labels annually, based on the latest findings from the 2019 Nielsen State of Private Label Report, which covers the modern trade sector in South Africa.
This represents 9.6% year on year growth, ahead of the 4.4% growth of branded goods, seen within modern trade.
It says the growing importance of private label is also seen in its 22% overall share of fast-moving consumer goods (FMCG) sales in South Africa, with a steady increase from 21% in 2018 and 20% in 2017.
Nielsen SA retailer vertical lead Gareth Paterson says the private label market has developed because South African consumers have started to trust them and no longer view them as the cheaper version.
“Over the years as people have tried these private labels, they have realised that they are just as good as some of the branded products and because of that trust they have decided to purchase some of the private label brands instead of the branded products,” Paterson says.
According to the report, the private label market has seen double-digit growth in the past three years, while named brands seem to have stagnated, based on the graph below.
Private label shows more than double the growth of named brands within SA’s modern trade
Increase in innovation
Paterson says as retailers’ private label products have become more innovative, 70% of the biggest contributors to incremental growth in 2019 came from perishables and dry groceries, with chicken and long-life milk bought the most. They have also seen a recovery in categories like chilled processed meats.
Other products that have seen good growth are confectionary, baby care, and personal care products.
“As the country matures, private label is finding its space within the basket,” Paterson says.
He adds that retailers have made immense strides in finding the right suppliers and the right people in key positions for product development, who are able to position private-label products significantly in the market.
“We have definitely taken it more seriously, in understanding that if they are going to compete with these serious brands, they have got to make sure that they understand the consumer,” Paterson says.
He says it’s important for retailers to understand consumer preference in packaging and ingredients.
Moving forward he sees retailers investing a lot more into private-label products and new product categories that don’t currently have a share in private labels.
As this happens he believes it will escalate the competition between private labels and brand labels.
“We also have to be very cautious of the fact that the brand labels have more expertise and people in place that will make sure that they compete in this space, by making sure that they are innovative and they understand the consumer as well.
“This is going to be a good competitive situation in the next couple of years,” Paterson says.
Omri Thomas, portfolio manager at Abax investments, says that the increase in private labels is a global phenomenon. This he says is because consumers are no longer as brand conscious as they used to be.
Thomas explains that retail stores have managed to diminish the ‘power’ named brands enjoyed over the years, by providing consumers with cheaper, good-quality products.
He too foresees significant growth in private labels. This he puts down to consumer demand for private labels as well as from retailers who receive higher profit margins from the products.
“There is a definite push by them to increase their own products.”
The retailers’ performance
Thomas refers to how retailer Pick n Pay intends to accelerate its own brands in the 2020 financial year, according to its 2019 investor presentation.
Pick n Pay’s current brand participation is at 21%. It launched 500 products in the 2019 financial year, including meal solutions, healthy snacks, pet food, and nappies. It also re-designed 700 products.
In the presentation, it says customers are responding well, with the strongest sales in baking, convenience and health products.
Spar says it’s focusing on environmentally-friendly packaging. Sales were up 9.1% year-on-year to R9.2 billion in 2019.
In its 2019 investor relations presentation, Shoprite reports a private label participation of 16.5% in South Africa (up 30 basis points). With the 21 private labels it has, it makes R100 million each in annual sales.
It adds, “Four out of ten baskets purchased contain private labels.”