Private brands under increasing pressure across Europe

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Private brands under increasing pressure across Europe

By Store Brands - 06/23/2016

Private label continues to experience increasing pressure across Europe, according to a new report from IRI, a Chicago-based market research firm. The report, "Private Label in Western Economies," analyzes private brand sales trends and price and promotions across six countries in Europe: France, Germany, Italy, Spain, the Netherlands and the United Kingdom, as well as in the United States and Australia.

Private label's value market share in Europe fell by 0.6 points to 38.3 percent in 2015, compared to the previous year as a share of the total fast-moving consumer goods (FMCG) market, IRI said. This performance highlights both a downward trend and the fact that retailers and manufacturers are struggling to cope with challenging market conditions, including pressure from a growing discounter channel and an environment in which national brands are pumping large amounts of money into promotions. Private label market share measured by pack sales also dropped by 0.5 points to reach 47.4 percent in 2015.

Although Europe shows encouraging signs of economic growth, with GDP up 1.7 percent for 2015 and signs of unemployment slowing or stabilizing, the story for store brands tends to differ from country to country, suggesting that shoppers' decisions about whether to buy private brands over national brands vary according to national choices and preferences. France, for example, saw the highest private label share decrease of all eight countries in 2015, but still boasts a robust private label value share of 34.1 percent, IRI said, compared to Italy's 17.2 percent value share and Australia's 13.9 percent value share.

The UK remains the country with the strongest penetration of private brands, with a value share of 51.8 percent in 2015, IRI noted. That reflects an increase of 0.4 points from the previous year, as measured by Kantar Worldpanel UK and including the discounter channel and other big private label food retailers.

The IRI report also points to the fact that supermarkets are losing private brand sales to the discounters, primarily from the economy end of their store brand ranges. France saw a strong decrease in the private label economy tier (-5.6 percent in value sales and -6.8 percent in unit sales), as well as from the standard tier (-3.5 percent in value sales and -3.8 percent in unit sales), which diluted healthy growth coming from the premium ranges (+2.8 percent in value sales and +3.0 percent in unit sales).

"The report presents an interesting picture, despite a decrease in private label value and unit market share overall," said Tim Eales, director of strategic insight for IRI and the report's author. "Economy ranges are facing big challenges — not least from the discounters, but also in the minds of shoppers who tend to equate 'economy' with 'low quality' — but it seems that premium private label is actually growing. This is where retailers should be focusing their attention in order to win shoppers hearts and minds when it comes to private label."

The IRI report also highlights that private label assortment is shrinking across Europe, a trend that is also impacting national brands, as FMCG retailers and manufacturers focus on cutting their range and assortment for higher-performing categories, brands and point of sales.

"We¹ve seen this over-abundance of products on the shelves across many of the countries — there is simply too much choice for the average consumer today, and private label is often the victim of cuts to products that appear on store shelves," Eales said. "Retailers and manufacturers need to put in place the right strategies to help them focus on what shoppers want, but also to understand the impact of their decisions when it comes to reducing assortment and range."

In the United States, meanwhile, store brands represent a $123 billion market — 16.4 percent

of the value market share. Despite this low penetration compared to other western countries and a potential growth opportunity, store brands dropped in value share (-0.2 points) and in unit sales (-0.1 points) during 2015, IRI said, despite assortment and promotion increases. Store brands' performance in the dollar channel is outpacing competing channels as dollar retailers build their private brand assortment and promotional strategies to underscore the channel’s strong value proposition.

To download the report, visit www.iriworldwide.com/en-GB/insights/Publications/Private-Label-in-Western-Economies-3.