Private label products changing the face of the manufacturing sector

More than half (57%) of Australian manufacturers are already supplying private label products to retailers, a first of its kind private label survey conducted by ACNielsen has found.

The survey also found that of those manufacturers not producing private label products the likelihood of doing so in the future was very low - 67% said it was unlikely they would commence private label manufacturing in the next three years.

Findings of the survey, which was titled Retail Barometer and looked at emerging trends in private label manufacturing and the impact of Aldi's recent entry into the Australian retail sector, were released by ACNielsen as part of a first of its kind survey of over 100 senior leaders from top Australian fast moving consumer goods (FMCG) manufacturers.

Feedback from the manufacturers who reported dealing with Aldi was extremely positive, with Aldi ranked as the best performing retailer in four of seven key performance categories including 'fairness of trading terms and conditions'; 'store compliance'; 'supply chain efficiency'; and 'strategies for success'. 79% of respondents also expected Aldi to show further growth over the next few years.

The Retail Barometer survey asked business leaders to indicate their outlook on developing alternative channels such as convenience, liquor and route. Almost three in four respondents (74%) who were not manufacturing private label products saw the importance of alternative channels increasing, compared to just 57% of private label manufacturers.

Non-private label manufacturers were also most likely to increase their advertising expenditure in the year ahead, indicating a renewed focus on branding, although there was some polarisation between responses from large and small companies and also between MDs/CEOs and sales/marketing directors. Notably, more large companies were likely to increase ad spend (45%) compared with small companies (24%) and similarly, more MD/CEO respondents (40%) reported a likelihood of increased ad spend compared to sales and marketing directors (29% and 24% respectively).

'Prior to Aldi entering the Australian marketplace, private label market share had been flat for 20 years,' said Justin Sargent, executive director, Retail, ACNielsen Australia. 'This is now changing rapidly and poses some key strategic challenges for manufacturers. The Retail Barometer survey highlights a divergence of views on how best to compete, and suggests we are on the verge of an unprecedented level of change in the sector over the next few years.

"From the survey results there appear to be three distinct streams of thought on how to respond to the changes taking place in the sector: there are those manufacturers embracing private label as an opportunity, and transforming their manufacturing and business operations accordingly; there are those concentrating on building well-known consumer brands through increased advertising expenditure to re-enforce familiarity in consumers' minds; and there are those smaller manufacturers who are increasingly looking to penetrate the alternative channels that are growing outside of grocery."