Supermarket private labels will keep growing, says IBISWorld

Private-label products will increase to cover 30% of the market in the next five years, IBISWorld predicts. The market research group forecasts that private-label products will increase from just over one quarter to over 30% of total supermarket sales by 2017-18.

Karen Dobie, IBISWorld General Manager (Australia), says private-label products have been one of the fastest-growing segments in the supermarket industry in the past decade. The rising cost of living, compounded by the carbon tax, will see more Australians opt for private-label products, Dobie predicts.

“In 2007-08, private labels accounted for just 13.5% of total supermarket sales - meaning the segment has grown by more than 85% over the past five years,” Dobie said.

Of the $85.9 billion Australians are expected to spend on groceries in 2012-13, IBISWorld predicts $21.6 billion will be spent on private-label products. Ths is up from $9.96 billion five years ago and $19.7 billion in 2011-12.

By 2017-18, Dobie expects this will reach $31.8 billion - a growth of nearly 50% in five years.

“The recessive economic climate has been a strong driver of private-label growth,” Dobie said. “Households have been reining in spending, paying off debt and increasing savings. This, coupled with an increase in the range of private-label products available, has led many consumers to make the shift to home brands.”

Within the private-label segment, dry grocery items and chilled packaged food categories have shown the strongest growth. Alcohol has also worked well for Woolworths and Coles, Dobie said.

“Products with a high degree of homogeneity that are staples of grocery baskets have shown the strongest private-label growth. These include private-label butter, which accounts for 68% of total butter sales; private-label sugar, accounting for 67% of total sales; bread at 56%; and fresh milk at 55%,” Dobie said.

The consumer trend towards free-range eggs has seen private-label egg sales decrease from 61% to 50% of market share in the past ten years. Consumer preference for trusted brands in chocolate, confectionery, soft drinks, cosmetics and sanitary products means these categories have not performed well.

Dobie also commented on the supermarket price wars, saying that consumers will benefit from cost savings in the short term, but may be faced with less choice longer term as supermarkets increase their private label ranges.

“All of this discounting means that someone is paying the cost of purchasing $1 litres of milk and $2 loaves of bread,” Dobie said. “More often than not, farmer and producer margins are being squeezed as supermarkets discount heavily to increase store traffic.”

Heavy discounting strategies, such as Coles’ flybuys program, are often detrimental to suppliers. “In the long term, this trend will primarily benefit the supermarket giants and those producers that are contracted to manufacture private-label products,” Dobie concluded.