New stage

Accounting for 34% of the FMCG market and with an unstoppable evolution since their beginnings, Private Label brands were reinforced during the crisis as one of the main allies for Spanish consumers. Nowadays, with a more stable market and a new cycle sta

Just like manufacturers’ brands, private labels have a universal penetration in Spain. All households buy them at least once a year and, moreover, virtually all (99%) do it monthly. They are present in six out of ten packaged FMCG baskets, and are purchased with a frequency of 89 times a year. In the end, each household allocates around 797 euros per year to these products. Although few categories have resisted their deployment in the last decade, we do find some sections with an especially high level of development. It is the case of disposables, where PL reaches a market share of 78%, or celluloses, with 73%. The latter have a penetration of 96%. That is, 96% of Spanish households have bought, at least once, a PLbranded cellulose product in 2016. When it comes to Food, top categories are breadcrumbs, vinegar and some frozen goods as vegetables or ice cream, with between 60 and 65% of the market. On the opposite side we find categories such as baby food, hair dyes, razors, toothpastes or spirits, with a market share below 10%. By sections, PL represents nearly half of Homecare sales (48%), while it accounts for 37% of the Food section, and barely 12% in Personal Care. However, exceptions exist in each sector, which shows that propensity for one brand or

another does not only depend on the type of product, but other market forces su cha sin no vatio nor de diff eren ti a ti on can influence as well. For example, its presence is 10 points below average in the dish washers category (25%); where as on depilatory products, despite being in a very personal section, exceeds the market average with a 36% share.

Growth keys

Which is the secret of their success? We can summarize it in three growth axes: prices, quality image and distribution. Price has been, from the beginning of its time, the main competitive advantage of these brands. In 2016, on average, a Private Label SKU was paid at half the price of a manufacturer’s. So at a time when consumers needed to control their budgets, these quickly became the easy alternative to cheapen the shopping cart. Still, for the price lever to work, it must be lubricated with some quality assurance. Until the crisis broke out, the idea that manufacturers were producing these products had been reinforced in the consumers’ mind. This belief, while generating some dedifferentiation between brands, also contributed to improve their perception of quality. In fact, between 2007 and 2008, up to 59% of households declared that “retailer brands have the same quality as branded products”. Last, but not least, is the retailers support to their own brands. No matter how convinced shoppers are, the offering is key to sell or not to sell. In other words, the presence of the brand in a retailer’s shelf is directly proportional to their sales and, consequently, in the market. We cannot ignore the Mercadona effect at this point. Generating 23% of the market sales, any movement that the retailer does has an impact on the big numbers, and its policy these years has been clear: a strong bet for its own brand. Proof of this is that today it accounts for 44% of all PL that is sold in Spain. In reality, PL is something of a few. Only the local retailer and the two main discounters of the country, DIA Group and Lidl, account for 71% of the PL sales in 2016. For these three groups, these brands also represent an important part of their entire business, surpassing in all cases 50% of their sales in packaged FMCG.

A European affaire

Is then Spain a special case? The answer is no. Despite some outbreaks in Latin American countries, the truth is that Private Label is a phenomenon exclusive to Europe. Its flagship country is the United Kingdom, with almost half of the FMCG sales spent on these brands, together with the Netherlands, Ireland or Belgium, which hover around 40%. In the British case, they are growing again after years of stability, due to the rise of discount retailers and the general need from retailers to differentiate in times of slow growth. In France, another example with a very important

“WHEN IT COMES TO FOOD, TOP CATEGORIES ARE BREADCRUMBS, VINEGAR AND SOME FROZEN GOODS AS VEGETABLES OR ICE CREAM, WITH BETWEEN 60 AND 65% OF THE MARKET”

deployment of these brands is however in the opposite situation. Promotions, aggressive price policies and some legislative measures appear to have led to stagnation –and even decrease- for these, after years of strong growth. So the main learning here, with regards to its limits in our country, is that it will keep growing until the industry decides so.

New challenges for a new era

Times have changed for consumers and for the market, which modifies the playing field for brands, including retailers’. Shoppers no longer demand low prices above all. Quality of products or shopping experience surpasses the sodemanded “always good prices”, closely associated with private label. At the same time, as their image becomes more and more detached from manufacturers, their quality assessment is decreasing. Therefore, retailers face the challenge of improving their equity in order to recover consumer confidence. One of the trends seeking this is the “premium” segment, more developed in other countries and beginning to unfold in Spain. Five of the six major retailers in the country already have their Premium range (Selección y Nuestra Tierra from Carrefour, Delicious from DIA, Seleqtia from Eroski, Deluxe from Lidl and MMM from Auchan), which was bought by 48% of households in 2016. Other trends that are coming up as a new outlook for private label brands are the development of e-commerce and the growth of healthy products. To date, manufacturer brands have a greater role in both –together with a bigger offer-. What’s to see next is if retailers will manage to balance this situation in the coming months, or these trends will rather remain as branded-territory. Finally, the greatest challenge for retailers will be to find their optimum equilibrium point in terms of assortment. Private Label has been a fundamental pillar for store attraction and an identity sign that became a first reason for store choice in many cases. However, after certain limits, excessive support in own brands may damage retailers’ loyalty and, what’s worse, devalue the market as we have seen happening before.•