The Big Read ‘Pri­vate la­bel’ stands up to the big brands

Re­tail­ers or­der up more goods with their own, or no, brand­ing

Sunday Times - - Business Times - [email protected]­day­times.co.za By PALESA VUYOLWETHU TSHANDU

● For many con­sumers, be­fore there was pe­tro­leum jelly there was Vase­line, and be­fore there was wash­ing pow­der there was Omo. But as brand recog­ni­tion be­comes a non-fac­tor when look­ing for value, pri­vate-la­bel and no-name brands are oc­cu­py­ing greater shelf space in su­per­mar­kets.

In 2017 the fast-mov­ing con­sumer goods pri­vate­la­bel mar­ket was worth about R43-bil­lion, up 9.5% across a bas­ket of goods from the year be­fore, ac­cord­ing to a Nielsen pri­vate la­bel re­port.

Gareth Pater­son, head of re­tailer ser­vices at Nielsen South Africa, said: “There is an ex­pec­ta­tion of good growth within pri­vate la­bel due to a num­ber of fac­tors, in­clud­ing pri­vate la­bels be­com­ing more trusted value-for-money of­fer­ings, an in­crease in qual­ity, as well as key re­tail­ers hav­ing a key fo­cus on in­creas­ing pri­vate-la­bel of­fer­ings across cat­e­gories.”

Pater­son said as a re­sult of this growth, pri­vate­la­bel items had placed pres­sure on sup­pli­ers of branded prod­ucts. “Pri­vate la­bel is grow­ing ahead of many of the branded la­bel prod­ucts, al­beit in many cases pri­vate la­bel is com­ing off a smaller base.”

Pri­vate-la­bel prod­ucts are sup­plied to a re­tailer ei­ther with the re­tailer’s brand­ing or un­der a dif­fer­ent brand name — one found only in that re­tailer’s stores.

Last year, the largest re­tailer in Africa, Sho­prite, in­tro­duced al­most 500 new pri­vate-la­bel prod­ucts, of which 17 are its own la­bel.

Pri­vate la­bel ac­counts for 15.4% of Sho­prite’s to­tal sales vol­ume, com­pared to the cur­rent share of 20% for pri­vate la­bel in the mar­ket.

Pick n Pay CEO Richard Brasher said that in the next few years he ex­pected al­most a third of Pick n Pay’s in-store prod­ucts to be pri­vate la­bel. “The progress we’ve made on the Pick n Pay brand over the last few years al­lows us to sell a great prod­uct, well pre­sented at lower prices and higher mar­gins than maybe some­times the branded equiv­a­lent.”

He added that the di­ver­si­fi­ca­tion of prod­ucts “keeps ev­ery­body hon­est. We can give peo­ple bet­ter value for money with our brands be­cause it’s the name above the door, so we don’t have to ad­ver­tise these prod­ucts all the time.”

While ad­ver­tis­ing — of branded prod­ucts or the odd pri­vate-la­bel of­fer­ing — still makes up its share of re­tail­ers’ costs, this shrank last year. In the year to Jan­uary, ad­ver­tis­ing spend fell 12% year on year to R22-bil­lion from R25.2-bil­lion in the same pe­riod last year, ac­cord­ing a Nielsen re­port on ad­ver­tis­ing spend.

Sho­prite was the largest con­trib­u­tor to ad spend at R1.4-bil­lion. An­other con­sumer-fac­ing brand, Unilever, spent R918-mil­lion, with Coca-Cola pay­ing R614-mil­lion and Pick n Pay spend­ing R600mil­lion for the same pe­riod.

As re­tail­ers gain trac­tion in the pri­vate-la­bel seg­ment of the mar­ket, it is clear there is room for sup­pli­ers to pro­duce qual­ity, in­no­va­tive prod­ucts at scale. In fact, one of the most suc­cess­ful re­tail­ers in South Africa has built its busi­ness largely on pri­vate la­bel.

Susie Squire, Woolworths group head of com­mu­ni­ca­tions, said be­ing a pri­vate-la­bel busi­ness had been a core com­pet­i­tive ad­van­tage for Woolworths.

“As a pri­vate-la­bel re­tailer, we source prod­ucts from a num­ber of sup­pli­ers who man­u­fac­ture prod­ucts on our be­half. As a re­tailer, we take full re­spon­si­bil­ity with our sup­pli­ers for the prod­ucts that we sell and there­fore cus­tomers come back to Woolies for re­course, if re­quired,” she said.

Over 92% of Woolworths Foods and 53% of its fash­ion, beauty and home mer­chan­dise is sourced from within the South­ern African Devel­op­ment Com­mu­nity.

“This is aligned to our strat­egy of be­com­ing a big­ger foods busi­ness and makes it more con­ve­nient to shop at Woolies. The vast ma­jor­ity of the prod­ucts we sell are our pri­vate-la­bel prod­uct,” said Squire.

Sho­prite’s sup­pli­ers in­clude large brands and smaller-scale sup­pli­ers that pro­vide only pri­vate-la­bel items.

“Although we pri­ori­tise lo­cal pro­cure­ment, we look at var­i­ous fac­tors, in­clud­ing qual­ity, price and vol­umes re­quired,” a Sho­prite spokesman said.

Pater­son said it was un­likely that pri­vate la­bel would ever ac­count for 100% of goods sold in South Africa. “There are many large sup­pli­ers within the coun­try that con­tin­u­ally in­no­vate, and pro­vide tra­di­tion­ally trusted, qual­ity brands.”

House­hold brands pro­duced by Unilever, Pi­o­neer Foods and Tiger Brands are likely to re­main main­stays, but may have to com­pete for shelf space with prod­ucts that cre­ate value for con­sumers.

Would Brasher con­sider a com­plete pri­vate-la­bel of­fer­ing? “Not for Pick n Pay,” he said.

“I see them as be­ing com­ple­men­tary, I don’t see us be­com­ing a Marks & Spencer, Aldi or even a Woolworths be­cause we are Pick n Pay and a large pro­por­tion of the pop­u­la­tion love brands — but I also think that they love the Pick n Pay brand.”

We can give bet­ter value with our brands be­cause it’s the name above the door — we don’t have to ad­ver­tise all the time Richard Brasher Pick n Pay CEO

Pic­ture: Alon Skuy

With brand recog­ni­tion be­com­ing less of a fac­tor in de­ter­min­ing shop­ping choices, pri­vate la­bel brands are tak­ing up more shelf space as shop­pers look for value for money.

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