House brand sector set to soar as hardship bites
● The private-label concept, which was pioneered in SA by Pick n Pay founder Raymond Ackerman 44 years ago, may gather momentum for the retailer in a post-Covid world as rising unemployment and pay cuts force consumers to seek more affordable options.
Private-label or house brands are products manufactured by external parties for sale under a retailer’s name — be it Pick n Pay, Woolworths, Checkers or Spar — usually at lower prices than national named brands.
“In tight economies and especially recessionary economies people search for value,” says CEO Richard Brasher, speaking after the release this week of full-year results for the year to March 1 that showed a 15.2% rise in profit before tax for Pick n Pay’s South African operations.
If consumers can find a product “as good as the known brand but less expensive” they “will migrate there”, Brasher tells Business Times.
“I think inevitably where you see house brand expansion, it has come in a period of adversity for consumers.”
He says the company has spent several years expanding its private-label portfolio from the foundation laid by Ackerman.
In the nearly eight years that Brasher has been CEO, the contribution of Pick n Pay’s house brands to sales turnover has doubled to just over 20%.
He says the group’s Boxer chain, which specialises in limited-range discounted goods, is also experiencing growing demand for its own private-label products.
Citing French poet and author Victor Hugo, who said “nothing is more powerful than an idea whose time has come” , Brasher says that in his experience a crisis is often the catalyst that makes a good idea work.
“A lockdown does enable more people to sample things like online grocery shopping, or trying to shop remotely, in a way that you couldn’t write a marketing plan for. “So that’s an important change and we will see what our postCovid online grocery operations look like. We are also one of the leaders in that area and I suspect that own-brand development will become so much more established in times of austerity and difficulty because it’s an opportunity for people to get more for less.”
The key is to find a way to offer affordable products, but not skimp on quality.
“As a mainstream retailer I think our participation [in private-label goods] is certainly as good as many and maybe more than most,” Brasher says.
Independent investment analyst Chris Gilmour says the private-label concept in SA has been “waiting for a catalyst to propel it into much higher percentage territory for many, many years”, and that the Covid-19 pandemic might be it.
Gilmour says with so many people expected to be struggling financially, demand should rise for private-label brands of a “similar quality to national brands”.
“You can’t just compete on price and
People sample things in a way that you couldn’t write a marketing plan for
Richard Brasher Pick n Pay CEO
nothing else. It’s got to be good and it’s got to be significantly cheaper,” he says. “I would say that Pick n Pay is leading the pack in private label.”
Ron Klipin, a portfolio manager at Cratos Asset Management, says the growth of private-label brands will “gather momentum across the grocery sector as people are looking for value, value, value”.
“I think it’s a broader trend, particularly in SA with unemployment increasing.”
Brasher says Pick n Pay customers are shopping less frequently due to the lockdown, “for obvious reasons”, but when they do shop they buy more than in the past. The average shopping bill is now about 30% higher than pre-lockdown.
There has been a significant increase in sales of such items as paints and brushes for children, and baking products, which he says has at times put the supply chain under pressure.
“Suddenly everyone’s reignited their passion for cooking because they’ve not been going out anywhere, and they’ve been at home making breads and cake and food for their families.”
Brasher says he had been planning to step down as CEO at this stage but the pandemic prompted him to change his mind.
“I don’t think that the midst of a crisis is a time to put your feet up. I think it’s time to roll your sleeves up,” he says.
“I am looking to take on the biggest personal and professional challenge of my life as my last hurrah.”