Private labels may have been a vital part of UK grocers’ propositions for decades, but their importance is seemingly ever-increasing.
But the pair are not the only ones launching initiatives in this fiercely competitive space.
Britain’s supermarkets have long been admired the world over for own-label innovation, but in a market plagued by food price deflation and a discount duo thriving on own-label traction, the need for such reinvention has become even more crucial.
If evidence was needed of that statement, this morning’s data from Kantar Worldpanel provided it.
Premium own-label sales advanced 6.6% in the 12 weeks reported on, well ahead of the overall grocery market.
And the Co-op’s success earlier in the year – a 1.4% jump in sales during the 12 weeks to January 31 – was sparked by a 7% increase in revenue from its own-label products, which have undergone an extensive revamp.
“For the grocers, their destiny is in their own hands if they improve and maintain the private-label offer, because it is so important”
Bryan Roberts, TCC
“A private-label proposition is absolutely fundamental because it’s around half the basket in terms of volume,” TCC’s global insights director Bryan Roberts says of the grocery sector overall.
“We’ve seen before that a relaunch of a private label can really underpin the performance of a supermarket.
“Asda’s ‘Chosen by You’ was an accelerant to the business a couple of years ago and we’ve seen with the discounters that private labels have underpinned their success. It can be a very valuable way of communicating value to shoppers.
“For the grocers, their destiny is in their own hands if they improve and maintain the private-label offer, because it is so important. It’s been fundamental for the past 15 to 20 years, but it’s never been more important.”
Winners and losers
Essential Waitrose, the upmarket grocer’s entry-level brand hailed as a ”masterstroke” by Roberts, has blossomed into a £1bn business. The retailer has equally high hopes for its newborn premium sibling.
Sainsbury’s has its well-established By Sainsbury’s and Taste the Difference ranges, while Tesco’s ‘Farms’ brands provide a more appealing value alternative to its Finest proposition at the opposite end of the price scale.
However, not all of the established grocers are utilising a winning formula when it comes to their private-label propositions.
Shore Capital analyst Clive Black suggests that innovation by rivals, along with the “parasitical” own-label development by Aldi and Lidl, has left Asda and Morrisons trailing in their competitors’ wake.
“For Asda and Morrisons, it’s about working out where they can and cannot be credible and have a private label that stands up from a quality perspective”
Clive Black, Shore Capital
Asda’s new chief customer officer Andy Murray has already made rejuvenating the grocer’s own label one of his “top priorities”, while David Potts is making strides at Morrisons as it attempts to fully re-establish itself.
“Historically, Sainsbury’s and Tesco have had the strongest heritage and capability in own-label management and delivery, while Asda and Morrisons have been behind the curve – and I still believe that to be the case,” Black says.
“Within the big four, there is an enormous differential within Sainsbury’s and Tesco’s chilled prepared food ranges. They have authority and the quality compared with Asda and Morrisons, which are considerably behind the curve.
“All the major players are looking to maximise the sales performance per SKU – that includes Tesco and Sainsbury’s. But for Asda and Morrisons, it’s about working out where they can and cannot be credible and have a private label that stands up from a quality perspective, but also delivers value to customers.
“They have to work out where they are going to play and where they aren’t.”
Value and premium
As part of that process, Black believes that a more distinct contrast of two own-label brands, rather than the more traditional “good, better, best” selection of three ranges, is the direction of travel that will be followed across the market.
“The euphemism of ‘good, better, best’ is short-dated. I think it’s just going to be standard and premium,” he suggests.
“That journey has started. In fact, I think it’s quite far along the way – I’d say we are in second gear now.
“Tesco’s Farms ranges are the clearest manifestation of that and similarly Waitrose 1 is very much about simplification, selling a larger volume of goods through a smaller number of SKUs and recalibrating three sub-ranges into one.”
“The euphemism of ‘good, better, best’ is short-dated. I think it’s just going to be standard and premium.”
Clive Black, Shore Capital
But there are other opportunities for grocers to explore as they seek ways to increase their own-label footprints.
“There are lots of niche developments and you get new pockets of opportunity that open up,” Roberts explains. “‘Free from’ is the most obvious recent example in terms of a rapid growth segment within the market.
“In areas like ethnic ranges as well, which have typically been taken over by importers or brands, there is opportunity for supermarkets to move into halal or kosher variants of existing product lines.”
While own-label activity continues to constitute a “vital part of the puzzle”, as Roberts puts it, Waitrose and Tesco will not be the last grocers seeking to slot their strategic pieces into place.