Own-label has amassed serious growth during the cost-of-living crisis but when the country gains a more economically stable footing, will the boom last?

Asda-Just-Essentials

Private labels such as Asda’s Just Essentials have become popular among shoppers

The most recent reporting by Kantar shows own-label sales shot up by 9.3% during the four weeks to January 22, well ahead of branded alternatives that were up by just 1%.

But when the country gains a more economically stable footing, will the boom in own-label stick around? With tense price matching eating away at profitability, can retailers afford it to keep growing? Retail Week spoke to private label experts to find out.

Growth in the middle 

As Aldi and Lidl offer ranges consisting of between 80% and 95% own-brand, the growth of the discounters goes hand in hand with climbing own-label sales. But their shared successes reflect consumer sentiment, as wages stagnate in the UK, shoppers are on a mission to cut their increasingly inflated grocery spend by shopping at discounters and buying more own-label items. 

A survey by IRI last year found the proportion of consumers who say they are loyal to private label, meaning own-brand makes up over 75% of their basket, was for the first time equal to the proportion of consumers who say they only buy national brands. That represents a “huge shift” says IRI global thought leadership senior vice-president Ananda Roy. 

Roy says: “Of the loyalists to private label, unsurprisingly, a high proportion are from lower income consumer cohorts. However, within that group, the proportion of mid-income consumer cohorts is growing. So we’ve seen the penetration of private label with mid-income consumers who are moving away from Heinz beans and Kellogg’s cereal and they’re willing to try Waitrose or Lidl.

“In 2023, as inflation continues to bite and absolute prices increase, we estimate the barrier to entry with mid-income cohorts is going to fall even further. A good predictor of that is in Germany, which has one of the highest own-label penetrations, where the proportion of mid-income consumers has already doubled.”

Price rises

This growth is even in spite of steep price rises. For example in cereal, brands have increased prices by 10%, while boxes of own-label cereal have shot up 17%, according to IRI.

“In the midst of complete chaos, uncertainty and disruption during the pandemic, consumers bought brands they trusted; so, almost on autopilot, they bought the big national brands,” says Roy.

“Retailers responded by dropping the price of private label and it still did not get them share. Once the pandemic eased, it swung to private labels again. Now in the inflationary period, we’re seeing private label prices increase higher and faster than national brands.”

Price matching 

But entry-level and mid-tier own-label products are still cheaper than full-price branded equivalents. Fierce competition among the grocers now means everyday low pricing and price matching are increasingly important tools to defend their market position – what does that mean for its profitability? 

Retailers will feel the pinch most keenly on their cheapest value lines, which is why price matching occurs in the mid-tier, says Richard Harrow, partner at IPLC. 

He explains: “We’re seeing a very aggressive position on private label in terms of the opening price point. If you take chopped tomatoes, look at the lowest-tier price and then look at the mid-tier. The gap between the savers and the standard is massive. The raw material differences between them are minimal.

aldi-price-match-sainsburys

Supermarkets have been following the discounters lead on price matching

“The impact of very low pricing for the big traditional retailers on products is margin diluting. The discounters feel this too but they’re in a position where they can stand it a little bit better.”

The growth with mid-income cohorts is exactly what retailers want to see and it has worked in getting more shoppers to buy into the mid and premium tiers, with Kantar reporting premium own-label was up a record 10% across the festive period.

Kantar head of retail and consumer insight Fraser McKevitt says: “In some cases, [premium own label] is positioned to be cheaper than the brand in the category but in some areas, it’s actually more expensive. If they think they’re getting value, shoppers will pick up the more premium stuff so it’s definitely something the retailer is keen to put on the shelf.”

After the cost-of-living crisis

The growth of own-label during financial insecurity does not necessarily mean shoppers will remain converts forever, according to McKevitt. 

“The idea that people move to one thing and then stay there just isn’t supported by the data,” he says. 

“People buy a wide repertoire of stuff. They make a different decision week in, week out on a lot of items, so there’s nothing set in stone. What is more permanent is the discounters gaining market share, so there is some inbuilt structure towards own-label playing more of a part in people’s lives.”

According to Harrow, the progress own-label has made during its steady rise means it has built a solid foundation to keep growing, even if the growth in the discounters slows. 

“The fundamentals now for private label are really solid. There’s a really strong supply base and a lot of specialists out there creating growth. Even if we come out of the cost-of-living crisis, which one day we will do, private label will continue to be very strong and it will continue to gain share.

“What will really be interesting to see is how the market develops over the next few years. You have to question how you can have four big brute retailers. If the volume goes out of these big stores, then they’ll start to have issues with long-term profitability.”

While private label may be in line for much of the same, it seems it is the shape of the grocery market that could be facing a seismic shift