The apparently inexorable rise of own label within Britain’s multiple grocers seemed to level off in 1997, with the latest ACNielsen State of the Nation survey showing that penetration within the major multiples held steady at 55.3 per cent of unit sales for the year to the end of December 1997.
Most observers agree, however, that there is considerable growth in own label yet to come. While the average penetration level was the same as in 1996, an examination of the figures for individual retailers reveals a rather more interesting picture, with some retailers reducing their dependence on own label, and others significantly increasing theirs.
Although ACNielsen also collects data on own-label penetration based on the retailers’ own Epos systems, the figures in State of the Nation are based on data collected in consumer households through the Homescan system, which involves shoppers scanning in the barcodes of the products they buy.
Sainsbury’s was still the retailer with the highest level of penetration of own label, with a 63.1 per cent share of total group sales by value. However, while total own-label sales within Sainsbury’s grew during 1997, the rate of growth slowed significantly, falling from 4.1 per cent in 1996, to 0.7 per cent in 1997. And when the group’s total sales are taken into account, own-label sales, as a percentage of total sales, have in fact fallen for the second year running.
Sainsbury’s, of course, admitted at the beginning of 1997 that it had become concerned that it was too dependent on own label, and stated that it intended to cut the penetration level back to 50 per cent. Its research had apparently found that customers were beginning to resent the large-scale disappearance of branded products. Tesco, the UK’s biggest retailer in terms of turnover, has maintained its own-label penetration at just under 56 per cent, but Asda has seen a major shift, with own label moving from 49.8 per cent in 1995 to 57.4 per cent in 1997.
The figures for Somerfield and Kwik Save show that while the former has maintained an own-label level at about 50 per cent, the latter has built its own-label share from 18.1 per cent in 1995 to 20.9 per cent in 1997. Once the two companies have been fully integrated, the directors have said that both the Somerfield and Kwik Save own-label ranges will still be sold. The latter will be developed as a budget brand.
It is interesting to note, however, that the total share of household expenditure which went on budget brands during 1997 fell slightly, with the slack being taken up by standard own label. A similar pattern emerges when shares of unit sales are examined.
Both Tesco and Sainsbury’s saw the share of unit sales for budget brands fall slightly, while Kwik Save experienced a more marked reduction, from 27.5 per cent to 25 per cent.
The trend away from budget own label to standard own label will probably accelerate during 1998, as more multiple retailers enhance their standard own-label ranges and even launch premium ones, such as Tesco’s Finest.
Coupled with the move by almost all of the major retailers towards some form of category management system, which should see close bonds being formed between retailers and the number one or number two brands in each market sector, the move towards higher quality own-label ranges can only increase the pressure on the less-well performing manufacturer brands.
But perhaps of more importance is the fact that the introduction of higher quality own-label ranges suggests that the UK’s retailers have finally become confident that their reputation with the general public is such that they can go head on against the packaged goods manufacturers, rather than riding on their coat-tails as has tended to be the case with own-label ranges in the past.
Put another way, retailers have now recognised that they are themselves brands, and will increasingly be analysing and refining all of the different elements which might affect their brand image – in-store layout, the total range of merchandise carried, advertising and other marketing activity, the fascia, the whole service proposition including loyalty schemes and last, but not least, own label.
One interesting result of this new-found self confidence could well be a reduction in the number of accusations of passing off levelled by manufacturers at retailers. If retailers are confident that the core strengths of their brand identity can compete with those of the manufacturers, then there should be less incentive for them to hijack the look of manufacturer brands.
Claims that retailers have “ripped off” market leading brands, however, are unlikely to disappear altogether – but then, it is not only retailers which have been accused of copying or closely imitating packaging or brand names in the past: manufacturers themselves have also been caught at it.