Retailers are doing it for themselves

Supermarket own-label, once just a cheap imitation of a branded product, has been re-invented. A wave of innovation has seen the introduction of entire branded food ranges such as Sainsbury’s children’s portfolio of goods branded as Blue Parrot Café, Tesco’s Finest and Safeways’ The Best premium ranges and Waitrose’s healthy option Perfectly Balanced.

The move threatens to disrupt what is an uneasy co-existence between own-label and branded products.

Now Sainsbury’s is set to go a step further by recruiting six brand and two marketing managers to protect, support and develop its own-label ranges, in a move more associated with big-brand owners such as Nestlé, Unilever, Heinz and Procter & Gamble.

Sainsbury’s has already used high-profile advertising campaigns featuring TV chef Jamie Oliver to support Taste the Difference, launched last year and accounting for &£300m in sales, Blue Parrot Café and the healthy eating range Be Good to Yourself, worth around &£200m a year.

Sainsbury’s senior manager for own-brand marketing Lesley Chapman denies that branded goods are under threat: “I don’t think that what Sainsbury’s is trying to do is displace brands. Some consumers have particular needs that can be served by a broader lifestyle range and the retailer is well-placed to develop that because of the breadth of categories it covers.”

She adds: “Sainsbury’s has been delivering quality and innovation through own label sub-brands and it now wants to manage them more strategically. You don’t create brands and do then nothing with them. All the retailers in the past have had that approach.”

Supermarkets, wrapped up in their own inter-retailer war, have in the past had few qualms about challenging branded products by launching cheaper alternatives and sub-brands of their own. Heinz baked beans, Coca-Cola and Kellogg’s cereal products have all had to fight back with advertising or price cutting.

But Sainsbury’s in 1995 came under fire from some City retail analysts; they claimed that the supermarket chain’s 55 per cent own-label penetration was becoming a problem. They argued that the own-label ranges reduced choice and alienated those consumers who wanted a branded product priced somewhere between brand leader and the cheaper own-label version.

The supermarket chain, aware that customers could turn to rivals, embarked on a review of its own-label strategy. It reined in some sub-brand ranges, including the detergent Novon, to make way for branded manufacturers’ products and introduced promotions heavily featuring branded goods (MW October 4, 1996).

One branded food industry insider says: “I think that the retailers recognised the power of the branded products that were affected and, in terms of people pull, there are brands customers expect to see on the shelf. It’s now a complex relationship; not a confrontational but one all driven to satisfy consumers needs.”

At the time of the own label and brand wars of the mid-Nineties, industry experts observed that supermarkets found it difficult to build a bond between consumers and their sub-brands because they had no advertising support, unlike brand manufacturers. But that is changing and Waitrose has joined Sainsbury’s in supporting its own sub-brands through advertising.

Verdict Research senior analyst Sally Bain says that some retailers have recognised that own-label brands, which were “traditionally is seen as second best”, need not be positioned head on against brands. Instead, she says, these products can offer something that people believe has added value.

Data from Mintel’s Market Intelligence reports shows overall penetration of own label is estimated to be around 52 per cent, a decrease of one per cent since 1996.

For packaged grocery sales penetration, trends among retailers are broadly static with Tesco and Sainsbury’s the highest at 45 percent, while other retailers are between 35 and 45 per cent.

Breaking packaged grocery sales down, penetration within ambient packaged grocery fell from 29 per cent to 28 per cent, while packaged, chilled fresh foods increased from 44 to 46 per cent and frozen foods from 45 to 46 during the period 1996 to 2000.

It remains to be seen how the new wave of retailers’ sub-brands will affect these figures. After all they are no longer perceived as mere commodity replacements, but as ranges covering an array of categories – mainly in chilled and fresh sectors where supermarkets rather than manufacturers have led innovation, Corporate Edge director Peter Shaw says: “Retailers have recognised that consumers are more sophisticated and that there is a whole group of consumers willing to pay the prices for better-quality products, such as Tesco’s Finest.

“They have also realised they have a particular area of advantage – chilled and fresh – they don’t have an advantage in baked beans and cola which have great brand strengths.”

If brands are to make an impact in the chilled and fresh sectors, then they will have to carve a niche, as the Covent Garden Soup Company has done.

But Shaw warns: “When people get used to buying Be Good to Yourself and Finest, and start to see them in ambient and frozen, I can’t see how that won’t have an impact on affected brands.”

The pressure is on for frozen and ambient brands to innovate if they are to retain market share and increase sales in an environment where consumers are known to buy fresh produce and freeze it.

Brands that have a strong degree of recognition and respect among consumers, such as Sharwoods and Uncle Ben’s, are well-placed to develop new products even if they follow in the footsteps of retailers.

Credit Lyonnais retail analyst Kien Tan says: “There are just too many brands in our life. The very strong brands will remain, such as Coca-Cola and Heinz, but you will find that secondary brands will disappear, unless they find a niche.

“Branded manufacturers have to seek out opportunities or die. Where there is room for two brands, if one is own label, the other secondary brands will have to go.”

Battle weary P&G and Unilever are already culling brands in a bid to build global super brands that no supermarket chain can do without. But with Sainsbury’s supplying own-label products to village shops, the relationship with branded manufacturers looks likely to be tumultuous – on what has been their traditional territory.