Private labels ‘cut consumer choice’

Supermarket private label product sales have grown by an enormous 85 per cent in the past five years and will account for a quarter of the $86 billion Australians spend on groceries in the next year, a report has found.

Consumers are making the biggest move to private label or “own brand” products in staple categories such as butter, milk, sugar and bread, where supermarket house brands now command up to 68 per cent of sales, the report by IBISWorld has found.

IBISWorld GM for Australia, Karen Dobie, said concerns about the state of the economy and low consumer confidence were driving private label uptake, particularly among families with incomes below $44,000 a year.

“Households have been reining in spending, paying off debt and increasing savings. This, coupled with an increase in the range of private-label products available, has led many consumers to make the shift to home brands”, Dobie said.

However, she warned that the short-term benefit of lower prices for consumers will come with a sting in its tail, with Australians to eventually be faced with less choice on supermarket shelves.

“All of this discounting means that someone is paying the cost of purchasing $1 litres of milk and $2 loaves of bread. More often than not, farmer and producer margins are being squeezed as supermarkets discount heavily to increase store traffic”, Dobie said.

“In the long term, this trend will primarily benefit the supermarket giants and those producers that are contracted to manufacture private-label products.”

Woolworths and Wesfarmers-owned Coles, which have 40 per cent and 31 per cent of the national grocery market respectively, according to IBISWorld, have progressively expanded their private label offerings since the arrival in Australia of ALDI, which has a private-label-only model, in 2001.

Since 2007/08, private label products have grown from a 13.5 per cent share of total supermarket sales to 25.2 per cent in 2012/13.

IBISWorld estimates that will grow to 33 per cent, or $31.8 billion, by 2017/18.

In the UK, private label sales account for about 45 per cent of supermarket sales.

Private label products now account for 40 per cent of low-income family grocery spending in Australia but only 15 per cent of middle and higher income family budgets.

Dobie said supermarkets were targeting middle and higher-income groups because they represent the best growth opportunities.

“Major supermarkets are spending big bucks on activities aimed at blurring the lines between branded products and their own in-house fare. These retailers are introducing premium, organic and fair trade products – such as Woolworths’ ‘Select’ range – to attract private-label buyers from all walks of life,” she said.

AAP

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