brand products are surging as savvy shoppers look to save money and increasingly powerful grocery groups flex their muscles, piling pressure on branded goods makers like Unilever and Nestle. Supermarkets are risking the wrath of big brand suppliers by promoting own-label products because, though cheaper than brands, they tend to have higher profit margins and allow grocers to highlight their low-price credentials to consumers. The brands are having to respond by stepping up advertising, promotions and innovation – all of which cost money at a time when most firms are seeking to rein in spending. The rise of own brands is being helped by the economic downturn, but is also due to changing consumer tastes and more powerful grocers, said Verdict Research analyst Neil Saunders.“We're not as brand-loyal as we once were and they (own brands) have also got better,” he said, noting that grocers offer a choice of own brands spanning budget to premium goods. “The power really rests with the consumer and the retailer and that means the brands have to keep spending money to keep people buying them.” Own-label goods account for about 20 percent of the global market for grocery and non-food products, up from 15 percent in 2003, and are forecast to increase their share to around 23 percent by 2013, according to researchers Planet Retail. There are wide variations between countries, with for example Italy on 11 percent and Britain on 39 percent. Own-brand penetration tends to be highest where retailing is dominated by a small number of established players which themselves have a high level of brand recognition and are trusted by consumers. Planet Retail's Matthias Queck believes own brands will grow in all major markets as grocers continue to consolidate and extend their reach by, for example, entering non-food markets. “It makes sense for them. It's a way of promoting their price competitiveness and they can usually get better margins,” he said, noting supermarkets can boost profitability by shopping around for own-brand suppliers and having greater influence over ingredients and marketing costs. Innovation The onslaught on brands is being led by hard discounters like privately-owned German groups Aldi and Lidl, which are grabbing market share as shoppers look to save money. But others are also giving a higher profile to their own-label ranges. Britain's J Sainsbury, for example, launched a “Switch and Save” campaign in September, which it says helped own-brand sales to outperform brands in the 13 weeks to Jan. 3. Tesco, Britain's biggest retailer, launched a “Discount Brands” range in September, which is made exclusively for the firm and so effectively own label, and says it has grown to account for 5 percent of its UK food and grocery sales. “Retailers are pouring petrol on the fire,” said Ed Garner, director of research at TNS Worldpanel, though he noted big differences in the performance of own-brand ranges, with budget lines growing very strongly, but premium ranges losing ground. Analysts think brand manufacturers will have to respond by stepping up promotions, innovation and advertising. Sainsbury believes that over 30 percent of all UK grocery sales are now generated by products on promotion, up from about 27 percent a year ago, and analysts think much of this is being driven by brand manufacturers. A spokesman for Unilever said the Anglo-Dutch consumer goods giant would counter the threat from own brands by highlighting the false economy of buying a cheaper product that won't last so long, the trust of well-known brands and the value of innovative new products. Analysts think the makers of market leading brands – like Switzerland's Nestle in foods and Reckitt Benckiser in cleaning products – will be more resilient, while the greater pain will be felt by second and third-tier brands. “They're getting squeezed between market leaders and own brands,” said Verdict's Saunders, though he added strongly differentiated smaller brands, like Bay Tree condiments, could still flourish. Shares in supermarkets like Tesco and Sainsbury have outperformed Europe's index of leading companies by about 5 percent since the end of Sept. 30 and some of their own-brand suppliers have fared even better. For example McBride, which makes household and personal care products for retailers across Europe, has outperformed the same index by over 40 percent. In contrast some smaller branded goods makers have been hit hard. Britain's Premier Foods, which makes Mr Kipling cakes and Batchelors soups, has underperformed by over 50 percent, though much of this is due to concerns about its debts. Planet Retail's Queck said some brands had struck innovative deals in an attempt to harness the power of supermarkets, citing a co-branding agreement between Fromagerie Bel's cheese brand Babybel and Aldi's “Be light” healthy eating own label range. But grocers are also working hard to extend their reach, he added. US chain Safeway, for example, has struck deals to sell its healthy own-label range through other retailers.
