The rise in home brand offerings at the local supermarket is set to continue as major chains ramp up their bid for a bigger slice of consumer dollars.
The growing presence of generic or private-label groceries has been visible on supermarket shelves for several years and is still growing.
A report released last month by Commonwealth Bank analyst Andrew McLennan found Australia has room for another discount supermarket and named overseas budget operators Lidl and Netto as potential newcomers to the market.
Mark Ritson from the Melbourne Business School agrees.
“I’m absolutely certain that we will eventually reach a place where 50 per cent of grocery revenue is spent on private label,” he says. “The question isn’t if. It’s when.”
Professor Ritson attributes the shift to more competition in the marketplace and the boost in quality and diversity of home brand items available.
“It’s really the story of competition in the sense that Coles and Woolies have been lazy for the last 25 years because they could afford to be and still be very profitable.”
Generic brands have been around for many years and usually consisted of no-frills options on essentials like milk, soap, and laundry detergent.
But a gradual shift in quality and the amount of offerings has forced a rethink.
“Australia is very fast catching up with the European retailers in that private label isn’t just a budget offer. It’s becoming a genuine branded offer,” Professor Ritson says.
“You get an extra level of offer. If you can buy an equally good tin of baked beans for 30 per cent less that’s got to be a good thing.”
Zoya Sheftalovich, investigative journalist with consumer advocacy group Choice, says supermarkets caught on to the growing acceptance of home brand items and moved with the times.
Intelligently, their home brand offerings include three levels of products to suit consumers of all types, she adds.
The premium market is considered the most lucrative and to illustrate the point, Woolworths recently launched a new range of artisan bread with a loaf fetching $6.50.
“They’re really trying to attack the market from all sides. They’re segmenting the market and trying to get consumers to buy generic regardless of the kind of consumer they are.”
What will happen to iconic brands?
Ms Sheftalovich says a recent investigation by Choice indicated consumers were concerned about the impact of the new shopping landscape.
“Consumers were concerned about those generic brands moving their name brand products off the shelf as a result of basically taking over the market.”
Professor Ritson welcomed the competition and says it’s consumers who will ultimately benefit.
“It reduces the shelf space for all the other manufacturer brands, which forces them to compete more heavily on price with the supermarkets.”
Professor Ritson says what normally happens in this situation is that the number one and two brands in the marketplace actually become more profitable, but middle-tier and lower brands become decimated.
“Private labels still need a reference set. They still need some form of comparator in order to show their good value.
“The best brands will continue to thrive and the weaker brands will get wiped out as private label penetration grows.”
What does the future hold?
Professor Ritson says the shift to generic brand offerings is a classic example of brand extension and linked to this week’s announcement that Australia’s major supermarket chains are engaged in serious talks about establishing banks and offering home loans.
Australia’s private label penetration is around 25 to 30 per cent and will grow to 50 per cent in the future. He says more generic offerings will create better value for consumers.
“Ultimately what we’re going to see is more robust Australian companies and more satisfied Australian consumers.
“The reason why private label is so good is because it gives Australian consumers another alternative at a lower price and often with better quality.”