IRI’s latest Point of View Report revealed that private label accounted for 18.1% of all Australian FMCG* dollar sales in the 52 weeks to 21 May 2017 and that its growth has outpaced national brands. Private label’s dollar growth of 3.9% during this period amounted to an additional $662 million in sales, compared to just 2.2% growth for National Brands.
"Private label has reached an important pivot point in Australia as supermarkets refine their strategies to respond to elevated consumer expectations and shifting market dynamics. Retailers are making changes in their private label ranging strategies, which is driven by a need to counter Aldi’s private label share gains. But there is also the prospect of intensifying private label competition from international retailers and those operating in adjacent channels,” IRI’s Daniel Bone, Channel Insights Manager comments.
Aldi’s current double-digit dollar growth in Australia and the share gains of discounters worldwide proves that private label is critical to a retailer’s value image and, by implication, overall performance. More than three-quarters of Aldi sales currently derive from private label products, versus less than a quarter in the supermarket majors. The affinity Aldi shoppers have for the retailer’s private label range underpins why two-thirds of Australian households now shop with the discounter, according to IRI’s research.
The Private Label Price Advantage Remains Pronounced
The price gap between private label and national brands remains significant across Packaged Grocery, Petrol & Convenience (P&C), Liquor and OTC Healthcare channels.
Private label products are, on average:
- 44% cheaper in Packaged Grocery
- 28% cheaper in Petrol & Convenience
- 54% cheaper in Liquor
- 16% cheaper in OTC Healthcare
IRI’s research revealed that almost three-quarters of Australian shoppers always compare price before choosing brands. With wage growth at a record low and household debt surging to record highs, IRI expects the private label price advantage will place further downward pressure on ranging and margins for national brands for the foreseeable future.
Private Label Performance Varies Across Channels
Private label performance is still relatively underdeveloped in Australia, especially in comparison to Western European markets such as the UK where almost 50% of sales are private label. Locally, IRI’s report shows that Packaged Grocery and Petrol & Convenience are the only channels where private label accounted for a double-digit share of total dollar sales. Packaged Grocery (+4.1%) and Petrol & Convenience (+11.8%) also recorded the fastest annual dollar growth in 2016-17.
Packaged Grocery stood out, with 93% of all private label dollar growth derived from this channel. However, the double-digit growth of private label items sold through Petrol & Convenience stores was eight times faster than branded. The growing significance of the low-price, high-volume self-serve Hot Drinks category has been one of the main drivers of this.
Specialised Ranges Represent The Next Wave Of Growth
IRI predicts the next wave of private label growth will be from range diversification and premiumisation. In identifying high-performing private label products in Australia and overseas, IRI foresees four key themes that will accelerate private label gains:
- Natural & Organic: A focus on natural, organic and fresh.
- Free-From: Catering to more specific dietary requirements.
- Ethics & Purpose: Aligning with consumers’ values, and passions.
- Upscale & Celebrity: A higher level of quality and creativity.
“Going forward, we expect more specialised and sophisticated private label innovation to emerge as a source of inspiration for Australian shoppers and to show that ranged products are truly unique. It will be especially important in the Grocery channel where retailers will need to inspire more food curious and healthy minded Australian shoppers,” comments Bone.
*FMCG covers the four retail channels included in IRI’s Market Measurement solutions: Packaged Grocery, Petrol & Convenience, Liquor and OTC Healthcare