Dynamic development of the private label sector

Tuesday, 30 April, 2019 Food From Poland 35/2019
Private labels comprise a growing segment of the food market and are developing dynamically. Formerly, the only things they used to be associated with were low prices and essential products. Today, they are diverse items of high quality yet affordable.
Entrepreneurs have to adapt their offer to the needs of the customers, and the latter have changed. The cost still is very significant in making shopping decisions, yet consumers also demand good quality. They expect a favourable quality-to-price ratio. Moreover, new shopping fashions appear all the time – currently, there is growing demand for ecological, low-processed, local or vegetarian items. This is also an area where private labels can emerge. It is worth building customer relations, caring for the image, and thus undertaking professional marketing activities. This is a process of many years, but it is necessary – and profitable if performed skillfully.

Private labels are among the tools used by Polish entrepreneurs to compete with discount stores. For instance, the Lewiatan, Groszek, Euro Sklep and Gama chains distribute approx. 600 private label items of these companies, while the Społem chain features approx. 250 of them. They make it possible to narrow the price gap between them and discount stores, apparent for producer label products. Importantly, most private label items in smaller stores come from Polish manufacturers.

As shown by the CMR data, private label products of a chain or a distributor are generally available at small-format stores up to 300 m2 – they can be found in more than 90% of such outlets. Private labels appear most frequently on shelves with nuts, cookies, oils and pasta, animal feed, as well as paper products (towels and toilet paper) – such private label items are featured, on average, in the offer of every second small-format store. The CMR data show that private label products of trade chains or distributors could be found on every fourteenth cash receipt in 2018, yet their share in the total turnover of such stores amounted only to 2%, just like the year before.

In supermarkets with an area between 301 and 2500 m2, the private label product offer is considerably broader, and chain equivalents to brand products can be found in almost every category. Private labels are a keystone of the assortment of such goods as pasta, oils, jams, cookies, groats and rice. Wider accessibility and a wider offer translate into higher shares of private labels, both in the turnover of stores (approx. 5% in 2018) and in the total number of transactions (in the period under consideration, private label products would appear on every fourth cash receipt).

Both in supermarkets and at smaller stores, the greatest significance of private labels has been recorded in such categories as salty snacks, cereal products (e.g. groats or rice), as well as paper products or water. On the other hand, a very slight share of such products is observed for the confectionery and alcohol categories.

According to the CMR data, at small-format stores up to 300 m2, the highest importance of private labels is definitely recorded for the categories of animal feed (accounting for approx. 40% of the turnover), and paper products, such as toilet paper and towels (approx. 30% of the turnover). Private labels are also highly significant in trade in such categories as oil and vinegar (an approx. 20% share in the sales value of each category), rice (17%) and groats (15%).

In supermarkets, private labels make up 35% of the sales value of vinegar, nuts, crisps, toilet paper and paper tissues. Such products are also very significant (more than a 20% share in the sales value) in such categories as groats, rice, oil, milk or cottage cheeses.

In order to properly understand the subject matter of private labels, one should also take a broader look at the policy of the manufacturers’ relations with individual formats. Manufacturers pursue the sales volume at discount stores and margins at small stores, at the expense of their profitability and increased price for customers. Thus, despite significant investment in development and efficiency increase of the supply chain, Polish stores are losing the battle against discount stores from the get-go, as far as price is concerned. Unfortunately, it should also be noted that the same is true for Polish food producers. Under such conditions, undertaking of any activities intended to narrow the price gap separating small and medium-sized independent stores from discount stores would be an appropriate course. Of course, it should be kept in mind that a private label is not a prevalent component of trade policies of smaller independent and franchise chains. They still primarily focus on a wide assortment of producer brands as well as regional products. Small stores are unable to wage a direct price war against discount stores, so they have to attract customers with a wide offer. An average assortment of a discount store is 2500-3000 SKU, while for small stores, it could be as much as 6000-9000 SKU. For manufacturers, making a large portion of their work dependent on a private label, despite many advantages such as the aforementioned volume of orders, may become a dead end. It may narrow down the options of receipt of other products from the portfolio and weaken the brands’ recognizability outside a specific sales channel.

There is unquestionably a great future ahead for private labels in all formats, yet it is hard to imagine they could dominate the offers of smaller chains, even in the long run, as is the case at discount stores. This is why any potential regulatory measures in this regard must be based on thorough knowledge of all aspects governing the market.

Maciej Ptaszyński
Director
Polish Chamber of Commerce




tagi: private label sector, Polish Chamber of Commerce,

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