The Private Label Threat

How to Win in an Increasingly Private Label World

In just six months, the number of Australians tending to buy private label (PL) groceries has jumped from 44% to 65%. With supermarkets enjoying an 8-10% premium on margins for PL products compared with branded products, this shift in consumer behaviour is something encouraged by the retailers. For incumbent FMCG firms and boutique players, this change may not be so welcome.

Consumers are Falling for Private Label

Nearly six in ten consumers agree that retailers’ PL products are a good alternative to branded products and 15% of Australians say they would switch to PL to save money if their day-to-day expenses increased.

However, it’s not just economic pressures that are fuelling the rising popularity of PL products. PL products are also being shaped to meet the other key consumer concerns: health consciousness, sustainability, and convenience. These three factors are driving the decisions of today’s savvy consumers and defining customer value as described in our industry study, “Surviving the Consumer Revolution: Remaining Competitive in the Changing FMCG Industry.”

This focus on customer value has caused consumers’ belief in the quality of PLs to rise. While only 59% of adults surveyed in June 2015 believed that Coles, Woolworths or Aldi PL brands are “good quality,” this percentage jumped to 76% in December 2015. When similar PL and branded products are on the shelves, it seems that most shoppers are inclined to take the cheaper option – believing the difference between them is non-existent or so minimal that the price difference isn’t justified.