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Private label ousting big brands as cost of living spectre grows

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TOMASZ Luksza, who took over his father’s Polish confectionary business just over a decade ago, has a problem he’s not unhappy about: European supermarkets want more gummy bears and chocolate-covered marshmallows than he can make.

“We’re seeing at least two times the demand of last year and we can’t take all the orders,” said Luksza, managing director and owner of 3 Topole, which supplies the private label brands of French retail giant Carrefour and several other European supermarkets.

Private label sales have been on the rise for years, but a global cost of living crisis driven by soaring energy prices appears to be turbo-charging the trend.

“Consumers are starting to be more price-aware,” Luksza said. “Inflation is making them want to save money so they’re looking for cheaper alternatives and private label seems to be the answer.”

An 85g bag of Haribo Golden Bears on Carrefour’s website in Poland costs 3.49 zloty (US 73 cents or RM3.27).

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In Europe, private label sales already account for a larger chunk of grocery purchases than in North America. Sales are expected to grow this year, according to the Private Label Manufacturers Association, though it did not give a figure.Of all staple food sales in Western and Eastern Europe last year, more than 29% and 9% respectively were private label purchases, according to Euromonitor. In the hygiene and tissues sector, the figures were 41% and almost 19% respectively.Though own label manufacturers face the same cost pressures as branded product rivals, they can rely on guaranteed demand from retailers who specify what goes into the product, how it’s packaged and how much it will cost.

Retailers are also more likely to swallow price increases on own label products because they are more profitable for them than branded items.

“Private label is one of the tools that they will use to convince shoppers to continue to walk through those doors rather than walk through the door to their competitors,” said Andrew Walker, client knowledge director at market researcher Kantar.

In contrast, branded product manufacturers face increasingly fraught negotiations with retailers. Britain’s biggest supermarket Tesco removed Kraft Heinz products from its shelves earlier this year after failing to agree pricing with the manufacturer.

In June, consultancy McKinsey & Co surveyed 5,000 shoppers in Western Europe about their shopping habits. Roughly 40% of respondents said the biggest change they had made recently was to try new private label products.Increasingly, consumers are happy with the quality, taste, variety, and innovation in private label products – and sticking with them, McKinsey Associate Partner Angus McOuat said.

Behind labels such as Tesco’s Finest and Carrefour’s Simpl are thousands of businesses that make food and personal goods on behalf of the supermarkets. These firms are often small operations that serve several retailers at the same time, from low-cost Lidl to John Lewis’ high-end Waitrose stores.

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