Traditional food and drink brands are having a tough time of it. Once assumed to be better quality and to have superior performance compared with own label, consumers are no longer placing brands on a pedestal.
Daniel Bone is a consumer analyst at Datamonitor. He recently carried out research on consumer attitudes towards premium brands and found that although certain ‘niche’ products, such as speciality food, drink and personal care goods, are becoming more and more mainstream, there’s no doubt that own label is posing a threat to branded goods.
He says: “Own label does have the potential to undermine premium brands. This is an increasing threat faced by suppliers, who feel they have to discount premium products to compete with own label.
The boundaries between own label and brands are becoming blurred and this makes it harder to create a point of difference. That’s why we’re now seeing the emergence of ‘super premium’ products.”
Super premium products are defined as items priced 140% higher than the average price of a product within its particular category. At the moment, super premium products are mainly alcoholic drinks or ready meals - for example, Gordon Ramsey’s meals, which cost around £20 each - but we should expect to see a lot more.
Bone believes that premium brands are on the increase as suppliers come up with new ways to attract consumers and these products become more accessible. For example, Walkers Sensations was developed to compete with Kettles luxury crisps. Walkers cleverly marketed the brand with TV ads that poked fun at the product’s poshness to make it more accessible to consumers. The product was also priced competitively.
Consumers are, however, willing to pay more for a little bit of luxury, says Bone: “Premium products do have a more mass market appeal now, with less wealthy groups willing to trade up. This is particularly the case for packaged goods because consumers feel they can have their bit of luxury by trading up on lower ticket products, rather than spending hundreds on furniture, for example.”
OWN - LABEL SUPREMACY
Ray Seagrave, marketing manager of own-label paper products supplier LPC, argues that some own-label products are seen by consumers as brand leaders in their own right. “An example of this in food retailing would be Marks & Spencer’s own-label products, which are perceived by M&S shoppers to be not only the best on shelf but of higher quality than any other food offerings in retail,” he says.
“To a large extent other retailers are trying to duplicate this success by repositioning their own-label products. Their move to segment own label into ‘good’, ‘better’ and ‘best’ propositions has changed the way consumers view own label. This is also the case in the paper category and can be seen on shelf in the toilet tissue, kitchen towel and facial tissue segments, with ‘value’, ‘standard’ and ‘ultra’ propositions existing in some or all products.”
The symbol groups have spent years raising own-label standards, and consumers’ perceptions of own label have changed dramatically as a result. Nisa-Today’s fresh and chilled Heritage brand was redeveloped two years ago to incorporate premium and healthy sub-brands - Heritage Select and Heritage Healthy Choice. Own label now accounts for 42% of total Nisa chill volume and is growing at 27.1% year on year, compared to branded growth of 14.3%.
Nisa chill senior trading controller Nick Slater says: “The Heritage label has been boosted over the years through improved quality and packaging and a sharpening of retail prices. Consumers see the range, which is now 600 products strong, as high quality and on a level with Tesco’s own label.”
Slater says own label is now widely accepted as a quality alternative to branded products. “As Heritage develops into other categories, the ‘umbrella effect’ drives greater sales and market penetration.”
Spar is currently revitalising its own-label range. Sandwiches were relaunched earlier this year and an entire range review will be complete by the end of 2005. Spar group trading director Peter Miller explains: “Own brand is a deciding factor in where consumers shop. Retailers continually re-engineer ranges to meet the needs of the consumer in terms of quality, price and packaging. A key part of Spar’s future success is how well our brand meets consumers’ needs and competes with our convenience competitors.”
Retailers are embracing own label and, as standards increase, are willing to spend more to promote their brand.
In addition, own label is also consistently good value. LPC’s Seagrove concurs: “Closing the gap between the quality of the brand and own label has enabled retailers to shout about providing consumers with even greater value for money. The perception of the quality of own-label products is therefore changing as shoppers are benefiting from the product development efforts
McBride trade marketing manager Rowena Howell suggests the only difference between own label and brands is that own label doesn’t have the frills. “Own-label products do a job and they work as well as branded, generally to a high quality. Own label simply lacks the added extras that allow brands to charge a premium. Own label is, however, as near as it can be in performance.”
Another key difference between own label and brands is advertising. A lot of money is ploughed into branded launches - both above and below the line activity - and this bumps up the price. Premium packaging is often more expensive as well.
Howell continues: “C-stores own-label brands are a point of difference from the multiples - exclusivity holds more value. This also means consumers are less likely to compare prices with the multiples. A few years ago, own label was slow to react to market changes but now products are slicker.
“New products are also hitting c-stores’ shelves faster. Own label is successfully competing with brands, and in some cases our own-label products sell better than the various branded alternatives.”
Howell explains that brands and own label should work in harmony because there’s a market for both. Value products are always in demand, particularly commodity items like household and personal care, but luxury will often prevail over price where chilled and fresh products are concerned.
Despite own-label’s rise in status, Bone believes it’s in for a tough time in the future: “Copycat own-label brands keep emerging. There’s more focus on heritage in order to play on consumers’ comfort tendencies and
nostalgia. There are suggestions that we’ll see ‘super super’ premium brands in the future.”
LPC’s Seagrave concludes: “Consumers will always be seduced by the power of advertising and perceived product quality benefits. Branded products will always be on our shelves because demand will always be there. Retailers need high-performing brands as much as brands need retailers. There are strong benefits to this relationship for both. The retailers benefit from brand-new product development, and brands see retailers as a ‘testing ground’ in what will remain a brand-led market for some time to come.”
The market for own-label foods increased by 18% between 1999 and 2004 to reach a value of £28.5bn in retail sales
Own-label brands have matured since their advent in the 1970s. They no longer act as brand imitators: in many categories, they now lead the way
Most retailers offer a basic hierarchy of
own-label ranges, from value to premium
Virtually all of the growth in the own-label market in the past two years has come from
the chilled foods sector
Retail sales of own-label chilled foods have grown by 80% in value terms between 1999 and 2004
The most significant new product developments in own-label food and drink during 2004 were in health & beauty and convenience, and indulgence at the premium end of the market has also played a major role
One of the main focuses of development within premium has been fresh food, where meal kits comprising top-quality ingredients prepared and ready to cook have given a new dimension to chilled and convenience foods
The conclusion from both demand and supply side analysis suggests that own label will grow at a slightly better rate than the total food market.
Source: Mintel’s Own Label Food & Drink report, March 2005