FEATURE - Private Label: A Big Name For Export

In Australia’s supermarkets "home brand" products are viewed often as inferior versions of branded produce. But that's not the case in Europe. There, products in this range – known as "private label" – are often high quality and account for approximately 25 percent of grocery sales. Paul Mitchell REPORTS.

The UK private label market (for all products) is alone worth about AUD$60 billion. Forty-one percent of UK grocery purchases are private label and percentages are solid on the continent: Belgium 36, Germany 31, France and Spain (a fast growing private label market) 24.

In the UK, Europe’s biggest private label market, five private label items (fresh cream, non-flavoured nuts, milk, canned apricots and cooking salt) have cornered between 82 and 93 percent market share. In addition, private label fresh processed poultry (81.2 percent), frozen vegetables (59.3 percent) and wrapped bread/dietary loaves (48.6 percent) are among the most purchased grocery items.

Private label has existed in Europe since the beginning of the 19th century. But it wasn’t until the 1970s when Sainsburys penetrated the European market that private label became an important part of grocery retailing. As in Australia, private label began as a cheap alternative. However, it now has products ranging from basic to exclusive.

Austrade Europe spokespeople said consumers now have more faith in private label (supermarket brands) than individual brands, and they don’t distinguish between private label and branded products at middle and upper price points. According to Dan Koziol, Sanitarium’s former Europe manager, it’s a market opportunity Australia is largely missing.

"There is little awareness among Australian suppliers of the selling power of private label. Few Australian companies have taken advantage of the growth and development of private label opportunities in the UK/EU private label market," he said.

Mr. Koziol now works in London with The Big Idea, a company that helps firms enter the private label market. With his guidance, Sanitarium in 1996 entered the private label market by exporting its Fruity-Bix product, under contract to Sainsburys and Safeway. Later, the company established a factory in the UK to produce its flaked biscuit breakfast cereals.

"Sanitarium saw that it could compete with an established brand by providing a private label option," said Mr Koziol. "Sanitarium made their unique cereal technology work for them and went toe-to-toe with UK cereals giant, Weet-a-Bix."

While a few Australian companies are involved in Europe's private label market, Austrade is keen to push the benefits of private label to potential suppliers.

"Private labels are marketed as premium line supermarket brands with sophisticated packaging and quality content," said Fiona Buffington, until recently Austrade’s London-based senior trade commissioner. "Private labels are promoted as value for money; tried and tested products sold by retailers prepared to put their name to them."

There is a perception that private label is a cheap export alternative; expensive marketing and research is unnecessary. However, Mr Koziol said exporters need to be wary of this claim.

"Sure, if you want to play purely in the commodity sector, then just turn up with a suitcase of product and a price list – but be prepared to be terminated after six months when someone else can offer a better price."

He added that if a company wants to remain long term in the private label market it must enter into partnerships with retailers and provide the research to convince them it's worthwhile stocking their product.

"A rule of thumb is to treat a Tesco or a Sainsbury brand in a similar way to contract packaging for a Heinz or a Nestle – private label brands in the UK/EU markets are true power brands."

Mr Koziol said exporting product for private label was a short to medium-term option.

"In the longer term a manufacturer will need to establish either a contract packer or bring their own technology into the market and manufacture in situ. Most brokers don’t have the commitment to make the product successful. With no ownership, vision and promotion the product will get few listings and in the end will face de-listing."

Notwithstanding, private label does offer manufacturers the opportunity to enter the market, gain cashflow and become competitive enough to also establish their own brands. However, the large commodity supply market is, according to Mr Koziol, nearly impenetrable.

"What retailers are looking for is innovation, and they are not averse to co-branding as long as you have a truly unique product," he said. "In the UK, an excess of manufacturers and product supply allows the retailer to pick and choose to find the best products via innovation."

Austrade added that in regard to private label innovation the "balance of power" tipped in favour of small to medium-sized businesses (SMEs). Retailers are reluctant to deal continually with multinationals whose product offerings are often deemed not unique enough for the market.

Rudi van der Vlies is a Dutchman now living in Australia. As managing commercial director of Melbourne-based Orange and Green he assists Australian companies to connect into Europe’s private label market. He agrees that innovation is the key to success.

"Anyone can make a can of tuna; it’s not going to separate you at all," Mr van der Vlies said. "But if you can come up with a new product unique to the supermarket chain then consumers will start to take a lot of interest in your products."

He added it’s important to remember that Europeans’ focus on quality remains central to the private label market. "One thing in Europe is you’ve got to be very customer-focussed. You can’t leave things laying around for two days without an answer."

Austrade Europe officials agreed that quality was central – and not just in terms of product. A private label supplier must guarantee supply for a retailer and be prepared to undergo a retailer audit. They added that Australian companies are often concerned about giving up brands in order to enter the private label market. However, companies must ask whether they have the resources to build brand recognition and loyalty, especially when so many customers have greater loyalty to private label.

Concern is also expressed about the possibility of losing Australian identity. However, Austrade said some countries allow suppliers to place their country of origin on the label and, in the UK especially, the connection to Australia is often an advantage for retailers (For example, Australia’s clean and green reputation increases perceived authenticity for UK private label health food products.)

Austrade added that Australian-themed and premium end products were the way to go for companies considering the private label market. Mr Koziol said that Australian companies were in a unique position to capitalise on the private label market, especially in the UK.

"Consumer dynamics, though different, are not a million miles between Australia and the UK," he said, adding, "We have a big enough market to test innovative products, and we have a can-do attitude that UK retailers love."

He added that due to the success of the Australian wine industry in the European market, private label buyers are now on the ground in Australia sourcing wine.

According to Mr. van der Vlies it’s impossible to say precisely which products will have success in the private label market. "There are plenty of opportunities. It has a lot to do with the company. It’s whether they’re flexible to deal with the European market."

May’s Private Label Manufacturers Association (PLMA) 2003 World of Private Label in Amsterdam is the industry’s showcase event; a key opportunity for Australian companies to find out first-hand about private label. Last year representatives from Sakata, Coles, Woolworths and Environmental Products Australia visited the fair.

"It’s worth Australian companies attending the fair," said Mr van der Vlies, who annually attends the event. "But I wouldn’t recommend just going there and setting up a stand. Get the names of the people who are the buyers responsible for the chains, send some products over, get some communication going and then say, I’ll have a booth at the PLMA in Amsterdam and let’s discuss it further."

A flexible, can-do attitude on the part of an Australian export company must also take into account several pitfalls of the private label market. It’s important that a product cannot be easily sourced from elsewhere, and on-the-ground Europe contact is vital. In addition, retailers use private label products to provide shelf variety so there’s little protection against de-listing (with only three months notice).

Mr Koziol said private label buyers were recently surveyed to discover what they’re looking for in a supplier:

  • account management skills
  • reliability of deliveries
  • consistency of product quality
  • value for money
  • ability to work with retailer to develop own label brand
  • new product development skills
  • crisis management skills

Mr Koziol said that, regardless of what buyers say publicly, price remains the key factor in negotiations. And he added that product is only one of a "bundle of support activity" a supplier will have to provide for a private label buyer.

He said companies are gaining entry to the private label market by proving they know the retailers’ business as well as (or better than) they do. They are demonstrating that they can add value to the retailer via, for example, lower cost, better margin products or unique premium products which set the retailer apart in this fiercely competitive market.

"Private label is endless and endlessly exciting for retailers," he said, adding that the more information you can provide, the more seriously a retailer will view your business. "It is not what you can supply, but how much added value you bring. The volumes are high, the possible earnings are high. But the risks are also high."