The battle is on among fast-moving consumer goods (FMCG) retailers who sell private-label products to gain market share as the rising cost of living puts financial strain on consumers.
Shoprite, Pick n Pay, and Clicks all recently showed double-digit growth in sales of their private-label or own-brand products that range from snacks and condiments to detergents and over-the-counter medicines.
For decades, retailers have integrated branded products into their own brands such as baked beans and more recently they have developed new products not available from food producers through partnerships with small to medium businesses. An example is ready-made meals.
Research firm Euromonitor says private label products have grown by 30% since 2020.
So what makes private labels popular?
Price is the first point of attraction, says Anje du Plessis, consultant at Euromonitor International.
“The economic climate of the past few years has seen consumers looking to cut down and private label products allow them to do that without sacrificing quality,” she said.
Chris Gilmour, analyst at Salmour Research Investment, says a successful private label product will typically be almost indistinguishable in terms of quality but should be at least 30%-50% cheaper than the branded product.
“Often it is difficult to persuade customers that a product is as good as the branded product but that’s where the art comes in. Early attempts at so-called ‘no-name’ private label products tended to poor quality and not significantly different in price. But that’s changing and Pick n Pay is leading the pack,” he said.
Du Plessis says private labels can innovate at a faster pace than branded products which means they have more variety. For example, in the snack bars segment, there is an option available for every diet: keto, vegan, low fat.
Brands typically take 18 months to launch a new product while private labels take a minimum of eight months.
“The faster turnover means they can stay on trend and meet consumer needs faster,” she said, adding that this means increased competition in the market because they are no longer replicating branded products, but rather are innovating.
Nicki Russell, head of product and quality at Pick n Pay, said turnaround time differs per product or category. Some fresh products can take less than a month to be on shelves given that the retailer is always in discussion with farmers. Other products can take six to nine months.
The real competition is between private label brands rather than private label vs branded products, says Du Plessis.
“Given that private label products are generally cheaper and the same or better quality than the branded products, private label continues to win market share,” said Du Plessis.
Russell says Pick n Pay is constantly working at providing different and unique products that will make consumers “choose us as opposed to the competition”.
While big corporates have their roles, says Russell, Pick n Pay is working less and less with big food producers in developing new products as some do not want to take risks and are slow and cumbersome with innovation. The retailer is working more with companies that sit in the middle of the supplier base, that have solid businesses, are “passionate about their products and have very strong determination and understand how to develop products”.
Last year, a quarter of Pick n Pay sales came from its private label range, up from 18% just five years ago. In the same year, it launched more than 1,000 new private-label products and plans to launch another 1,000 this year. Its private label range includes healthy product range Livewell, PnP Kidz and premium category Crafted Collection, which has more than 160 products on the shelf. Another 65 products will be added this year.
At Shoprite and its other retailers, 93% of its customers now shop for private labels as these products offer quality and value.
“Private label customers are generally more loyal,” it said.
According to research conducted in the six months to January 1 2023 by SupermarketsSA, the value of the basket of Shoprite's private label customers is more than the average store basket size.
Private label products account for 21.4% of merchandise in Shoprite stores and 19.7% at Checkers, due to the higher penetration of commodities such as rice and maize meal in the lower-income segment.
At Usave, which caters to lower-income consumers, its private label Ubrand contributes 40% of revenue, which is double the group's average.
Du Plessis says private label brands will continue to fight inflationary pressure and invest in offering lower prices to win over consumers.
“We are seeing an increase in convenient meal options, especially as load-shedding continues,” she said.
Both Pick n Pay and Woolworths have said that there is more spending in their stores during load-shedding as customers buy pre-prepared meals and less frozen food, which may spoil during load-shedding.
Shoprite introduced a new brand called Homegrown with products such as chips, snacks, tomato sauce and cooking sauce. The products are sourced locally from primarily small, medium and micro enterprises (SMMEs).
The retailer’s first private label was Ritebrand, while at its other company Checkers it was Housebrand which focused on staple products. Over the years it has introduced more high-end labels for Checkers — Forage & Feast and Simple Truth, a wellness brand.
During the 2022 financial year, the Shoprite group launched 1,285 new private label products. It will add more products under its Homegrown and Forage & Feast brands.
“Private label ranges are also an opportunity for the group’s supermarkets to drive differentiation in line with global mega-trends.”
An example is Checkers’ Simple Truth, which gives customers healthier alternatives.
We are seeing an increase in convenient meal options, especially as load-shedding continues
— Anje du Plessis, consultant at Euromonitor International
Given the growth potential, retailers are working closely with small, micro and medium enterprises to create some unique products for their clients.
“In June last year, Shoprite Group launched Shoprite Next Capital, a business division dedicated to capacitating and growing commercially viable SMMEs. Each supplier partnership is unique and products need to fill a gap or niche in the market — whether it's a specific price point, a unique recipe or a consumer trend — and are subjective to the needs of the business, as well as the market and customers it serves,” says Shoprite Group.
In the 2022 financial year Shoprite spent R350m on local SMME suppliers; 215 of its growers in South Africa were SMMEs, accounting for more than R350m of the fresh produce procured annually; 88.4% of private labels in South Africa were sourced locally, with a 4.1% year-on-year growth in SMME procurement.
In the first six months of the current financial year, the group has advanced R476m in SME funding, which is set to increase during the last six months.
Judith Gale, national head of marketing: private labels at Spar Group, says the sourcing of new products is driven through 200 existing suppliers who advise on new trends, and the Spar private label team discovers innovations showcased at local and international trade shows.
“Private label can and should lead innovation, driven by shorter innovation cycles and lower barriers to entry than propriety brands,” she said.
The most popular Spar private label products are the basket staples such as long-life milk and sunflower oil.
According to Gilmour, private labels make up 20% of products on a supermarket’s shelves in South Africa compared with 50% in the UK, Europe and the US.
Woolworths Food, which developed private label as its brand, has been a leading retailer in this segment.
Gilmour says Woolworths sells its own branded products with the same or better quality as originals, with only a fraction of its products from other well-known brands.
Du Plessis said Woolworths’ success did not happen overnight and since 2010 it has invested in developing its core branded products.
Gilmour said Woolworths has “unwritten contracts with suppliers — literally handshakes ... that allow termination with no notice if product quality falls below a certain minimum standard. It is thus in the suppliers’ interests to ensure high quality control,” he said.
Woolworths said its product developers and food technologists ensure that it continuously innovates and its suppliers produce quality products in line with the retailer's strict specifications. Products are regularly checked against these specifications.
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