case study - supermarket own-label brands
Introduction
The days when supermarket own-label brands were the cheap, "me-too" alternatives to established brands seem to be over.
The leading UK supermarkets have expanded their own-label product ranges and now offer a high quality and diverse range of own-label sub-brands from premium food to clothing.
For example, Tesco recently announced plans to extend its “Finest” own-label to include a range of homeware including crockery, cutlery, bed linen, towels and glassware.
Size of the Own-Label Market
Sales of own-label products are significant in the UK. According to Mintel, own-label products represented almost 20 per cent - worth £10.2bn - of total UK food sales in 2000.
This has not always been the case. A few years ago, customers were complaining that supermarkets were showing preference to their own labels over branded goods and that as a result there was not enough choice on supermarket shelves
Research from IGD, which shows a slight decline in the percentage of own-label products bought by consumers since 1997, would appear to back this up. But IGD says this is unlikely to be a long-term trend and forecasts further growth for supermarket own-labels, especially in the fresh foods categories, which it believes is a particularly strong area for own label. That's good news for the supermarkets, which earn a higher margin on own-label products.
Developments in own-label branding
Own-label branding has become much more sophisticated.
Supermarkets have moved on from creating imitation brands to developing own-label sub-brands that stand as brands in their own right. These brands have become an everyday feature of consumers' lives and, as a result, have earned loyalty.
In the food market, the one category that own-label sub-brands dominate is chilled foods. In 2001, own label accounted for 98 per cent of the UK chilled foods market (source: Mintel).
But the food sector is becoming saturated, so that many supermarkets have explored non-food markets as an area in which they can develop own labels. Tesco's plan to extend its Finest range into homeware is part of that shift in direction.
Tesco's other sub-brands include Healthy Eating, Organic and Kids, but Finest is its most successful, growing rapidly at a rate of 30 per cent a year. Next year, Tesco expects to generate £600m in sales from the Finest sub-brand alone.
Sainsbury's has approached the own-label market through segmentation. Its brands include Free From, Way To Live and Blue Parrot Café as well as its value and premium ranges. Like Tesco, it is also moving deeper into non-food markets with sub-brands Perform+Protect and active:naturals.
Own-label sales generate 38 per cent of Sainsbury's total revenue, with its Taste The Difference premium range estimated to contribute between £200m and £300m.
One of the most famous own-label brands to have emerged from the UK supermarket chains is Asda’s “George” clothing range. This is estimated to be worth around £1bn in sales – making Asda one of the leading clothing retailers in the UK.
The way forward for own-label
How far can the use of own-label brands go? Which products are less suitable for supermarkets to apply the own-label formula?
It is not easy for supermarkets to break every market they enter.
For example, luxury segments such as up-market clothing and cosmetics – where there are many well-established, premium brands – are one area in which own-label brands are rare. Other product areas that could prove restrictive for own label include those that require a lot of innovation and development, such as an anti-wrinkle skin care or functional foods.
But such hurdles are unlikely to stop supermarkets in their development of own-label brands. With increasingly sophisticated marketing methods and room for further expansion into non-food categories, own-label branding is likely to increase. Whether they succeed or not, is largely dependent on how far they can persuade consumers of their credentials.
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