The downturn has proved a fillip for private label soft drinks brands. In his last commentary of the year, Richard Corbett takes a look at the sub-category, and warns that the stigma attached to buying 'shops-own' is dead and buried.

As the Eurozone big wigs gather yet again, to ponder just what the Greeks, Italians, Spanish, you-name-it have spent their money on - and, more importantly, how they are going to pay it back - the economic waters look as choppy ahead as they were behind.

These are anxious times for everyone, and the soft drinks fraternity is no exception. But, as Winston Churchill once said, “a pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”.

These dark days have presented an opportunity for the expansion of private label soft drinks.

You can trace private label products back to the 1970s. They really gained momentum in the 1990s and, today, have evolved into a formidable rival to branded products. The stigma of drinking or offering a low-price, private label beverage to a branded alternative has faded considerably and, in West Europe, according to Canadean, private label soft drinks make up more than a quarter of all soft drink sales. It is a percentage that has increased by 3% since the halcyon pre-credit crunch days of 2007.

A depressing economic outlook keeps us all out of the pubs, bars and restaurants and this shift from on- to off-premise amplifies the opportunities for private label soft drinks.

Inevitably, we do more shopping in supermarkets where the private label products are. Economic gloom also makes us wary of what we spend our money on and, in Europe, this has facilitated the rapid expansion of the hard discounter chain; with more hard discounter outlets comes more private label volume.

Aldi and Lidl in particular have seen the more cautious, post-crisis consumer as an opportunity to expand their operations across the region. In the Netherlands this year, Lidl has opened its 350th store after just 14 years while, in Spain, new openings in the quarter have taken Aldi’s total to 240 sites. In troubled Ireland, one report suggests that, between them, Aldi and Lidl have a combined turnover bettered only by Tesco.

We are increasingly shopping like Germans and buying the ‘pseudo brands’ that are on offer in these outlets.

The modern private label product continues to improve in terms of quality and is also evolving away from just being a low cost alternative to branded products. Different quality tiers have begun to emerge, and the private label audience is no longer limited to the penny pinchers at the lower end of the market but has widened to include those seeking value in the premium segments such as organic.

Today, private label products often compete at the bottom end, the mainstream and the premium end of the market, widening their audience and increasing their threat to branded products. Nowadays, buying a private label is less of a step down than it once was.

The threat level to branded products does vary by category and is much higher in a category like juice. Differentiating a branded juice product in the eyes of the drinker is much harder than, say, the carbonates category where the strength of brands in the category are much stronger and more sales come out of the supermarkets. Nearly half of all juice sales in West Europe are classed as private label and a quarter globally, highlighting the commodity image of juice.

Not surprisingly, branded water products often struggle to justify the brand equity gap or, put more crudely, how much extra the consumer will pay above the generic private label price to drink a branded alternative.  A lot of still waters are drunk on the go and purchased from convenience outlets. This, subsequently, dilutes the impact of private label on the category.

One of the legacies of the bust of 2008 will be the increased private label presence that it triggered. Shrewd brand management will be necessary for operators to counter the threat that private label poses to brand pricing structures and to adapt to the future encroachment into branded strongholds in all soft drink categories.

Today, the private label threat to brands is more concentrated in the developed world, but the development of the modern retail channel in less developed parts of the world is gaining momentum. Meanwhile, in developed markets, the big retailers are moving into garage forecourts and convenience outlets, the traditional heartlands of branded beverage products. Private label beverages are becoming more and more available.

Considerable marketing resources will be needed to defend branded soft drink products but a successful strategy will guarantee a brand the ‘must stock’ status needed to prosper. Consumers, after all, like and expect choice.

There are many instances over the years where retailers have refused to compromise on their negotiations and even well-known brands have been removed from the shelves only for consumer pressure to ensure their reinstatement.