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July/August Management Briefing - The Private-Label Drinks Market - Part I

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Private-label drinks sales make major progress

Private-label drinks sales in supermarkets worldwide are no longer the poor relation of commercial ‘national’ brands – cheap drinks for consumers caring little about taste and brand image. A good place to examine this trend is the US, whose private-label offerings have often lagged behind those in Europe.

These days, US retailers are aggressively promoting their own labels and seeing sales soar. “In [US] supermarkets, store brands reached a historic high of 23.7% market share in units (in 2009),” stated the latest research by the Private Label Manufacturers Association (PLMA). “Store brands accounted for 90% of the revenue gains in supermarkets, adding US$1.5bn in incremental sales,” it noted.

Meanwhile supermarket private-label carbonated soft drinks (CSDs) in this year’s first quarter commanded a 12.7% share – up 0.1% – says the drinks industry newsletter Beverage Digest USA.

According to Neil Stern from retail consulting firm McMillanDoolittle, one factor that has led to this speedy adoption of private-label products is simple: “They have an easier time securing shelf space because of the retailer's control.”

But, it is not all plain sailing for US retailers. As regards drinks, private-label market share varies greatly and, in certain categories such as alcohol, store brands remain virtually non-existent at present. Earlier this century, Trader Joe’s did make a name for itself with its exclusive listing of the Charles Shaw wine brand, more popularly known as “two-buck Chuck”, which retailed at US$2. The wine competed solely on price, however, not on quality.

Private-label orange juice, on the other hand, has managed to grab some market share. A recent study called Consumer Attitudes and Loyalty Towards Private Brands, collated by a group of US professors from different universities (Ronald Goldsmith, Leisa Flynn, Elizabeth Goldsmith and Craig Stacey), concluded that 23% of US orange juice consumers consider brands themselves to be less important and private brands to offer better performance than national brand buyers.

The research also found that “being relevant to consumers’ lives appears to influence brand selection".

"Both people who typically bought either national or private appeared to be price insensitive,” the authors reported. “Besides touting lower prices, private brand promotions might stress the equivalent performance of private labels and create promotions showing how these brands can be relevant to consumers’ lifestyles and needs.”

Private-label sales have also been moving ahead in Europe. Although many of today’s retail giants in Europe have been selling drinks under their own labels for 30 years or more, the rise of retailer brands only began on a substantial scale some 15 years ago. The share held by ‘own brands’ (the European term for private-label) varies enormously between volume and value and from product to product, but there can be no doubt about the overall long-term growth in the market share of own brands in general. “Essentially there is a top level of around 40% in Switzerland and it’s about a third in the UK,” said Richard Hall, chairman and founder of international food and drink consultants Zenith International.

Hall puts this growth down to a “gradual momentum” behind the development of own brands by big retailers, only partly fuelled by economic factors. During the recent recession, European consumers were “by and large moving towards affordability”, although they also favoured the familiarity of long-established brands, he says. “There seems now to be an increasing reversion to pre-recession trends. I’d expect retailer own-label and retailer brands to gain share over time in drinks but that may not be the case in all markets and may not be the case in all years,” he said.

Edwin Atkinson, director general of Britain’s Gin and Vodka Association, says about a third of gin and vodka sold in the UK is sold under supermarkets’ own brand names which, in price terms, range from “cheapest on display (COD) up to average price”. There is “anecdotal evidence that some of the COD brands grew quite considerably during the recession,” Atkinson says.

Even in emerging markets, when it comes to private-label products planning, drinks are a category that no retailer can ignore. Price is important here. For example, in China, salty soda water, a popular summer drink which is manufactured by companies including Coca-Cola, is copied by both Centurymart, a domestic hypermarket owned by the Shanghai-based Bailian Group, and Rt-Mart, a subsidiary of the Taiwan-based Ruentex Group.

David Pan, PB manager at Rt-Mart, said its Thumb brand salty soda water is so far its most popular product among all of its private-label drinks, including cola and oolong tea.

“Consumers come to us for the best price with good quality, which is exactly what our PB products are offering,” he told just-drinks.

However, in a white-hot competitive market like soft drinks, where price wars have been waged between national brand companies for years, there is little leverage for retailers on pricing, says Chen Wei, analyst at Hefei-based consulting company Pindao Group. Indeed, a bottle of ‘Thumb’ salty soda water is priced at CNY1.40 (US$0.20) for 600ml, just CNY0.30 (US$0.04) lower than that of Aquarius, a long-established soft drinks maker based in Shanghai.

In this case, Chen says, the only advantage for retailers is the exclusive sales channel they have. However, in a country as large as China, people have different preferences regarding where they buy drinks. “In eastern China, people like to go to a convenient store or supermarket to buy drinks, while in southern China, most people opt for roadside vendors,” he said.

Meanwhile, private-label drinks sales in India are still in their infancy. The so-far comparatively small volumes of sales at the modern retail chains and the brand loyalty of well-established players in the drinks market are the major factors obstructing their growth.

‘Smart Choice’ of Spencer’s Retail is one of the few private-label non-alcoholic drinks, consisting of mainly fruit-based products in 1-litre packing. Also selling private-label lemon juice, Spencer’s offers these lines at only 250 retail stores across 50 Indian cities.

Growth may yet come, however – with retailers exploiting their close links with customers. A floor manager at a larger Spencer’s outlet in Gurgaon near New Delhi told just-drinks that, after a survey, the company had decided to launch private-label juices that are less tangy in taste. For this reason, he said that the actual fruit content in ‘Smart Choice’ products is only 85% compared to 90% in Pepsi’s Tropicana, which is manufactured at the same production facility of Schreiber Dynamix Dairies in Baramati, Maharashtra.

A senior executive of a company that manufactures fruit-based drinks for various brands including private labels told just-drinks that volumes are very important in the business and that it requires a minimum order of 60,000 litres for one flavour of a drinks product, which could be produced in a 10-hour shift. The raw materials such as fruit concentrate and packaging materials are procured and supplied by the brand owners themselves.

“The difference between any two products in the market is not large and the private labels are not coming in with new or innovative products”, said the executive.

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