Insight: Private label under pressure in UK supermarkets as discounters grow – according to new IRI report

Supermarkets continue to lose private label sales to the discounters, as their value share of private label fell in the UK, according to a new report – ‘Private Label in Western Economies’ – launched  by IRI, a provider of FMCG market intelligence and predictive, actionable insight.

The report, which analyses private label sales trends and price and promotions across Europe (France, Germany, Italy, Spain, the Netherlands and the United Kingdom), and the US and Australia, saw private label’s value market share in Europe fall by 0.6 points to 38.3% in 2015 compared to the previous year (as a share of the total FMCG market).

While the UK remains the country with the strongest penetration of private label (51.8%), value share was down year on year by 0.4 value share points in UK supermarkets, indicating a potential loss of private label sales to the discounters. However, including the discounters, the value share of private label in the total market was up year on year by 0.4 value share points, as measured by Kantar Worldpanel UK, which includes the discounter channel and other big private label food retailers, such as M&S*.

While there are encouraging signs of economic growth in Europe, with GDP up +1.7% for 2015, wage inflation and unemployment slowing or stabilising, the story for the UK is one dominated by shoppers moving to the discounters, as Aldi and Lidl look to increase their share of grocery spend and compete directly with supermarkets’ private label products, primarily from the economy range.

The UK’s largest retailers are also reducing their range of items stocked to simplify their offering to shoppers and help reduce costs. The overall average reduction across 2015 was -5%, but in one major multiple it was -10%. Although private label ranges have been reduced more quickly than national brands, national brands are seriously impacted, as FMCG retailers and manufacturers focus on cutting their range and assortment to encourage higher performance amongst categories and brands.

Tim Eales, Director of Strategic Insight at IRI, comments: “We’ve seen an over-abundance of products on the shelves across many of the countries, not just the UK – there is simply too much choice for the average consumer today and private label is often the victim of cuts to the number of products that appear on store shelves. Retailers need to put in place the right strategies to help them focus on what shoppers want, but also to understand the impact of their decisions when it comes to reducing assortment and range – whether that’s private label or national brands.”

The report also reveals that the price gap between private label and national brands is closing and price could be less of an incentive for UK shoppers looking to supermarkets’ private label products to save them money. On average, packs of private label products sell for 30% less than national brands. This index has increased for food and reduced for non-food, but overall has hardly changed in the latest year. A similar measure, covering thousands of individual pack prices, IRI’s UK shopping basket, shows that private label prices are slowly getting closer to national brands’ prices as private label trade promotion support is reduced.

Tim Eales adds: “While the UK has a very healthy private label value share of the total FMCG market, there seems to be a level of uncertainty over whether it will maintain this over the coming year. With retailers reducing their ranges and withdrawing promotional support for private label, and shoppers with more money in their pockets potentially feeling that they can afford national brands again, this will be to the detriment of private label.”

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