Private label push could see manufacturers leak $4 billion to supermarket giants: Report

Company collapse figures show it’s been a tough year for some of Australia’s food manufacturers, with the high Australian dollar, years of difficult weather, and pressure from supermarkets through discounting and private labels products wearing them down.

And now a report by Nielsen has taken a stab at how much the supermarkets’ expansion of private label products could cost manufacturers.

The research group predicts the push by Woolworths, Coles, Aldi and Metcash could lead to a $4 billion profit shift from manufacturers to retailers.

According to the Australian Financial Review, the Nielsen report shows that house brands reached a record 25.1% market share in the three months to October 1, with households now spending $206 per quarter on private labels, up from $87 five years ago.

In other difficult news for suppliers, Nielsen also reportedly found that proportion of sales generated from price promotions had risen to 35%, from 32% two years ago, and above the 25% recorded in the US.

Food companies say there is pressure from the grocery giants to cut prices – and therefore margins – so the grocery chains can run special price promotions.

The report follows anther report by IBISWorld which estimated private-label products accounted for 23% of all supermarket sales, and Woolworths saying it would double the space allocated to home brand goods in its supermarkets.

The report, entitled Shelf wars: intense competition leads prices to drop and private label-goods to develop, tipped supermarket revenue will grow by 2.4% by 2016-17 to $94 billion, underpinned by the expansion of private label products, and growth in the economy and disposable incomes.

It also nominated the growing popularity of private label products and subsequent “price war” among supermarkets as key trends in the $89 billion sector over the past five years.

Private labels had “effectively revolutionised the range of goods on offer across supermarkets shelves” the report said.

“Historically, consumers shunned private-label merchandise due to its questionable quality, limited range and bland packaging,” the report said.

“However, the private-label segment experienced phenomenal growth over the five years through 2011-12. Accounting for about 23% of all supermarket sales, demand for private-label goods primarily came from changing consumer perceptions along with an increasing acceptance of private labels.”

“This shift in consumer shopping trends has been particularly evident across younger demographic groups.”

The report also found that the fastest-growing categories included packaged small goods, fresh cream, ice cream, chilled seafood and vitamins.

The report comes after the collapse of several food companies, as reported by SmartCompany. They include:

• Victorian dried fruit company Clyne Foods.
• An organic olive oil business run by former rich list member the Kailis family.
• The fruit and vegetable supplier Addamo.
• The wholesale food distributor Victoria Foods Group.
• The food distribution business Downton & Dyer.
• One of the country’s largest food and vegetable growers Barbera Farms.
• Ethnic food group Parsam Group.