Woolworths, Big W tipped to boost home-brand offerings, as experts tip 50% penetration

Woolworths supermarkets and the company’s discount department store Big W are expected to unveil plans to substantially increase their home-brand offerings this week, in a move that will place further pressure on suppliers and better position retailers towards greater home-brand penetration seen in the UK and North America.

According to The Age newspaper, Woolworths is expected to tell analysts and investors tomorrow of a plan to double the space allocated to home brand goods in its supermarkets to 35% of its sales excluding fresh food.

Woolworths spokeswoman Clare Buchanan told SmartCompany this morning that the company has never disclosed its private label sales figures, but they are substantially lower than the reported 35% target. She also said IBISWorld’s estimate of 23% of the market sounded a “fraction high”.

Coles was contacted this morning to discuss its home brand sales and plans but was not available because of the public holiday in Victoria.

According to a recent report by IBISWorld, supermarket sales group will be boosted by consumer demand for private label goods, with home brand sales tipped to reach 30% of the total grocery market, to the detriment of branded merchandise.

Gary Mortimer, from the School of Advertising, Marketing and Public Relations at the Queensland University of Technology, says about five years ago, home brand sales in the UK in supermarkets had reached 50-55% – and this is where Australia is headed.

“It’s been demonstrated globally now that particularly in those low-involvement products, consumers fall into two categories: shoppers now base their decisions on price and then brand, rather than range,” Mortimer says.

“With Coles five to eight years ago, their big focus was on the depth of brand. They’ve reduced that so that their supply chain becomes more dynamic and more efficient. And consumers don’t expect a massive range – they want the cheap price and core products,” he says.

“So I think what we’ll see is we get the core brands – Nescafe, Cadbury – but the local brands will disappear, and the third brand you’ll pick from is a home brand.”

Mortimer says while the encroachment of home brands will limit choice to some extent, consumers will win out because they’re fundamentally getting cheaper products.

“The strategy behind private label brands is they’re very hard to duplicate, they don’t need to be discounted because competitors don’t have the brand, and there’s a lot of profit in it. It’s a good strategy.”

It also follows a warning from Australian Competition and Consumer Commission’s Rod Sims that the vertical integration of supermarkets “needs close scrutiny to ensure the supermarkets do not misuse their market power”. Sims also noted that many small suppliers feel they “lack a real ability to negotiate supply arrangements”.