Private Label Popularity Growing in Australia

Private label products, also known as store brands, have never enjoyed so much popularity. Years ago, generic products were seen as inferior and dull, but today, economic conditions and a distinct improvement in product quality have given private labels a new desirability.

In the U.S., store brands are thriving. A recent study of 500 U.S. consumers conducted by the management consulting company Accenture shows that 64 percent of shoppers' grocery carts were at least half full of store brands — and 39 percent said they've bought more store brands in recent years.

That trend is not limited to the United States. A new report from IBISWorld, Australia's largest provider of industry-based research, notes that private labels will account for over 30 percent of supermarket sales in Australia by 2017-18.

The study finds that private label products have been one of the fastest growing segments in Australia's supermarkets over the past decade. "In 2007-08, private labels accounted for just 13.5 percent of total supermarket sales — meaning the segment has grown by more than 85 percent over the past five years," said IBISWorld GM Karen Dobie.

Obviously, economic conditions have played a large role in driving private label growth, but wider availability of private label products has also made a difference. The strongest growth, according to Dobie, has been in such staples as butter, sugar, bread and milk. Eggs, however, have seen a decline in private labeling, "mainly due to a switch towards free-range, a segment not adequately represented by private-label players," Dobie said.

Dry grocery items and chilled packaged food categories have been the strongest performers for private label products, according to the study. But Australians seem to prefer branded products in the chocolate, confectionary, cosmetics, sanitary products, and soft drinks categories.

Who is buying private label products? They're most popular with Australia's low-income families, those earning less than $44,000 annually. Private label products represent about 40 percent of their total grocery bill, vs. 15 percent of the grocery bill of families with incomes above $75,000 annually.

IBISWorld sees growth opportunities for private label products among consumers in middle and higher income groups. In fact, some store chains "are introducing premium, organic and fair trade products — such as Woolworths' Select range — to attract private-label buyers from all walks of life," said Dobie.

As in the U.S., brand marketers serving the Australian market are trying to compete with store brands using a product discounting strategy. Still, since chains like Coles and Woolworths dominate the Australian supermarket industry, they can "give preference to their own brands in terms of spacing and design allocations" in stores, "placing continued pressure on the big brands," according to Dobie.

Dobie's concern is that, while Australian consumers will benefit from lower priced store brands in the short term, they might have less brands to choose from in the long term as stores increase their private label offerings. But that surely isn't a concern to the retailers. "Major supermarkets are spending big bucks on activities aimed at blurring the lines between branded products and their own in-house fare," Dobie said.