“My daughter hasn’t moved to buying private label brands instead of Coca Cola,” says Super-Sol CEO Itzik Abercohen, echoing others in the grocery industry who say the change in shopping habits after the 2011 social justice protests has passed the stores’ lower-price price house brands by.
While consumers are buying fewer premium brands in favor of cheaper products and working hard to cut their shopping bills, they still avoid private labels. “Israeli consumers love brands. So while they’re protesting or struggling financially, they will simply buy smaller, less well-known brands instead of the category leaders, but they won’t buy private label,” says Eyal Ravid, a principal in the Victory discount supermarket chain.
He said private label sales didn’t grow at all in 2012, a year when a lot of new products were added to the segment and sales should have increased.
Figures from the consumer research company StoreNext found that as a share of all purchases, house brands have shown virtually no growth since 2009, when they had a market share of 4.8%. In 2001, it rose to 5.1%, showed a little upward movement in 2011 to 5.6% and then stagnated in 2012 with 5.7%.
Breaking down private-label products by segment, in food their share held virtually steady at 5.7% compared to 5.6% in 2011. In beverages, private labels captured just 1% of all sales. The one area where private labels showed any real growth was in home care products, where their share of total sales rose to 12.7% from 12.3% the year before.
In personal care products the private label saw its share decline to 5.6% last year from 6.3% in 2011.
In the United States, private label is a much bigger business. As of May 2012, it accounted for 17.1% of the market, even if it showed no growth from 2011.
“When a shopper buys Starkist or Williger tuna fish and doesn’t turn over the can to see that they’re also the same manufacturer who’s making the private lable, there’s nothing I can do,” says Ravid. “I carry canned vegetables from Pri Galil and right next to them on the shelf is the primate label made by the same Pri Galil. I should be seeing crazy growth of the canned private label product but it isn’t happening. Consumers still aren’t alert enough to the fact that we’re talking about the same producer and the same quality.”
While retailers blame the consumer for shunning private labels, there are food manufacturers who say merchants prefer it that way and aren’t doing anything to educate their customers.
“In addition to the profit margins they get from selling [brand name] products, they get other benefits and bonuses that can add another 10% to the shelf price. The package includes annual bonuses, sponsorship commissions, payments when new branches are opening, sales from newly launched products, holiday allowances and others,” says an executive for one of Israel’s makers of non-edible consumer products.
“From private label products, they don’t get any of these payments, so the merchants don’t push their private label products too much,” says the executive, who spoke on condition of anonymity.
Adds a senior manager at one of the leading food companies: “Supermarkets have to have a few cheap products, but on the whole they prefer to sell expensive ones because they earn bigger profits on them. The retain chains have no interest in private label brands doing too well. They want there to be private labels so they can offer shoppers a cheaper alternative, but they don’t want to sell too many of them.”
The fight for shelf space
Supermarkets could give more shelf space to private label items, but the big food manufactures pay for shelf space, so why give it away for free, adds the manager, who also asked not to be identified.
The retail chains deny this allegation, saying that mark-ups on private label are, in fact, higher than on branded products.
“In addition, private labels enable the retailer to offer lower prices and boosts the chain’s image to make it more attractive,” says Gershon Weisman, vice president for sales at the Mega supermarket chain, Israel’s second biggest.
Mega was late in entering the private label segment, but Weisman says that it has actually increased the share of private label products to total sales in the past year, to 16% from 13% in 2011.
Ravid concurs: “It’s a lie to say we don’t want to promote private label products. Both we and the consumer benefit from them. The chains are trying to create more shelf space for them and put them on sale, but you need to understand that it’s difficult to discount private label. From the get-go, the product is typically 20% cheaper than the leading brands and the leading brands have specials, too. The shoppers buy that.”
Another retail executive, who likewise asked not to be identified, said the relations between the supermarkets and the food manufacturers is more complicated than private label versus branded product.
“With the brand leaders we’re making almost no money because the retail chains are constantly at war with each other over who’s offering the lowest price,” he says. “But if you compare brands that are not category leaders, we profit on them more or at about the same level as with private brands. In any case, the chains prefer to push private label over middling brands because private label strengthens you versus the brand leader.”
Some say the poor performance of private labels last year is due to the fact that their prices aren’t that attractive. “The leading suppliers deepened their discounting during 2012 to head off any changes in consumer buying habits towards buying private label,” says Rafi Sheffer, CEO of For You, a maker of private label products under the name Hamutag.
Last year’s local price wars in places like Beit Shemesh and Modi’in are fought over who had the lowest prices for brand leaders, he says, a phenomenon that only encouraged shoppers to skip private label products and buy old, trusted brands. Nevertheless, Hamutag products saw sales rise 22% in 2012, he says.