Private label scenario Private label innovation in the European market

Private label innovation

in the European market

In the 1990s, nearly all European supermarket companies were working on developing their own private labels to offer something distinctive and different from their retail competition and the branded product manufacturers. The core attention was to transform the private label into a trusted brand in order to achieve consumer loyalty. The strategy employed by most retailers was to start offering quality products in categories with weak brands or in categories with little or no innovation. In the next phase, the private label ranges were extended to other categories thereby mimicking brands and offering product variations.

Karlskrone beer (Aldi Ireland) and Bramwell’s ketchup (Aldi UK) copycats of the brands

PRIVATE LABEL PROLIFERATION

In Europe, the premium private label segment outperforms total market sales growth. In 2017, more than half of all worldwide new premium private label product introductions came from Europe. This underlines how important the premium factor is in Europe compared to other regions in the world. In recent years, discount retailers have also joined the game and accelerated premium private label growth by entering the market with ranges offered around the festive season. Today, an abundance of innovation comes from premium private label as shown in the 2017 Grocer’s Own Label Food and Drink Awards. In the United Kingdom, out of the 111 winning products 60 items or 54 percent were premium labels.

PRODUCT INNOVATION

Food retailing in Europe is an extremely dynamic environment that responds to trends and developments in society. Therefore, constant product and packaging innovation as well as new introductions and delisting make up the daily reality for all managers involved. Innovation is no longer the exclusive domain of brand manufactures and retailers work closely together with their private label suppliers to achieve this. Retailers must respond quickly to meet shopper expectations, which has implications for brands. Larger and more professional private label manufacturers see it as their task to drive the market forward or to shake up dormant categories with new product development of their own or innovations offered by their suppliers (packaging and ingredients). It could be argued that retailers even have a certain advantage over manufacturer brands as they can innovate or imitate rapidly because they have immediate access to consumers. They have control over distribution and pointof-sale communications and in this way, they can influence perceptions of their products more easily to foster adoption. Nevertheless, very few new product launches in Europe turn out to be successful according to Nielsen. Across most categories, only 10 to 20 percent of innovations account for roughly 80 percent of new product sales. Moreover, it takes time for an innovation to make it to the market. Only three percent of retailers (and no branded fast moving consumer goods organizations) can get an idea to the market within six months, while almost half take up to two years. It is a challenge for every category manager because just as successful innovation can deliver incremental category growth, unsuccessful innovation can set a category back.

In the highly competitive European retail market, retailers have to work very hard to compete in the private label segment to attract shoppers who are both price-conscious, while simultaneously demanding more quality and added value. For this reason, a greater focus on ethical and environmental positioning can be observed. Private labels making claims related to animal welfare, vegetarian, organic, healthy lifestyle and eco-friendly consumption are steadily on the rise.According to Mintel, premiumisation has resulted in a reality where one in ten private label new

BUILDING PRIVATE LABEL ARCHITECTURES

Today, retailers successfully rival brands with their private labels in both innovation and quality.

Vegan and organic product launches in Europe are now under a premium private label brand. Europe accounted for over half (57 percent) of all private label launches with premium claims globally in 2017.

As discounters offer significantly fewer products in their stores compared to mainstream retailers, new product introductions become considerably more visible on the shelves. New product innovations are usually tested within a selected region or during in an in-out promotion. Subject to sales performance, the product may obtain a permanent listing in the regular assortment. Research has confirmed that product innovations are better noticed in a discount environment because shoppers do not get lost in a plethora of other SKUs offered.

Aldi and Lidl drive innovation intuitively and at low cost. More importantly, they do this successfully and at very high speed. Aldi UK made an impression by winning 21 awards in the 2018 Grocer own label food and drink contest. Lidl came in second place with 19 awards. Aldi also turned out to be leading the pack in terms of total innovation with 14 awards, followed by Lidl with 13 awards. Quite an impressive result considering the limited assortment of the discounters in one of the most sophisticated private label markets in the world.

Eco-friendly

SUPPORTING SMALLER COMPANIES

Many small and medium-sized companies (SMEs) are unable to allocate the budgets to build brands themselves. They simply cannot compete against the strong brands that dominate their respective categories. By choosing the private label route to market they can still make their products available to the larger public without having to invest in heavy marketing. In fact, it has proved how well the internal EU market works: private label allows many of these SMEs to export their products to retailers in foreign markets. It is the retailer supporting the products with his store brand that will create awareness and build trust. By allowing the SMEs to supply their products as private label, retailers support their survival and even develop in categories with fierce brand competition and active innovation. In fact, market segments such as vegetarian, free-from, eco-friendly and animal welfare private labels are the exclusive domain of small and medium-sized manufacturers.l

For more information on the subject and to order the book (hard copy or e-book) https://www.iplc-europe.com/prodotto/the-private-label-revolution-digitale/?lang=it Koen A.M. de Jong IPLC Managing