business news in context, analysis with attitude

Symphony IRI

Content Guy’s Note: This week, SymphonyIRI Group offers another in its series of “think pieces” about the ever-shifting food retailing business, offering a view of the ever-evolving European private brand business that can teach lessons to US retailers looking to make an impact in the own-label arena.

By Susan Viamari
Editor, Times & Trends
SymphonyIRI Group, Inc.

Like U.S. shoppers, Europeans have been faced with less than ideal economic conditions for an extended period of time. While the “worst” of the recession appears to be over, the road to recovery will be long and fraught with difficulty. As such, consumers are very entrenched in a conservative mindset and are closely monitoring their day-to-day living expenses, seeking ways to save money wherever possible.

At the heart of day-to-day living is fast moving consumer goods (FMCG). These daily purchases are necessary to feed the family, to maintain health and wellness, and to run the household. Consumers are turning to retailer branded FMCG solutions that offer significant savings over nationally branded products. Across Western European countries, store brands are generally well-entrenched. But, for several reasons, development varies at the country, retailer and category level.

First, retail concentration differs across countries. Countries with higher levels of concentration, such as Spain, the Netherlands, Germany and the U.K., tend to have more well-developed store brand presence. In each of these countries, store brands account for at least one-third of FMCG sales. On the other end of the spectrum is Italy and Greece, where the retailer landscape is much more fragmented, contributing to lower levels of store brand development. In these countries, store brand share is well below the U.S. share of 18 percent.

Retailer strategies also play a major role in setting store brand boundaries. During the past 18 months, U.K. retailer Waitrose, for instance, introduced its Essential Waitrose line of more than 800 SKUs. In the Netherlands, Albert Heijn has been rapidly expanding its store brand lines, adding AH Pure & Fresh last summer as well as an extensive line of non-food products. When such dominant retailers undertake sizable store brand initiatives, the impact is sure to be felt across the market.

Retailers and store brand manufacturers have been heavily focused on development at the value end of the product spectrum in attempt to provide consumers with low cost solutions to their everyday FMCG needs.

Carrefour Discount, for example, is a line of more than 400 food and non-food products with pricing aligned to hard-discounter policies. The line is popular in France and is being expanding into Italy and Spain. The value end of the store brand spectrum remains a focus. Promotional activity has escalated, and new SKU additions are common as retailers seek to drive penetration and frequency.

In more recent months, development focus on the mid-to-premium end of the spectrum has escalated. Germany is seeing store brand growth shifting away from the value tier. In the U.K., promotional activity around the Systeme U organic line is heavy. Development of mid- and upper-end store brands is likely to continue in the foreseeable future as retailers seek to drive margin growth and enhance differentiation in a highly competitive environment.

SKU rationalization efforts will also greatly impact assortment during the next several years. Assortments in major U.S. retailers, including CVS, Walmart and Costco, have been slashed during the last year. Major brand names were cut from the ranks of their assortment, touted as a way to make the shopping experience simpler.

In Spain, Mercadona cut a number of major national brands from their assortment in 2008 in an effort to offer their shoppers lower prices. In France, Carrefour has also announced plans to reduce assortment by 10 percent this year.

However, caution is critical. Many customers have not been pleased with retailers’ SKU rationalization policies, so Mercadona, Walmart and Costco have been restocking some of the previously cut national brands.

Finally, category dynamics play heavily into store brand development. Brand manufacturers have established excellent brand equity across some categories and are reinforcing that position with heavy investments in branding and promotional activity. Innovation tends to be high, and store brand share tends to be lower. Carbonated beverages, laundry detergent, cereal and coffee are all examples of categories in which national brands enjoy a sizable share advantage in the United States and in much of Europe.

Across these and all FMCG categories, though, the battle for share is far from over. National brand manufacturers are notching up their marketing efforts. Pricing and promotion strategies are being re-evaluated and redeployed with the goal of stemming, and even reversing, share losses. With economies showing signs of stabilization, the battle for share will likely continue to heat up as retailers and national brand manufacturers vie for share in the post-recession world of FMCG.

SymphonyIRI Group will be releasing its latest research on store brands during the week of July 20. The Times & Trends Report, “Store Brands: U.S. & Europe Store Brand Trends 2010,” will be available by clicking here.
KC's View: