The pressure on “A-brands” in the food sector is set to increase further in the years ahead.

The product range groups in which these brands operate are losing space in supermarkets as they fail to offer sufficient value above private label goods, according to Rabobank.

“The brand landscape in the … food sector will undergo a metamorphosis in the coming years,” Sipko Schat, Member of the Executive Board of Rabobank, advised. “A-brands will no longer focus exclusively on the mass market, but will increasingly also serve niche and budget segments. The A-brands that are able to develop and implement this type of diversified approach effectively can look forward to a successful future.”

The conclusion was reached by Rabobank, EFMI Business School and the Netherlands FoodService Institute based on the results of a joint study into the future of food suppliers in the Netherlands.

The playing field for A-brands is becoming smaller
In order to gain a distinctive position, supermarkets in a competitive marketplace will have to adapt and/or enrich their product ranges to include more (refrigerated) fresh products, convenience products and non-food. This product range development will primarily come at the expense of ‘traditional’ grocery products. Non-perishable grocery products have traditionally been the domain of the well-known A-brands. The fact that supermarkets are dedicating more attention and shelf space to product groups in which A-brands hold a less prominent position will automatically cause the A-brands’ playing field to become smaller.

Private labels will also become A-brands
But not only is the A-brands’ playing field becoming smaller. Leading brands are also being confronted in the product groups in which they operate with private labels that provide increasingly better quality. These private labels are gaining more and more shelf space and premium versions of the private labels are also being introduced. This development is also set to continue in the years ahead.

The main question is consequently not whether the market share of private labels will rise, but rather where the upper limit for growth in the market share of private labels will lie in the Netherlands.

“The market share of private labels has been rising by a percentage point a year since 2003,” Marcel van Aalst, Director of Research at EFMI Business School, said. “While the growth in private labels will level off somewhat in the coming years, we still expect the market share of private labels to have reached more than 30% in 2020. Growth in private labels used to come at the expense of B- and C-brands, but now that these brands have virtually been eliminated from supermarket shelves, the A-brands will be the ones that will come under pressure in the years ahead.”

In Australia, the market share of private label is around 22%, according to Nielsen’s 2008 Grocery Report, and appears likely to continue rising toward 30% in the next couple of years as consumers look to cut costs and supermarkets enhance their ranges of private label.

Quarter of A-brands do not have sufficient added value
A-brands that do not expressly feature added value in comparison to private labels will end up in the same position that the B- and C-brands have held in recent decades.

“Private labels have undergone a far-reaching quality and image transformation in recent years and as a result it will be more difficult for A-brands to be distinctive in terms of product characteristics (functional) and brand experience (emotional),” Mr Van Aalst explained. “Our study reveals that approximately 25% of the A-brands currently do not have sufficient functional and emotional value in comparison to private labels. If these brands do not succeed in developing this added value in the years ahead, they will lose their right to exist and vanish from supermarket shelves in or around 2020.”

A premier league of A-brands
In order to escape the increasing pressure, many brand product manufacturers will invest substantially in their brands and product ranges in the coming years. Some brand product manufacturers will be more successful in this endeavour than others. This will lead to a more distinct dividing line behind so-called ‘super brands’ and mainstream A-brands in around 2020. At present, 15% of the A-brands in supermarket shelves can be qualified as super brands. These are top brands that continually prove themselves in the eyes of consumers through a combination of outstanding product quality, continuous innovation and a clear positioning.

‘New’ A-brands in the premium and budget segments
Brand product manufacturers will also introduce variations of their A-brands to counter the private label threat. “We will see more premium A-brands in the top segment that are aimed at smaller target groups, such as organic versions of A-brands,” Mr Van Aalst concluded. “At the same time we will also see more budget versions of A-brands that can compete in terms of price with the standard private labels.”

The study was presented at the annual Vision on Food Congress 2009 that was held in the Rabobank Group’s Duisenberg Auditorium in Utrecht, the Netherlands.

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