International financial service provider, Rabobank, has said that US retailer food brands will increase by 25 – 30 per cent within the next decade. The recent report, “What Would Apple Do? How Can U.S. Branded Food Companies Withstand the Retailer Brand Onslaught” predicts that one in every three products sold in the US will be retailer-branded by 2025.

The report’s title “What Would Apple Do?” is based around the success of Apple for its innovation. At a time when many people are turning to digital channels to purchase products, Apple is a major technology brand that has succeeded with a focus on retail using its own retailer-branded stores and customer service skills.

The Rabobank report said that retailer home brands have increased six per cent in the past five years, with comparable “branded” sales increasing over two per cent. According to Rabobank, the increasing competitive strength of retailer home brands reflects a power shift from consumer packaged goods companies (CPGs) to food retailers.  Furthermore, the results reflect increasing customer loyalty with large American retailers.

Nicholas Fereday, Rabobank analyst and author of the report said that retailer home brands have matured from their original positioning as “cheap and cheerless.”

“On grocery shelves around the U.S., from convenience stores to upscale supermarkets, retail home brands now compete successfully and often win against national brands, earning consumer trust in terms of pricing, quality, image and value,”  Mr Fereday said.

Mr Fereday said consumer loyalty for retailer home brands was driven by several factors:

1. Innovation and investment in brand management by retailers.  Successful retailers have developed premium products, employ sophisticated packaging, or have expanded into new categories such as the fast-growing chilled ready meats segment.  Retailers have also started to move into branded categories once thought impenetrable, such as candy and snack food.  Smart retailers now act like brand managers, following a multi-tiered approach by offering value brands, national brand equivalents, and value-added premium brands.  In 2011, retailer home brands were estimated to account for nearly one third of new food and beverage items in the U.S.
2. Retailer home brands win on value in recessionary times, and rarely cede back ground in good times.  At the height of the 2008 recession, retailer home brand sales grew 14%, compared to 3% for national brands.  Even after the official end to that recession, consumers remained cautious and value-oriented, and growth in retailer home brand sales has stayed 2% to 3% ahead of national brands since 2010.
3. Retail consolidation and concentration increases the degree of retail home brand penetration and power.  Market share of the top ten national retailers is just over 50%, although there is much more regional concentration.  Retailer home brands, an integral part of Walmart’s sales strategy, account for about 20% of Walmart’s grocery sales, which in turn account for over half of the chain’s total sales. For other leading supermarkets, retailer home brands make up between 19% to 26% of total sales.
4. Changing dynamics in the retail model:  the rise of retailer home brands in convenience stores, drugstores and online retailers; and the emergence of hard discounters and dollar stores that offer retailer home brands among a limited range of SKUs.  Stores like Target, which now derives 20% of sales from food, recognize the value of food as a driver of foot traffic and, in turn, discretionary non-food purchases.

Mr Fereday also said that while all national brands are feeling the struggle to varying degrees, consumer packaged goods companies in the United States could benefit from “bold innovation” in all aspects from promotion to product reformulations. The report argues that product extension lines account for three quarters of all new food products in the US. Similarly, the report also suggests that national brands diversify into B2B manufacturing for food service channels to compete with retailer brands.

A different story in Australia and the UK?

Australian Food News reported earlier this month that retailer home brand grocery sales in Australia had fallen 0.7 per cent since this time last year. Market research firm, Nielsen, said that Australian “big brand” sales were growing at the expense of Coles and Woolworths home brands. This was a trend reversal.

Likewise, Australian Food News also reported in the United Kingdom that over-reliance by Tesco on its retailer home brands may have been a cause for slowing sales.

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