Private label beverages rise in weak economy

According to a new report from beverage research agencyCanadean, the global economic downturn is providing the perfect conditions forprivate label products to flourish. Private label products in the total softdrinks sector now account for over 1 in every 10 liters sold in the globalmarketplace. Factoring in discounts for the on-premise sector -- where privatelabel use is marginal -- then private label's share of the market rises yetfurther. The rise of private label is proving to be a considerable threat tobranded soft drinks.

The dramatic financial turbulence of recent times hasundoubtedly provided a major opportunity for private label. Apart from theobvious factor that consumers are more inclined to seek out the value thatprivate label products represent in a downturn, there has been another factorthat has boosted the private label segment; the shift from on- to off-premisesales. In many markets the footfall in bars and restaurants has fallen back sharplybut consumers are compensating for this by drinking more at home and buyingsoft drinks in the off-premise, where the bulk of private label products arefound.

    Global Index:Growth of All Soft Drinks vs Private Label

    Growth Index 2005= 100    2005   2006  2007   2008  2009F

    All SoftDrinks             100  105.0 110.9  116.1  118.9

    Private Label               100  109.3 116.5  119.3  126.0

In Europe the recession has also provided the idealenvironment for discount retailers to expand rapidly and they have investedheavily in widening their net across Europe.Feedback from across the region points to the success of these outlets andthere is now even a "hard discounter" in the Canary Islands. Although some discounters do stock branded products, manychoose to exclusively stock their own low cost pseudo brands and inevitably astheir sales prosper, so too does the private label segment.

As the modern retail channel develops, B brand operators inparticular are vulnerable to the expansion of private label ranges; bothcompete against A brands on price. A brands are also losing out, as the qualityof private label offerings improves and private label products take up a widerrange of price positioning to now incorporate value, discount, mainstream andpremium price positions. There is also a trend for other on-premise orconvenience retailers to adopt their own private label.

How vulnerable a soft drinks category is to private labelalternatives hinges on a number of factors, which have resulted in varyinglevels of private label penetration across the soft drinks spectrum. Juice inparticular has proved more susceptible than other categories because it is arelatively mature category; with ambient juices in particular difficult todifferentiate in terms of taste and there is also a retail bias to purchase.Consequently private label products make up nearly a quarter of all juicevolumes.

The importance for branded players to develop defensivestrategies cannot be understated. Differentiating from private label rivals andjustifying the price gap based on their equity is the key to any successfuldefensive strategy. Private label products will continue to make headway butbrands can be reassured that private label will always struggle to compete withbrand heritage and ultimately consumers want retailers to provide them with thechoice that brands provide.

SOURCE: Canadean