More value for money? Own Label Brands in the Credit Crunch

Friday, 14 November 2008

TNS Worldpanel director Chris Longbottom looks at the way shoppers are starting to buy more own label brands in the current climate - but how they are also managing to squeeze a bit of luxury in as well

For the best part of this year, grocery has been in the news under one headline: price inflation. Since Easter, when the credit crunch gained momentum and started to impact the grocery market, consumers' perception and their shopping habits have shown dramatic changes.

Price inflation - What really happened

We should remind ourselves that the rampant price increases that are to blame for the rise in inflation do not span the whole grocery spectrum. It is certain key staples - mainly those that include grain in the production chain, ie. bread, milk, eggs, butter, cheese, pasta, yogurt, flour - that have seen prices soar.

In addition, everyday groceries are things we buy so regularly that we are constantly reminded of their inflated price, which makes it seem like they have a much larger impact than they actually do: statistically, everyday groceries only take up 8% of our total disposable income.

However, these markets have framed consumer perception of price increases in general, as we tend to notice the prices that go up rather than the ones that don't, and this heightened awareness of some categories distorts our perception of the whole market.

Add to this the context of utilities, fuel and mortgage repayments all going up, and we quickly "feel the squeeze".

Impact on own label

As prices go up, consumers unsurprisingly tend to re-evaluate what they are buying in an attempt to stay closer to how much they used to spend.

Therefore many cash-strapped shoppers have started to trade down from a brand to an own label product for everyday items. TNS Worldpanel figures confirm this trend, with own label showing accelerating growth since Easter.

This has been reinforced by both Tesco and Sainsbury's encouraging their customers to buy their own label alternatives rather than spend money on higher-priced brands.

Interestingly, both have even advertised their own tomato ketchup on TV, hitherto a luxury only indulged in by Heinz who are now the only major branded player in that market.

The most significant acceleration has been in the growth of budget own labels, which were up by 27.5% from last October.

The brands that have benefited the most are Tesco's Value range, Asda Smart Price, Sainsbury's Basics - which was relaunched back in 2007 - and Morrisons' Value, again relaunched from its previous incarnation as Morrisons Bettabuy earlier this year - just in time to ride this wave!

While some of the success of these brands may be attributed to push tactics by the retailers, there certainly has been an increased pull by shoppers.

Although such products undoubtedly have lower margins, it is crucial in these challenging times for retailers to be seen to be helping the less well-off, and even the better-off who don't mind buying budget products in markets where premium brands matter less.

Simultaneously we have seen the previous long-term growth of premium own label, such as Tesco Finest, Sainsbury's Taste the Difference, Asda Extra Special and Morrisons the Best, come to a grinding halt and even reverse into decline.

Over the 12-week period to October, sales of premium own label have fallen by 3.4% and in the last four weeks of this period even faster, by 9.2%.

In similar fashion, organic own labels have been largely ignored by consumers, reflecting the challenge that has increasingly faced organic food producers in these troubled times.

Eggs are a good example. "Unkind" battery eggs cost around 10p each and have been featuring less and less in shoppers' baskets as free range eggs have found more favour with the increasingly ethical consumers.

At 20p a piece they are twice as expensive, a price we are happy to accept as contribution to making the world a better place. Now more than half of all eggs bought in Britain are free range.

Organic eggs, however, cost 30p each and with food prices rising in other categories too, this really seems too much for shoppers' tightening household budget: organic eggs' 7% market share has started to dwindle.

Impact on the retailers

Against this background it is interesting to see just how much retailers are re-focusing on their value lines. Tesco are even advertising theirs on TV this year, as well as promoting their new range of "Discount Brands" and labelling themselves "Britain's Biggest Discounter".

Tesco's new ‘Discount Brands' range has now taken 1% share of its whole grocery business, some of which has come out of its standard own label, as well as bringing back some business from other price-focused retailers such as Asda and Morrisons.

Retailers across the board have also started to feel the cold wind blowing from Aldi and Lidl, small discounter chains that have suddenly become a force to be reckoned with.

While their combined market share is only 5.3% (12 w/e Oct '08), their growth is of increasing concern to the major players like Tesco and Sainsbury's whose performance has stagnated.

The major multiples are doing their bit to fight back, focusing on what we all enjoy so much: quality food.

Some of the recent campaigns such as M&S's ‘Two Dine for £10" (including a bottle of wine!) and Sainsbury's more down-to-earth "Feed your Family for a Fiver" not only aim to keep old and attract new shoppers, they also make us feel better about our life in "the crunch".

A luxurious meal with all the trimmings no doubt makes us feel better - even when everything else on our shopping list is from the supermarket value range.