Europe’s Private Label Push

Why own brands are gaining traction in Europe, and the private label pricing strategy you can implement to capitalise on the trend

Once relegated to generic products on the bottom shelf, private label brands have seen notable growth and emerging opportunities over the past few years.

During the pandemic, supply chain shortages led to significant growth in demand for private label brands. Throughout 2022, increasing numbers of consumers continued to switch to own brands in an effort to save money during the cost-of-living crisis. Demand, so far, has stuck.

And with 58% of European consumers citing rising prices as their biggest concern, and inflation increasing food prices by double-digit percentages in many markets — estimated as high as 18%-20% in the UK — the trend towards own brands appears poised to continue through 2023.

Retailers are acting accordingly, expanding or reinvigorating their own brand programmes. But a lot has changed since private label brands were first introduced to the market around 40 years ago, from perception about the products to consumer behaviours to retailers’ cost structures and more.

Let’s take a closer look at the state of private labels and explore the best practices you can follow to make the right moves in these inflationary times.

Private label’s European emergence

Own brands are gaining ground across Europe. According to IRI, around 50% of shoppers in key European markets switch between own brands and national brands, with loyalists — those who purchase from a brand 75% or more of the time — divided equally between the two. Own brands account for 35% of fast-moving consumer goods (FMCGs) sales in the region.

Meanwhile, recent research by Kantar found that while sales of branded FMCGs declined by 5.1% year over year in 2022, sales of private label FMCGs only fell by 1.9%. At the same time, all major European retailers lost market share except for Aldi, Lidl and Iceland, retailers known for their robust own brand programmes, who actually saw increases in market share.

Fifty percent of consumers across Spain, France, Italy, Germany and the UK said trying private labels was their biggest behaviour change, with an additional 15% planning to do so in the next three months. Nearly 50% of those surveyed either have switched or intend to switch brands.

Clearly, the opportunity for own brands is ripe.

Evolving from generic products to viable brands

Private labels can be a win-win. Consumers can ease the impacts of the cost-of-living crisis with less-expensive purchases while retailers position themselves for the potential of better margins and greater loyalty.

According to IRI, own brands have “developed into strategy-focused, differentiated, data-driven and consumer-obsessed brands” that are “gaining ground in value sales, market penetration, consumer value and retail experience, while closing the gap on instantly recognisable national labels.” In other words, retailers must approach their private labels with brand top of mind.

To fully capitalise on the trend and build a sustainable brand with significant upside for your enterprise, it is critical to start by defining your strategic purpose. Do you want to increase margin? Fill a price gap? Create a differentiated brand? Capture sales across multiple consumer segments with multiple own brand lines?

With a strategic purpose in place, retailers ought to build a consistent brand architecture around their private labels. Pricing should reflect your own brand’s purpose, with an eye for cohesion. In other words, pricing doesn’t have to be uniform across channels and locations, but it should create a cohesive price perception as well as stay consistent within the context of its competitive products.

A hyper-competitive environment is looming

Private labels face a perfect storm for competition: While inflation contributes to substantially increased demand across the region, the supply chain continues to reel. Consumers are cash-strapped and rife with uncertainty, which means value and availability are as important as ever.

“This creates the real possibility of price wars,” IRI reports, “with private labels having the potential to capitalise on inflationary trends.” Ananda Roy, International Senior Vice President of Strategic Growth Insights at IRI, emphasises that retailers should “recognise consumers are making very hard choices” and keep that top of mind when developing own brands.

One of the most important things a retailer can do for their private labels in these market conditions is to identify its competitors from a consumer-centric perspective. Consider which private labels and national brands your own brand will compete with as well as your customers’ cross-shopping behaviours, price sensitivity and other buying decision factors.

Retailers will have to overcome consumer scepticism

Consumers are losing trust in their grocers. While inflation has raised prices across the board, drastic increases like a 25%-30% price spike on dairy products in the UK — in only a year — contribute to a perception that retailers are using the macroeconomic climate to artificially inflate prices. In fact, net trust in grocers fell precipitously from +67 in May 2021 to just +42 today.

Adding to the disconnect is a growing pessimism in consumers over economic recovery: 43% of consumers are doubtful, up from 36% in June of 2022 and 32% at the height of the pandemic.

Distrust and doubt are hard to overcome, especially as consumers have more price sensitivity and more access to your competitors’ prices. Prices that favour both your consumers’ wallets and your organisation’s margins can help you shift demand to your own brand, regain trust and earn loyalty.

Artificial Intelligence and data analytics are powerful tools for honing in on the precise prices that will achieve your fiscal goals and win back the trust of your customers. Supported by the right science, data can help you accurately assess and predict consumer behaviour, identify mutually ideal brand gap structures, grow private label share across multiple lines and more.

Pivot demand to your private label with pricing best practices

As much as ever, value is top of mind for consumers. As inflation continues, own brands pose an opportunity to deliver significant value to your customers with significant upside to your organisation. The only way to do so successfully, however, is with smart private label pricing.

These private label pricing best practices underpin successful own brands:

• Define the reason for introducing a private label brand
• Build a consistent brand gap architecture
• Establish your competitors by looking at customers’ cross-shopping behaviour
• Leverage analytics to assess consumer behaviour and changes in the market
• Get clear promotional performance results and analytics
• Optimise markdown plans based on consumer demand

If you’d like to explore these best practices in deeper detail, you can read our post on private label pricing strategy here.

Want to learn more about optimising your private label pricing strategy? Get in touch with one of our pricing experts today.