Costs are racking up for everyone and while food inflation has eased, the price we pay at the till for food and drink has seen a 30.1% rise since April 2022.
Many in the industry will tell you that the price tags on our food remain too low in the UK; not reflecting the cost of its production nor value in society. It’s true that Brits pay significantly less for food than many European countries, while many across manufacturing and farming are squeezed ever tighter. But the fact is, cost will always play a significant part in purchasing decisions.
Private label has had a starring role in this – once deemed as the affordable but perhaps less desirable alternative. But now, new research from IGD has revealed a significant shift: consumers are no longer buying own label based on price alone.
Retailers up their own label game
Retailers like M&S and Waitrose have been at the forefront of this own label ‘rebrand’, stocking their shelves high with premium, high-quality options that forego a household name. And although these stores are known for their heftier prices, both have made conscious efforts to slash bills in recent times.
Sparks, for example, launched ‘Remarksable Value’, a range that benchmarks products with competitor prices, in 2019. Since then, it has been continuously investing into its budget portfolio, most recently committing £30 million to cut the prices of ‘more popular essential food’. This will see the range reach 145 products.
In a similar move, Waitrose has cut its prices by 12% across more than 160 of its own brand lines. This representing its nineth round of ‘New Lower Prices’ since 2023, taking total investment to £162.5 million across more than 1,000 products.
For both retailers, maintaining its premium feel and quality will be of the utmost importance.
And it appears that supermarkets are doing a great job of this; IGD data found that 52% believe private label quality is on par with brands.
The flip side is that it’s making competition much harder for brands.
What does this mean for manufacturers working in brands?
Matt Hunt, CEO of The Protein Ball Co. – a business which manufactures both its own products and private label – agrees things are tough out there for the branded space.
“Today, consumers are far less concerned about the presence of an established brand name on pack, especially when compared to its taste and better value credentials,” he says.
“Customers still crave certain products, but they increasingly prioritise value, so there’s a little wiggle room when it comes to taste, textures and depth of choice. Today, many retailers have invested heavily in improving both the quality and identity of their own-label ranges; often going so far as to mimic colours, fonts and suspiciously familiar brand designs.”
For manufacturers working in branded products, this competition has emphasised the importance of innovation.
Hunt explains: “Innovation has become even more integral to a brand’s ongoing success. If a brand does well then it’s 100% certain that it will be mimicked to some greater or lesser extent.
“Brands have to provide an ongoing reason to believe and lock in loyalist affections, be that choosing ever better ingredients, offering more intriguing flavour marriages, all wrapped neatly with a compelling brand story. To stand still or tread water is to accept defeat. With the breathing space between creating something new and being shamelessly copied getting ever closer, pricing continues to hold more sway.”
He adds: “The problem is if private label continues to gain market share, then innovation will ultimately grind to a halt, which is not good for either end consumers or the wider marketplace.”
‘Don’t shrink your opportunity’
Still, private label is becoming harder to ignore with retailer-own products now representing over 50% of all ranges within grocery chains – and growing.
“To turn one’s back on such an opening shrinks your overall opportunity by 50%,” adds Hunt.
“In many cases, it simply makes sense. If a major global supermarket wants protein balls under its own label umbrella, we’re fighting an uphill battle to convince them (short-term) that our brand name on pack is the missing ingredient.
“Supermarkets understand their customers’ need states; trust has been earned over a considerable period of time. They also guarantee a great shelf positioning, a regular barrage of beneficial promotions, samplings and a competitive price point. In truth it’s a no brainer!”
The production of private label also means Protein Ball benefits from higher production volumes.
“For us, it’s about making better use of our factory. Higher production volumes improve efficiency, help us buy ingredients more competitively, spread our overheads further and reach our breakeven point quicker,” he explains.
“Ultimately private label contributes to make our whole business stronger (including our branded range) whilst preserving jobs and financing new equipment purchases. It’s essentially dancing with the devil, you simply hope you control the rhythm.”
In fact, for Hunt, unused manufacturing capacity is a bigger threat to profitability than sharing shelf-space with own label items.
“An empty production line means no heartbeat for the company and you flatline! If you have invested millions in equipment and people, keeping that factory running efficiently is one of the biggest drivers of profitability. Production running costs are increasing at a rate not seen before and companies that survive will be those who most efficiently sweat their assets.”
Putting in guardrails
But Hunt also weighs up his private label opportunities carefully, ensuring that safeguards are put in place that protect Protein Ball’s own USP.
“We generally work with customers, markets or formats that don’t directly compete with our branded business. If a project risks damaging our own brand, we simply don’t produce for them. If we have no other way to get in a store, then we will consider private label to create a bridgehead, keep rivals at bay. As the saying goes, it’s ‘a game of two halves’.”
For Hunt, he believes its in “everyone’s interest” that branded and own label grow hand in hand.
“Retailers want strong brands because they energise food aisles, drive shoppers towards a category and help differentiate their overall category offer from those of their peers.
“In the same breath, consumers expect good own-label options and more economically range choices. Both serve different yet intertwined needs, and a healthy category benefits from both enjoying success, a fragile status quo that has worked well over the last few decades.”
