Almost 70 per cent of us won’t buy cereal that is not a recognised brand name. We’re also less likely to buy home brand toilet paper. There are some things we just won’t compromise on.
However increasingly, ‘home brand’ or ‘private label’ supermarket brands are winning the favour of everyday consumers, particularly in the fresh food categories where milk, eggs and now meat are quickly taking up the lion share of the supermarket trolley.
IBISWorld predicts that by the close of 2016, approximately a third of all products on the supermarket shelves will be private label. The two big supermarkets, who now control more than 70% of the $1 billion per week grocery market are incredibly sophisticated marketers and some would argue they are looking after the consumer by keeping groceries affordable. In some respects, they are, but private label is not just about the bottom end of the market and keeping prices down, down.
Both major retailers, as well as Aldi already have a multi-tiered private-label strategy, offering bargain staples, through to mid-priced everyday products, and now an increasing array of specialist premium private label goods.
The ambition of these companies however is not just about price and margin. It’s about customer and brand loyalty. It is also about creating perceptions of choice and therefore making it easier to switch out of traditional branded products.
Retailers are counting on consumers today having less time and energy to spend on seeking out the brands they know and trust and instead, buying what’s convenient, which, more often than not, is private label. Even finding branded products is becoming increasingly difficult as private label brands edge out others on shelves.
The convenience concept is not lost on the new disrupters to retail such as Ruslan Kogan, whose company kogan.com completely upended the electronics industry with dirt cheap, home brand televisions. Kogan is now venturing in to food here in Australia with Kogan Pantry and describes his company as a “statistics business masquerading as a retailer”.
Kogan argues that supermarkets have ruthlessly used the same A/B testing techniques employed by online retailers such as themselves and Amazon.com, to effectively shelf-test third-party products off the shopping list. The truth, he says, is that customers claim to care about their favourite brands, but their behaviour reflects the opposite.
Wesfarmers Group Managing Director Richard Goyder believes retail giant Amazon, who is making inroads to food, will swallow Australian retailers, unless they can become more innovative.
At a recent retail forum in Sydney, Goyder said that retail giant Amazon would “eat all our breakfasts, lunches and dinners” unless barriers to competition were removed and there was some significant innovation in the category.
So if you think farmers and manufacturers are getting a raw deal now from the big retailers, then contemplate a home brand private label future with Amazon and Kogan Pantry.
History would indicate that this would be great for consumers with lower prices at the checkout, but frightening for manufacturers, processors and farmers as their quality Australian produce, with a relatively high cost of goods position is usurped and genericised by imported and low cost retail branded produce.
So where does this leave Australian agriculture and the often glorified brand image of “premium quality” often explained as clean, green, safe and traceable. Well, to be honest, nowhere!
Unless food suppliers and manufacturers build a closer relationship with consumers, use data and insight to better understand their needs and drivers and invest heavily in product development and innovation, then retail brand control will rest with the retailer, albeit retailers with different names.
In my belief, there are two opportunities that present themselves in this period of disruption.
The first is that one of the three big retailers could invest in “Brand Australia”. They could stock almost exclusively Australian grown produce and tell their producers stories consistently and often. And in time, phase out imported private label from their shelves completely.
Brand campaigns could be delivered via co-investment strategies with suppliers which are true to brand, and local consumers could have access to the very best Australia has to offer in terms of quality, price, food safety, freshness and importantly product range. You can’t get a stronger value proposition than that. Another option could be for Australian producers to pool their marketing, research and development funds and invest in a digital influencer and ecommerce sales platform that traded fresh farm produce, direct to consumers. Simple solution I know, but achievable with today’s technology.
The reality is Australian farmers have the power to create change, they just don’t know how and the perceived risk is too high. The real home brand is “Brand Australia” and shouldn’t be owned by anyone other than the real manufacturers and farmers that produce it.
Check out Jim Gall’s final word in the ‘Decision Ag’ Magazine, published bi-monthly in The Weekly Times.