Private labels have emerged as a major player in the FMCG industry amidst the ongoing cost-of-living crisis. The latest biannual ‘FMCG Demand Signals’ report for Europe by research group Circana has revealed that private labels account for 38% of total value sales in the FMCG market in Europe, amounting to €229 billion. The sector has reached a tipping point with private labels outpacing the popularity of national brands, encompassing nearly all categories including edible goods.
The report highlights that private labels have achieved high penetration in chilled, fresh, and ambient foods as inflation, and the cost of living crisis takes a toll on food categories. The report unpacks the impact of the pandemic, inflation, and the cost of living crisis on over 230 FMCG categories, 2000+ product segments, and over 10 million SKUs across the six largest markets in Europe, namely France, Italy, Germany, Spain, UK, and Netherlands. The study reveals that private label growth has been strong across all six markets, with the highest penetration in Spain (47%) and Germany (41%), and the lowest in the UK (37%) where shoppers continue to buy national brands that they trust to offer good value.
Ananda Roy, Global SVP, Strategic Growth Insights, Circana stated that the investments made by retailers have paid off handsomely as more consumers perceive private labels as innovative, and of good quality. Roy added that private labels are no longer the ‘cheap’ alternative and shoppers buy them because they offer something new and exciting.
The report further highlighted that retailers have been quick to innovate, particularly in the food categories, by introducing better quality, taste, flavor, and exciting new cuisines. However, across retailers and brands, the study reveals a 16% drop in new product launches in 2022 compared to 2021. Despite clear advances being made in some areas, such as chilled and fresh and baby food, and retailers growing private labels ranges, innovation is now concentrated on improvements in existing products rather than completely new launches.
Interestingly, the report revealed that the proportion of consumers loyal to private labels now equals those who are loyal to national brands, with 60% of all consumers surveyed stating that private labels are as good as national brands. Moreover, private labels are perceived as being more innovative, delivering on claims, sustainability, and having a good image. Around 25% of consumers stated that private labels were better than national brands in those areas, and 21% of undecided consumers who buy both now prefer private labels.
The report further emphasized that there has been a significant transformation in consumers’ perception of private labels, with 66% of consumers regarding them as innovative, making them a huge demand driver. National brands are not necessarily losing loyalty, but shoppers buy less volume. These brands need to keep innovating to maintain momentum and stay ahead of the competition. Some categories such as alcohol are struggling more than others, with consumers drinking less as they become increasingly determined to not only save money but also improve their health. Opportunities for innovation in areas such as low and no alcohol could be critical for future sector growth.
In conclusion, retailers have transformed private labels into strategy-led, consumer-focused, well-differentiated, and data-driven alternatives to national brands. National brands are now having to regard many retailers as significant competition. Retailers are winning on many fronts, and private labels offer excellent value, quality, and a range of benefits. Shoppers enjoy discovering new products and experiences from private labels, which could change the shape of grocery retail in the future.
