Private label no threat retailers say

Coles and Woolworths deny claims the increase of ‘private label’ products on their shelves is hurting suppliers and reducing choice

Private label no threat retailers say
Private label no threat retailers say

By Anna Game-Lopata and Rebecca Byfield
| March 13, 2012

Coles and Woolworths have today denied claims the increase of ‘private label’ products on their shelves is hurting suppliers and reducing choice.

The major retailers, who dominate market share in their space, were responding to Australian Food and Grocery Council (AFCG) concerns that popular brands are being "shelved" and food manufacturers impacted as supermarket aisle space is increasingly devoted to private label brands.

this week released
figures showing private label products or home brands, account for about a quarter of total supermarket sales in Australia and they are predicted to increase.

"According to the 2020: Industry at a Crossroads report recently released by AFGC and AT Kearney, private label products are forecast to grow to more than 40 per cent of supermarket sales by 2020," says AFCG Chief Executive Kate Carnell.

"This alarming growth in private label – as high as more than 10 per cent of shelf space in breakfast cereal – is making it more difficult for Australian food and grocery manufacturers to compete on supermarket shelves in a fair and equitable way," she says.

But Coles Corporate Communications Manager Jim Cooper says the figure for Coles is one in five. "It’s far less than the levels in many other countries," he says.

And, he adds Coles doesn’t have a target for increasing private label sales.

"Our customers will decide what products they want to see on our shelves. We’re focused on ensuring our private label products meet customers’ quality expectations instead."

Cooper says Coles have reformulated virtually all of its brand lines in the last three years to improve quality across the range.

"The role of private label is over-stated and, in many cases, actually provides volumes and reduces production costs to support branded products," he says.

Cooper does concede greater penetration of private label products increases supply chain efficiency and lowers costs for commoditised products.

"Coles believes another benefit of private labels is its ability to ascertain whether proposed price increases from suppliers are the result of genuine upstream cost increases or are an attempt to pad out supplier margin," he says

Meanwhile, the most dominant player in the market, Woolworths, says when it comes its own label, preference is given to Australian suppliers.

"This is the case so long as we can get the quality and supply, as well as secure products at a price that our customers would be willing to pay," says the retailer’s Benedict Brook.

Brook also argues private label products at Woolworths have actually opened opportunities for suppliers.

"Our own label products have enabled many small suppliers, who might not otherwise have had the opportunity to be ranged in a supermarket, to find space on the shelves," he says.

The National Farmers Federation's Jock Laurie says private label products allow the suppliers to differentiate their product and generate market place.

"Consumers have benefitted from this by being able to buy $1 a litre milk, or organic beef and lamb at reduced prices. This allows them to build their reputation and establish market share."

But Shadow Minister for Small Business Bruce Billison, who is a vocal critic of the private label strategy, points out short term savings for consumers may reduce choice and competition over time if private labels dominate the shelves.

"Currently it is in the supermarkets’ interest to establish and deliver on the quality and reliability of ‘home brand’ items," he says.

"But over time food manufacturers may withhold investment, query the value of product innovation and in some cases close where they see no commercial future in operating in Australia.

"This trend to seek out lower supply price points is sustainable for some Australian producers, but over time, could freeze out smaller suppliers leading to higher prices, reduced innovation and less choice in the long run."

To create a more level playing field, AFGC has called on the Federal Government to appoint a Supermarket Ombudsman to enforce a Supermarket Fair Trading Code of Conduct.

As part of the Code, a limit could be imposed on the amount of shelf space for private label products.

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