Big brand marketers must focus on genuine innovation and brand investment if they want to survive in the face of the growing success of private label goods, a new report says.

The ACNielsen report on private label in New Zealand - the "house" brands that are owned by retailers such as the Foodstuffs' brand Pam's - suggests the big brands need to act if they want to entrench their market leadership.

"For big brand marketers, it is high time to review where their brands and categories stand against consumer perceptions," said ACNielsen's New Zealand managing director Steve Mitchell. "Private labels are flourishing in terms of increasing penetration and acceptance and will eventually take their toll on certain FMCG (fast moving consumer goods) categories."

Mitchell said in some markets, such as Germany, more than half the groceries sold were private label. In New Zealand, private labels' share of grocery sales across the categories ACNielsen measures is at 12 per cent.

"If New Zealand does go down the path of other developed markets then [the rise of private label] is something that will happen ... "

ACNielsen studies show penetration of private label goods has been growing: they are available in 64 per cent of New Zealand categories which, in turn, represent 88 per cent of total grocery sales. They are also enjoying increasing consumer acceptance, losing the "cheap and nasty" tag they have had in the past. In fact, 72 per cent of New Zealanders consider private label quality to be as good as that of the big brands.

Bart Wright, general manager of Foodstuffs Own Brands, said Pam's had grown through a combination of brand advertising and in-store promotion as well as an increased range. Pam's product range now had more than 1000 lines. "Over the last few years, the offering has broadened away from commodity into recipe products ... from cake mixes to frozen desserts, the offering has broadened and moved upmarket," he said.

Foodstuffs says Pam's is the largest selling brand in the grocery market.

Mitchell said in the past private labels offered the same products as the big brands but at a lower price with different packaging and formulation. Now, many were innovating and building the same brand values around their brands as their traditional branded counterparts.

He said frequent price promotion by the big brands was conditioning consumers to buy only when items were on sale. But as the importance of price decreases as a differentiator between brands and private label, trust begins to stimulate consumer shopping decisions - and there is a growing trust in retailer brands and the shopping experience consumers associate with them.

"The progress of private label results from a combination of the reduction in brand equity for FMCG manufacturers, increasing brand equity of retailer banners and the development of new store formats," said Mitchell.

In Europe, the rapid expansion of hard discounters such as private label supermarket Aldi has led to greater proximity of their stores to consumers, reducing consumer willingness to shop around for bargains.

"We don't have deep discounters in New Zealand yet, but as brand manufacturers lose their edge in the price-and-trust battle, we are preparing fertile ground for their arrival."

He said private label worked best in categories where brand manufacturers had lost the edge in creating added value; where price had become the only true differentiator; where innovation was scarce or where there was plenty of production capacity available and suppliers fought to fill the plants.

"Where brand builders are sustaining successful innovative brands, private label is usually absent or not growing," said Mitchell.


Car accessories 83.7 per cent
Fresh milk and cream 50.8 per cent
Icecream 19.5 per cent
Butter and margarine 18.9 per cent
Liquid dishwash detergents 10.4 per cent
Disposable baby nappies 10.3 per cent
Biscuits, rice wafers 7.6 per cent
Frozen meals 4.9 per cent
Fruit juices and drinks 4.9 per cent
Coffee 4.4 per cent
Chocolate confectionary 0.8 per cent

*Based on value of sales.

Source: ACNielsen