IRELAND P R I VAT E LABEL REPORT FEBRUARY 2013

PRIVATE L ABEL FROM PAST TO PRESENT… The Irish FMCG market has experienced a rollercoaster of change over the last 10 years. Convenience, indulgence, health and wellbeing were key growth drivers in the past but now as the economic situation puts pressure on consumers’ pockets, a focus on value, price, promotions and private label are becoming more prevalent in consumers’ minds and this is borne out in their ‘new’ shopping behaviours. Traditionally buying private label was about paying a lower price for a limited range of essential grocery items and for this lower investment you accepted a trade off in quality and packaging. This is no longer the case. Consumer acceptance of private label has grown and continues to grow as comparable, and in some cases higher quality product ranges become available, and private label lead the way with innovation in certain categories to better serve consumer’s needs. As our latest Nielsen Consumer Confidence Survey Q4 2012 shows, the index in Ireland dropped -2 points last quarter and remains low at 65¹. Consumers are turning to private label as a belt tightening strategy and are finding that it is not necessarily the step down or trade off they were expecting. Retailers traditionally used own branded sku’s as a point of differentiation to competitors. However, now given its growth, retailers are investing in own label themselves as a ‘brand’ and are using tiered private label to address profitability. Manufacturers find themselves in a position where some of their key competitors are owned by the people that they need to make their business possible. The old notions of private label being for private label buyers, low income or larger households, are no longer true. Private label items now make their way into a high percentage of shopping trolleys across various categories and have become relevant for all types of households from all demographics and for all shopping trip types. The question now is how to find a three-way win for retailer, manufacturer and consumer.

THE SHIFT INTO PRIVATE L ABEL IN PARTICUL AR, IS A TREND THAT WOULD NOT HAVE BEEN PREDICTED OF THE LOYAL IRISH BRAND BUYERS BUT HAS BECOME A STARTLING REALIT Y THAT IMPACTS MANUFACTURERS, RETAILERS AND CONSUMERS IN DIFFERENT WAYS.

Elaine Wade, Business Unit Director, Nielsen Ireland

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IRELAND PRIVATE LABEL REPORT

PRIVATE L ABEL IN NUMBERS … The most recent Nielsen retail data shows private label value sales in the latest 52 weeks valued at €2.3bn and growing by 7.8%². This represents a 22% share of the total available Nielsen basket sales. Over the same period branded goods account for €8.2bn, however, sales are declining -1% versus the same period a year ago. German discounter stores Aldi and Lidl are contributing to the overall strength of private label with the majority of their grocery sales going through private label items. These discounter stores continue to grow from strength to strength in Ireland. Now accounting for 14% share, and growing by 15% year on year, as they continue with aggressive store openings to further increase their reach of the population, and continued strong above-the-line support. As illustrated in Chart 1 below private label share remains highest in the chilled/frozen, canned, grocery and household categories where it is more challenging for brands to differentiate themselves from store owned brands. However, private label share in alcohol, baby and health & beauty remain the weakest, and interestingly it is in these categories we see highest investment in brand equity and some of the strongest levels of emotional involvement in product purchase. It is important to note that the private label phenomenon has not been restricted to the Multiple retailers either. As increasing unemployment, increasing fuel prices and the end of ‘breakfast roll’ era caused significant decline for the convenience sector, these retailers are now actively offering consumers own branded ranges to help drive footfall back into store and offer value in key categories to shoppers. While the private label shares in the convenience trade (Chart 1) are much lower than their multiple equivalents, share is increasing in all categories.

PRIVATE LABEL IS WORTH €2.3BN

+7.8%

Copyright © 2013 The Nielsen Company

GROWTH YOY

22%

SHARE OF TOTAL AVAILABLE NIELSEN BASKET SALES

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CHART 1 - PRIVATE LABEL VALUE SHARE OF KEY CATEGORY BASKETS MAT TO 30th DECEMBER 2012

PRIVATE LABEL

BAKERY

CANNED FOOD

22 5.9

25.7 5.2

41.1 10.8 51.7

CHILLED/FROZEN

15.3 18.4

CONFECTIONERY

4.1 36.6

GROCERY

19.4 14.1

HEALTH & BEAUTY

3 35.8

HOUSEHOLD

LONG ALCHOHOL

SPIRITS

WINE

18.8 4.8 0.4 8.9 2 15.1 12.8

Value Share of Total Coverage

Value Share of Convenience

Source: Nielsen Total Coverage - Strategic Planner MAT 30th Dec 2012

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IRELAND PRIVATE LABEL REPORT

SO HOW HAVE THEY ACHIEVED THIS SUCCESS… One of the key benefits that retailers have over manufacturer brands is that their private label is essentially a ‘superbrand’. These brands do not just compete in one FMCG category but across almost every product category available in store. While some major brands do cross several categories, there are virtually none that cover the breadth that private label ranges do. In more recent times, as consumers trust of private label has grown, we have seen their brands drive growth outside of FMCG with a much broader range of products and services such as telecommunications, financial services, clothing, insurance and household goods. In reality these really cannot be considered a ‘label’ any longer but a private or store owned ‘brand’ and understanding this is the key to understanding their success. Retailers have started to really use all of the traditional brand growth levers to expand the breadth and success of private label - price, ranging, innovation, sustainability, market research, merchandising, marketing activity and cost management to name but a few. This is how they are growing. With an average grocery price differential of approximately 33%⁴, store brands traditionally used price and only price, as the key driver for customer recruitment. However, recent years have seen their strategy move away from this to a more sophisticated range of products with tiers that respond to their customer needs e.g. quality, value, organic, fair trade, on the go, free from or kids. While competitive pricing still remains a key weapon in their arsenal, they now have a wider scope to differentiate. In some cases store brands can actually be one of the more expensive offerings for the more affluent consumer, for example; ‘Tesco Finest’, Dunnes ‘Simply Better’ and Marks & Spencer’s ‘Simply’. They invest heavily in research so that they can understand their consumers and identify the key footfall and purchase drivers in-store. They also continuously track performance to ensure they are on top of their game and ahead of the competition. The sheer size of retailers allows them the flexibility to offer tailored solutions for different store formats and different purchase occasions. They are also very quick to identify consumer needs and offer unique solutions such as M&S ‘Dine in for 2’ at a special price, or SuperValu’s ‘Prepared by the Butcher’. The reality is that store brands actually mirror the retailer that owns it and is synonymous with their corporate offering – it has become very closely linked with banner equity. Consumers trust that the retailers are doing the best for them and this transfers into a trust of their store brand offerings.

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STRONG COMMUNICATION OF OWN BRAND OFFERINGS Retailers are also continuing to invest heavily in TV advertising to get their message to the consumer. All five multiple channels are in the top 20 advertising spenders ⁵. Similar to their in-store strategy, traditional store brand advertising used price as the hook and engaged with consumers from a rational point of view. However, recently they have chosen to focus on other touch points such as humour, Irishness, premium/luxury offerings or occasions. This is helping them build that emotional appeal that brands have built over the years. Take for example SuperValu’s strong communication around their new store brand range in 2012 where they focused on being strong advocates of local business, Irish jobs, reassuring the customer that all products are quality assured and independently taste tested against leading brands. In a time when our economy and consumer spend is under so much pressure and unemployment rates are high, this has allowed SuperValu to engage with consumers on another level.

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IRELAND PRIVATE LABEL REPORT

Aldi’s ‘Like brands, only cheaper’ campaign also reassured consumers about the quality of their ranges by using humour and the retailer also cleverly focused on the ‘Irish’ aspect in their ‘Love Ireland, Like Aldi’ campaign, highlighting strong Irish sourcing credentials and partnerships with local farmers.

Source: Nielsen AdDynamix 2013

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The extensive range, product development and improvement in quality and packaging for store brand ranges over the years has led to an erosion of the traditional negative stigma of private label. Nielsen’s latest New Products Sentiment Survey⁷ reveals that 67% of respondents said they would buy a new product store brand or value option when available, indicating openness to buying Private Label. (Chart 2)

PPERCENT IRELAND RESPONDENTS THAT DEFINITELY/SOMEWHAT AGREE TO THE GENERAL PURCHASE OF NEW PRODUCTS

67%

63%

60%

I WILL PURCHASE A STORE BRAND OR VALUE OPTION WHEN AVAILABLE

I AM GENERALLY WILLING TO SWITCH TO A NEW BRAND

I PREFER TO BUY NEW PRODUCTS FROM BRANDS FAMILIAR TO ME

58%

56%

54%

I LIKE WHEN MANUFACTURERS OFFER NEW PRODUCT OPTIONS

I WAIT UNTIL A NEW INNOVATION HAS PROVEN ITSELF BEFORE PURCHASING

I LIKE TO TELL OTHERS ABOUT NEW PRODUCTS I HAVE PURCHASED

47%

40%

28%

ECONOMIC CONDITIONS AND RECENT WORLD EVENTS MAKE ME LESS LIKELY TO TRY NEW PRODUCTS

I PREFER TO PURCHASE LOCAL BRANDS OVER LARGE GLOBAL BRANDS

I AM WILLING TO PAY A PREMIUM PRICE FOR INNOVATIVE NEW PRODUCTS

23% I AM AN EARLY PURCHASER OF NEW PRODUCT INNOVATION

Nielsen Online Survey Q3 2012 – New Product Purchase Intentions Sentiment Survey

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IRELAND PRIVATE LABEL REPORT

It cannot be denied that recent economic trends and pressure on consumer pockets has helped the more recent surge towards store brand growth. Price remains high on consumers ‘reason for purchase’ list , however they are becoming increasingly accepting that the quality is just as good as named brands and that they are really good value for money (Chart 3). Price is one of the key triggers for purchase, however, if the quality is not there, consumers will not return, and retailers are ensuring that quality is high on their store brand agenda. Consumers see retailers as looking after their needs in terms of reducing weekly shopping bills and offering them value and this trust comes through the private label ranges in store. Furthermore, they have indicated strongly that their intention is to buy even more private label in the future.

REASON FOR BUYING STORE BRANDS

LESS EXPENSIVE THAN NAMED BRANDS - 64% THEY OFFER REALLY GOOD VALUE FOR MONEY - 41% QUALITY JUST AS GOOD AS NAMED BRANDS - 40% QUALITY OF STORE BRANDS IS IMPROVING - 31% WORD OF MOUTH. OTHERS HAVE RECOMMENDED THEM - 12% PRODUCTS I WANT ARE ONLY AVAILABLE IN STORE BRANDS - 5% ALL OTHER - 1% NONE - 3% DON'T KNOW/NOT SURE - 2%

Source: Nielsen Shopper Trends 2013 (Base: All store brand buyers n=975)

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SO CAN MAINSTREAM BRANDS REALLY COMPETE… Market analysis in the past suggests that there is no single response strategy for manufacturers competing against store brands. Indeed, what works for one brand/category may not work for another. There has been somewhat of a surrendering or ‘laissez faire’ attitude to store brands in certain categories in recent years, an attitude that ‘we can’t possibly compete so leave them to it’. However, not competing against store brands means lost opportunity, as you lose customers without fighting for them. Manufacturers need to actively compete against store MANUFACTURING STORE brands in the same way they would against any other growing brand. It does not BRANDS CAN OFFER have to mean more promotions, lower margins and less bargaining power with YOU A WAY TO DRIVE retailers. However, to compete effectively and efficiently at all requires a detailed VOLUMES RESULTING IN knowledge of your brand and category. It is ECONOMIES OF SCALE key to understand your brand positioning, who you are what and you stand for, FOR YOUR OVERALL consumer decision tree flow, category dynamics, competitive positioning and any BUSINESS. contextual global or local trends. One option to competing with store brands is to actually manufacture the store brand products yourself. Work in partnership with the retailer to drive the category through both store brand and branded offerings ensuring that consumer needs are met. Remember that store brands are also a challenge for retailers as they need to manage it profitably. Manufacturing store brands can offer you a way to drive volumes resulting in economies of scale for your overall business. Many manufacturing companies have gone down this road and enjoyed lucrative partnerships with the retailers.

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IRELAND PRIVATE LABEL REPORT

For some, manufacturing store brands is not an option, or it does not fit with the company strategy, so there are alternative ways to compete. Aside from promotions, there is focus on strong brands and their emotional appeal to consumers, innovation to break their shopping habits, and fulfilling consumer needs. Some retailers know their shoppers better than manufacturers with the bank of data they collect through loyalty cards–make sure you are at the top of your game to compete effectively. While price is still a store brand lever do not resort to using price solely as a defence/competitive strategy. Short term price down activity can improve short term performance, however cumulated short term price downs become long term and this can damage brand equity. In fact some recent pricing studies have actually shown surprisingly low price relationship between store brands and mainstream brands, so consumers may not be referencing as much as you think. Manufacturer brands need to re-engage with all core levers to drive brand loyalty. Increasing brand loyalty will help safeguard your business for the future. Building this loyalty however is the difficult part. Brand trust is eroding over time and with market choice and category ranges everincreasing, it is becoming more and more difficult to cut through and get your message across to the shopper. The time has come when the shopper is in complete control and brands need to be ‘everywhere’. Mass communication has made it increasingly difficult to cut through to the consumers. While some brands are using the strategy of targeting customers only at point of purchase, using only this strategy alone can be a risky strategy for certain other categories. For example it is key to understand where the consumer ‘engages’ with your category. For example brand choice in ketchup is influenced pre-store; whether this be habitual choice, advertising, family preference or buzz, the key for this category would be to focus activity in these areas or miss the point of decision making. For a category like toilet tissue there is much stronger in-store index so there is an opportunity for your brand to activate consumers through in-store influences–promotions, price, merchandising, packaging etc. Similarly if consumers shop your category on auto pilot, you could be investing significant sums of money on in-store activity, only for it to be ‘missed’ by consumers⁶. In store battling for impact on shelf has become more and more difficult as the shelves become more and more cluttered with products. If consumers are not engaged with your brand then store brands have a greater opportunity to win at the point of purchase where functionality and price will win out. Also, consider the growth of on-line shopping where the consumer does not even get to the store. While on-line shopping in Ireland is still very small it has advanced so much in the UK that Tesco are opening ‘dark stores’ to supply the online shopping population–how do you compete for ‘online shelf space’?

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In addition it is also key to understand your price and promotional elasticity and also elasticity relative to your competitors. This can help you to decide on the best strategy forward to win. For brands that are relatively price inelastic and in possession of more than the fair-share of their category, the private label threat is more easily countered by investing in marketing. For brands that are relatively more price elastic, and whose volumes are sensitive to promotional activity, promotional activity should be reviewed and the most effective promotions should be used sparingly (Source: Nielsen Analytic Consulting). It is clear therefore, that blending a ‘bigger picture’ view of category dynamics from a country and channel (such as hard discount development) perspective with a more minute view of brands within a category, is the way forward. Looking at the key drivers of some of the winning brands of 2012 the levers used included innovation to target different consumer needs, focus on health, focus on value and different consumption occasions serving a specific need such as big nights in, pre-planned ‘impulse’ purchase and making lunch to take to work. For almost all, they used the strength of long term umbrella brand advertising emphasizing quality and appeal of the brand, and the brand message was conveyed in a simple, convincing manner with a functional benefit that solved a consumer need. In addition most had quite distinctive packaging. Almost all were something ‘different’ which were used to disrupt consumers usual shopping behaviour and to encourage trial. (e.g. Millicano, Cully & Sully, Persil Concentrate, Oral B). In addition it will become more important for brands to be more socially responsible. This strategy may not necessarily be a big driver of sales peaks but it is about ‘doing what is right’ from the point of view of the health and future of the population and the planet. One trend that will remain at the forefront of consumers mind is health. Obesity levels continue to rise to shocking levels particularly in children and the subsequent health problems that this will bring means that there is a responsibility on the food manufacturers to work on addressing this by reducing salt content, saturated fat content and portion sizes for example. There has already been a lot of work done in this area and it will continue to be a focus and an opportunity going into the future. Additionally the area of fair trade, carbon footprint and reducing packaging have also become very important–saving our planet for the future generations offers brands another opportunity to engage with consumers from an emotional and responsibility point of view. Many key brands are already on this journey such as Lyons tea, Cadbury, Nestlé and Mars chocolate, Nescafé and Pampers but to name a few. This can be a costly strategy but pays out in the long term.

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IRELAND PRIVATE LABEL REPORT

SO WHAT DOES THE FUTURE HOLD FOR PRIVATE L ABEL … There is no question that private label will continue to grow in the future and any worries about the economy will only strengthen this further. Chart 4 illustrates how consumers say that they plan to buy even more store branded items in certain categories where they have already bought into the range. Looking at the UK, which is arguably one of the most advanced private label markets in the world at 35% share, it highlights the potential size private label could achieve with full support and time. Consumer behaviours have changed irreversibly and they are setting the agenda. Retailers will continue to drive premium store brand ranges as this is the area where they can achieve real margins. Brands need to ensure that they keep relevant, and more importantly, drive customer loyalty to ensure the repeat purchase, otherwise their future is at risk. Consumers expect better prices as standard so the winners will engage with them on other levels. The occasional store brand purchaser of today could be the regular purchaser of tomorrow if this pattern is not disrupted.

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INTENTION TO PURCHASE STORE BRANDS BOUGHT IN PREV. 12 MTH

5%

4% 26%

29%

HOUSEHOLD PRODUCTS, LIKE CLEANERS

DAIRY PRODUCTS

4%

FROZEN & CHILLED FOODS

6%

37%

32%

CANNED & PACKAGE GROCERIES

PERSONAL CARE

7%

CARBONATED SOFT DRINKS 6%

12% 44%

56%

SNACKS & CONFECTIONARY

8%

31%

31%

62%

PET FOOD

57%

59%

63%

12%

STAPLE FOODS

9%

33% 59%

68%

62%

69%

5%

35%

28%

35%

67%

PAPER PRODUCTS

3%

3%

49%

NON-ALCOHOLIC BEVERAGES

34%

54%

PREPARED MEALS

18%

29%

40% 66%

STORE BRANDED MEDICATIONS

38%

60%

38% 40%

42%

25%

ALCOHOLIC BEVERAGES

Buying more PL products than 12 month ago

BABY FOOD

OTHERS

Buying about the same number of PL products

Buying less PL prducts than 12 month ago

Source: Nielsen Shopper Trends 2013 (Base: All store brand buyers n=975)

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IRELAND PRIVATE LABEL REPORT

Article by Elaine Wade, Business Unit Director, Nielsen Ireland Any queries on above article, please contact [email protected] Sources: ¹

Nielsen Global Consumer Confidence Survey Q4 2012

²

Nielsen Strategic Planner Dec 2012, Total Available Coverage

³

Nielsen ShopperTrends 2013

⁴

Nielsen Scantrack to December 2012

⁵

Nielsen Media AdDynamix data 2013

⁶

Nielsen Shopper Modality Ireland, 2010

ABOUT NIELSEN Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit www.nielsen.com. Copyright © 2013 The Nielsen Company. All rights reserved. Nielsen and the Nielsen logo are trademarks or registered trademarks of CZT/ACN Trademarks, L.L.C. Other product and service names are trademarks or registered trademarks of their respective companies. 13/6085