Slim odds of home brand war

As a row brews over the growing dominance of private label products in Australian supermarkets, industry players in New Zealand say there is only a slim chance the same will happen here.

Across the Tasman the giant Coles and Woolworths supermarket chains reported plans to more than double the number of private label - or home brands - on their shelves. That's caused Heinz, one of the world's biggest food manufacturers, to call Australia  the "worst market'' globally to deal with and the environment  "inhospitable'' for suppliers, the Sydney Morning Herald reported.

Heinz reportedly closed a factory in Victoria with the loss of 146 jobs while 200 jobs went in Queensland and NSW.

The debate spiked even further with the release of an Australian Food and Grocery Council report citing a rise in market share of private label products in what it says is the world's second most concentrated retailer market. The report forecasts private label in Australia will continue to grow strongly and could potentially account for 40-50 per cent of total supermarket sales by 2020.  Worryingly, turnover will decline to $105-$106 billion from $108b (2009) in the period while as many as 130,000 jobs could be shed as the industry ``right-sizes'' to compensate, the report said.

By comparison, private label in New Zealand is estimated by local researchers to be about 15-16 per cent to Australia's current 17-18 per cent. The UK market has been estimated in the mid-40 per cent range.

Katherine Rich, chief executive of the New Zealand Food & Grocery Council which represents manufacturers and supplier in an industry with $15b in retail sales, is comfortable private label here won't grow much further.

"Many of our members looked at this and asked the obvious question - what would be the effect on New Zealand given that Progressive (which operates the rebranded Countdown supermarkets) is owned by Woolworths?,'' she said.

"But I think there will be a very different outcome here because Foodstuffs (New World, Pak `n Save, Four Square) and

Progressive work hard to maintain good supplier relations and they know a forced march towards higher percentages of home branded products will burn relationship capital.''

Home brands will always be in the market, and some of her members produce them as well as other branded product, Rich said.

"All food companies know, certainly in the long term, that if home brands dominate the shelves this will have an impact on issues such as R&D spending, and innovation,'' said Rich.

"The reason is that in the grocery sector, margins are slim. There is certainly no profiteering.''

Rich also said it was unlikely Kiwi consumers will enjoy the $1 bread and milk being sold by competing Australian supermarkets.

"Our members have had the view, and I imagine the supermarkets have taken the same view, it makes an ad campaign with cut through but everybody knows it's not sustainable and someone pays eventually, usually the supplier.''

Progressive's national communications manager Luke Schepen said private label demand is driven by customers and that its private label range of 1600 from a total 25,000 products hasn't changed in several years. While the range remains the same, the number sold is up, he admitted.

Steve Anderson, managing director at Foodstuffs, warned that if the Woolworths strategy was implemented in Australia, it could flow across to his competitors' Countdown stores here. Foodstuff's private label share is around 15 per cent of the range. He wouldn't comment on how the margins differ for private label from branded goods for the supermarket but it's likely they would be higher.

"It is fundamental that the industry works to maintain an appropriate balance between private label and branded products thus ensuring customer choice is retained,'' he said.

FOODSTUFFS

Pams is the largest selling brand in the New Zealand grocery market with some 2500 product lines. Its other private label brand is Budget with 450 product lines.

PROGRESSIVE

Its range includes Homebrand, Value, Countdown, Finest, Select, Essentials, Signature Range and Macro Wholefoods.

Source - BusinessDay.co.nz