Private labels – what’s the problem? Is there a problem? What about wine?

Introduction
In recent months a number of articles and reports have caught my attention relating to private labels/home brands and the wine industry. Private labels are simply defined as retailer brands – the definitions and types of private labels are discussed in Article 2. Some strong claims, emotive headlines and large numbers have been bandied about and repeated, often alongside emotional interviews and some unsubstantiated claims, accusations and statistics. Supermarkets have been referred to as “predators”, “hurting the industry” and leading an “invasion of cheaper versions” into liquor markets. Originally thought of as “a cheap and nasty substitute for the real thing” (“Make It Your Own”, The Economist, 4 March 1995, p.8), the story is not this simple. I have gone back to basics and taken a global and chronological look at this topic before relating my findings back to wine and Australia.

Woolworths own brand wine labels

As an economist working with the University of Adelaide’s Wine2030 network, it is my job to approach any research subject with objectivity, so I have sought advice from those in the know in the industry and looked at all sides of this argument and hopefully will enlighten and surprise some readers.

The private label buzz in Australia

Private label grocery products from IGA, Coles and Woolworths

There has been a low level buzz in the wine industry for a while about the role of supermarkets in the sale of wine in Australia. Traditionally the concern appears to be predominantly due to the buying power of retailers in squeezing margins from their suppliers, including winemakers. More recently, concern has become more focused upon the emergence of supermarket private labels for wine, beer and spirits. I was prompted to investigate the facts about private labels after hearing about them on various news media and some concerns expressed particularly by those in the wine industry that wine was the next product to be marketed in this way.

The CEO of the Winemakers Federation of Australia (WFA), Stephen Strachan, was quoted (Winemakers worry about proliferation of supermarket home brands, ABC, 9 August 2010) as saying that “there’s a risk that ‘home brand’ wine is going to take over the supermarket shelves” and “the low prices of home brands are bad news for grape growers and winemakers”. Back in July 2010, Australian Wine Business magazine ran a story entitled “Predators seizing the day?” on this very topic, focusing mainly on Coles and Woolworths chains in Australia.

The Australian published an article on 13 September 2010 entitled ‘Home brands lose their stigma’, showing how generic supermarket products are achieving a better perception than in the past and in fact do deliver good value for money.  Channel 7’s topical Today Tonight show ran several programmes during August and September 2010 talking about the imminent arrival of private labels such as Gap, H&M and Zara in the fashion world, and IKEA for other consumer products, the comparison of the value for money and product quality between supermarket private labels and manufacturer brands, and the proliferation of private labels in supermarkets in wine, beer and spirits.

It seemed that there were a lot of strong opinions out there, both positive and negative, but the facts were not clear to me. I was not sure whether the trends were actually happening, whether they were good or bad, and what to expect to see in the future. I wanted to know –

  • What are store brands?
  • Should consumers be concerned or excited?
  • How should retailers and manufacturers react?
  • What can we expect to see, based on what is already happening overseas?
  • Should wine be treated differently to other consumer products?

An established trend
In order to understand all of the issues surrounding the topic of private labels I realised that I needed to look into more than just the wine industry to see the full picture. I started to research the more general area of private labels – also referred to as store brands, home brands, own brands, and buyers own brands (BOBs), and have been so stunned by what I have learned that I feel like I have had my head in the sand. To some extent I have because much of the private label revolution – and make no mistake it is a revolution and not a fad – has been concentrated in the US and a number of European countries, such as the UK, Germany, France, Italy and Spain. Australasia is a step or two behind the trends occurring overseas, but as with most trends, is showing signs of heading in that direction and catching up with North America and Europe. Furthermore, many of the companies leading the trend overseas are setting up in Australasia and will change the face of consumer goods markets.

I had known about private labels for a long time of course – in supermarkets the own brands have been around for many years. In my mind they were the plain labels that offered a basic quality product for a better price than the branded product. In some cases it was expected that the quality was similar and in some cases it was accepted that the quality may be a bit lower but this was more than accounted for by the price difference.  The cheap generic own store brands are a godsend for many people shopping to a tight budget. It has also been shown in many studies and market research items that often the products are the same or so similar as to be roughly the same as branded versions.

Initially it seemed to me that not everyone was prepared to buy the generics as they looked cheap, so it touched the snobbery/pride nerve of many people. As a student I hunted them out and got used to them and will still buy generics for some products such as milk, biscuits, butter, frozen vegetables and toilet tissue.

However, the revolution that bypassed me (although part of me is saying, “ah yes I thought I saw some of those things, but never quite registered the extent”) was the move from the cheap generics to the branded private labels that compete directly with manufactured products, with attractive packaging and comparable prices.

To be accurate, it has not been a move away from the generics towards branded private labels, rather it has been in addition to. Even recently in Australia, in Coles and Woolworths I have seen more and more of the stores’ own labels, with some rather attractive packaging of products that look like a manufactured brand approach in terms of the appearance, implied quality and price.

How did I miss this? It has been happening increasingly for many years in the US and Europe – but I have not lived there since 2000. Funnily enough one of the things I noticed when moving to New Zealand and then to Australia, was the higher price of most grocery items (allowing for purchasing price parity of currency) compared to the UK and the US. I noticed it more because I had been told to expect the opposite. So maybe this notion was already outdated because private labels in supermarkets were well into their development in the US and Europe.

Visiting Europe through Antipodean eyes in 2006, I noticed that grocery prices were still much lower in the UK and Europe and there was a much greater choice for each product – both in quality and brand. You could of course find high prices but lower priced options for groceries were the norm.

Should consumers be concerned or excited?
So should consumers actually be excited that these store brands will be offering more choice and more value? And if consumers are increasingly accepting and embracing store brands for food and other key consumer products, why should wine be treated differently? Will Australian consumer goods markets follow the trend already well underway overseas?

These are some of the many questions for which I hope to provide the information that will at least start to answer them in this series of articles and at the very least to initiate discussion.

To access the subsequent articles in this series, click on ‘Private labels’ under ‘Categories’ on the right hand side of this blog.

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About tigchandler

English-born, lived several years in Wellington, NZ, then in Adelaide, South Australia, and recently moved back to New Zealand. With an economics background, I have worked in researching wine consumption patterns, marketing, economics and social media at the University of Adelaide. I also worked a vintage and in wineries in McLaren Vale so have seen both the research/analytical side of the industry and the practical/hands-on side. I have retail experience and many ongoing industry links all around Australia and overseas. This blog reflects my ongoing passion for everything related to the wine industry.
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6 Responses to Private labels – what’s the problem? Is there a problem? What about wine?

  1. Phil Reedman says:

    Good work Dr Chandler. Looking forward to reading the remainder of your blogs on this; it will assist everyone in the business if we can have some fact-based analysis of the own brand situation.

  2. Pingback: The evolution of selected private label companies and complex portfolios | Tigchandler's Blog

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  5. Pingback: Private label wine on the rise in Australia – what are the facts? « Wine 2030 – University of Adelaide

  6. Pingback: Private labels – back to Australia and back to wine | Wine news from Tigchandler

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