Debate has raged Down Under in recent months as a number of Australian supermarket chains have sought to expand their offerings of cheaper private label or ‘own-brand’ products, claiming that this is in response to increased demand due to the recession.  Australian name-brand owners have criticised the move, arguing that the increased penetration of private-label goods – which they claim are largely sourced from abroad – is damaging the national economy and reducing consumer choice. Interestingly, one voice from the supermarket world has warned Australian retailers not to go too far.

The Sydney Morning Herald recently featured an interview with Sir Terry Leahy, the former chief executive of British supermarket giant Tesco. In the report, Sir Terry cautions Australian chains that a range of between 30% and 50% represents a “natural level, or natural limit”, to the proportion of private-label products that supermarkets can offer for sale.  At present, leading Australian chains Coles and Woolworths are thought to have around 10 to 15% home brand penetration, although they are seeking to increase this level.

John Noble, director at the British Brands Group, says that market data on the UK would tend to support Sir Terry’s estimate for an upper limit, and adds that private-label market share can vary greatly depending upon product category. “In the UK at least, you’ll get quite high levels of own label share – certainly above 40% - in chilled foods, for example,” he says. “But in categories such as health and beauty, you’ll see it much lower.”

The prevalence of private label also differs depending on the store, with UK chain Marks & Spencer renowned as an almost 100% private-label retailer. “Some of the budget retailers such as Aldi and Lidl also approach a much  higher level of private label penetration, while many of the smaller convenience stores will be selling practically 100% name-branded products,” observes Noble.

For market-leading retailers, however, an oversaturation of own-brands can certainly lead to negative results. “In the late 1990s, Sainsbury’s crept above that 50% mark,” says Noble. “At that point, it seemed to get a kick back from consumers who complained that it wasn’t offering them sufficient choice.”

Although supermarkets have a vested interest in stocking name-brand goods, the presence of own-brand goods remains a challenge to brand owners. “Retailers are in a position where they can distort and mislead customers’ buying decisions by packaging their own-label products to look very similar to brands,” argues Noble. Though trademark counsel will be watchful for parasitic copying that might constitute infringement, brands often feel that they are effectively held to ransom and brand owners are faced with the tricky task of negotiating with organisations that are effectively the gateway to customers. Retailers hold considerable influence over the consumer, since they control shelf space, positioning, point of sale and in-store communications, and they arguably make the decision on price for both name-brand and private-label goods. “The retailer is able to strip out a significant element of the costs that branded companies must incur, which means that they can offer their private-label goods at lower prices to the consumer,” explains Noble. Supermarkets can therefore exert their power over name-brand suppliers – for example, by threatening to move their products to a worse position within the store.

WTR has previously considered strategies for combatting the problem of lookalike products but Noble concludes that, if brands can stand out from the crowd, then they will continue to successfully challenge private-label competition. “Brands need to keep innovating, promoting their uniqueness and highlighting their points of difference to other products in their category,” says Noble. “If they do those things then they will continue to do well, even if they’re based at a premium price level.”