Sainsburys relaunched its premium private label range this week

Sainsbury's relaunched its premium private label range this week

Private labels have returned to the spotlight in the UK this week with Asda, Sainsbury's and Ocado all relaunching or launching new own-label ranges.

While the private label channel in the UK is a mature one, it has still seen significant growth throughout the downturn, increasing from 39% of sales in 2008 to 41% of sales in 2010, accoriding to Planet Retail data.

During this period, increased numbers of customers discovered that in their pursuit for value, they did not have to sacrifice quality when shifting to private labels, which tend to be significantly cheaper than their branded counterparts.

Retailers have also enjoyed benefits from the increased take-up, recording broader margins and greater control of the supply chain and end product.

Despite the continued bleak economic outlook in the UK, according to Nationwide studies, consumer confidence is growing for the first time since April, which has meant the intense focus on value has begun to ebb away, to some degree, and retailers have had to refocus on innovation to continue growing share in this highly-profitable channel.

According to Datamonitor analyst Malcolm Pinkerton, the recession allowed shoppers to discover the quality of private-label products. "When customers came in and discovered they could switch without sacrificing quality, they became interested in private label. Once people began shopping private label, they went up to the mid-tier and to the top tier, so retailers also then expanded their premium ranges so they could exploit things like people dining in more," he says.

Ed Henry, an account executive at brand strategy firm Dragon Rouge, attributes the recent rebranding efforts by Asda and Sainsbury's as attempts to distance themselves from the assumption that private label is "implicitly budget food". "The revamping is an attempt to show consumers that own brand can compete with brands across different categories," he says.

Similarly, Pinkerton believes Asda and Sainsbury's redeveloped standard and premium ranges, is down to them wanting to move people away from their value ranges and up the ladder to more premium products, which offer even better margins.

While consumer appetites for value have grown, their desire for innovation has not waned. According to recent IGD research, almost half of UK shoppers are actively looking out for new groceries when shopping and a third say they have bought a new product in the last month.

"At a time when money is tight, retailers and manufacturers should not walk away from innovation - shoppers haven't. In 2005, 47% of British shoppers said they were consciously looking out for new grocery products when shopping. Five years on, and even post-recession, British shoppers still have an appetite for new products," said IGD chief executive Joanne Denney-Finch.

Pinkerton echoes this claim and highlights on the broader opportunities for retailers saying: "You have to keep it exciting, you have to keep it fresh, and introduce new ranges and new products and extend it into new opportunities, which is why a lot of them are going into very premium, healthy or organic foods because retailers now realise they can steal share in other branded areas"

Ultimately, retailers are no longer just using their private-label offer to simply provide their customers with a value option and increased investment is only likely to continue as they look to compete with their branded counterparts.

"They're having to invest a lot more in packaging and design and feel to compete with the branded guys. They might not invest so much in their value ranges, but in the mid-tier and top-tier they're putting a lot more into it because they are competing with huge FMCG companies," says Pinkerton.

According to Henry, premium private labels are likely to see the greatest potential for growth in the medium term. "Consumers who previously bought premium brands are keen to economise, but not to the extent that they will make the leap straight down to own-brand value ranges," he says. "As Asda's CEO [Andy Clarke] pointed out, mid-tier own label is unlikely to perform well at the moment: put simply, consumers want value or a treat, as such standard ranges largely fall between these two stools."

Additionally, Kantar Retail recently said that Asda has been suffering as the UK grocery market is witnessing "premiumisation" despite the downturn, with its sales growing at a slower rate than the market.

Kantar communications director, Ed Garner, said Asda had indicated that it was focusing more on quality in its latest marketing.

"Recent statements from Asda's chief executive Andy Clarke show that the retailer has recognised the need to adjust its strategy and we've started to see a greater emphasis on quality in the latest advertising campaign," Garner said. The relaunch of its private label seems another indication of its commitment to this strategic shift.

The recent development of the UK private-label space could lead to further innovation in Europe. According to the CEO of, Maurice van Vliet, the largest European retailers look to the UK grocery industry for private-label inspiration. "All the developments that happen in the UK come to the other parts of Europe later on," he says.

With that in mind, the private-label industry looks poised for yet another period of intense growth and manufacturers will need to consider ways of working with retailers and private labels, instead of fighting against them.