Australia’s food manufacturers need to decide which brands they will sacrifice and which they will strengthen in order to survive massive growth in the supermarket private-label sector.
PricewaterhouseCoopers , in its annual review of the Australian retail sector, warned last week that the decision by Coles and Woolworths , the two dominant food retailers, to double their private-label sales threatens the survival of many established brands.
According to ACNielsen about 15% of supermarket sales in Australia come from private label products but, Coles has stated that it wants 30% by 2007-08 (Woolworths is thought to be initially aiming for 20%).
Coles will add 1,100 new private-label products to its existing 400-product range this year alone.
As the supermarkets increase their private-label selection many marginal brands are likely to be cut. Only the top two brands in each sector are assured of survival, which means companies could lose significant amounts of business.
Because Coles and Woolworths control more than 75% of the Australian food retail sector, brands dumped by these two supermarkets will struggle to survive.
PricewaterhouseCoopers believes food manufacturers should act now to protect strong brands and ditch the weak.
Mike James, head of retail at PricewaterhouseCoopers, said: “The highly concentrated Australian retail grocery sector leaves the major retailers in a unique position to push through the changes they seek. Consumer goods companies will start to take a hard look at their brands and decide which to protect, expand, sell and discontinue.”
Some companies are already taking steps to survive in the enlarged private-label environment. The Australian division of JR Simplot has sold out of the cluttered meat pie and bakery sectors and has bought the canned fish supplier John West instead.
John West is the number one brand in canned fish with a market share of nearly 35%.