Consumers stay loyal to national brands

WHEN times get tough in European markets‚ frugal consumers tend to migrate more readily to private-label products to reduce their grocery bills.

In South Africa‚ however‚ cautious shoppers are likely to stick with well-known brands‚ opting not to compromise on quality amid a downturn‚ with private labels inspiring less trust than much-loved national brands.

Household expenditure in South Africa is being crimped by rising costs‚ a moderation in income growth and rising unemployment‚ with slower growth in profit and sales from most South African retailers corroborating the strain on consumer spending. While local shoppers are price-driven‚ there is an increasing tendency to rely on value and quality to ease the financial burden.

Although private labels‚ also known as house or store brands‚ account for about a quarter of the food that is sold through modern food retail worldwide‚ in South Africa they have often been perceived as being of inferior quality.

Absa Investments analyst Chris Gilmour says this has led to private “not really taking off in South Africa”.

“When you’ve got private label‚ the built-in philosophy is that it is probably – not always‚ but probably – not quite the same quality and therefore that’s why it’s sold at a discount. Also‚ if you look at Asda‚ Walmart’s UK subsidiary‚ over 50% of stock-keeping units (SKUs) on the shelf are private label – in South Africa we’re lucky if we get two generics‚” he says.

A boon for retailers‚ budget private-label products generate higher average price margins as they require lower research and development costs‚ reduced packaging costs‚ and advertising spending is less than on national brands‚ for which retailers pay a surcharge to include in their adverts.

Thwarting private-label growth in South Africa further is that these goods often don’t provide shoppers with a strong value proposition.

“Private label brands in Europe are typically 30%-50% cheaper than the national brands. Over here‚ there is very little difference in price – you might get 10%-20% if you’re lucky. In some ridiculous instances they’re more expensive‚” Gilmour says.

According to Daniel Isaacs‚ an equity analyst at 36One Asset Management‚ the South African market has always been very brand-conscious. “This is for a few reasons‚ one of which is a legacy issue – these brands have been around for years and consumers are just used to them.

“Overseas‚ consumers have been seeing house brands for a lot longer than we have‚ so the acceptance and the number of people through the last generation who are exposed to them are significantly higher.” he says. Nevertheless‚ South African retailers continue to position private-label products.

The private-label push is picking up pace in South Africa‚ with Woolworths being the main success story‚ Isaacs adds.

“They really introduced the concept of a quality private label‚” he says.

The up-market retailer’s food catalogue is made up primarily of private-label goods. National brands represent just 10%-13% of Woolworths’ food sales. The group also sells a selection of products from the private-label pioneer‚ British retailer Marks & Spencer.

While South African consumers are looking to economise‚ price is not the single differentiator for all shoppers and cannot tempt everyone away from national brands.

“You would think consumers who are strained for money will go for something a bit cheaper‚ but this is not the case‚ especially in places like Shoprite‚”

Isaacs says.

“They can’t afford to take a chance on a different brand. Proof of that is in the strength of the Albany brand‚ which (has a reputation for staying) freshest the longest.

“Another loaf might be a rand or two cheaper and they save‚ but what if it’s not good or it doesn’t last? The next time they can afford taxi fare to the Shoprite is next Sunday...” Isaacs says. — BDLive