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Private label market set to double, says Rabobank

By Caroline Scott-Thomas , 28-Mar-2011

Private label foods are set to double their global market share to 50 percent by 2025 but leading brands will also gain in importance, according to a new report from Rabobank.

Many market researchers have questioned whether private label products will hold onto the gains they made in market share during the recession. During previous recessions, private label, or store brand, products lost much of the progress they made as the economy recovered. However, in 2010 market research repeatedly showed that store brands were retaining market share, and some have speculated that increased quality and innovation in the sector is changing consumer perception.

Research group Rabobank’s latest report, Private Label vs. Brands: An Inseparable Combination, said that the rise of private label foods is likely to put a squeeze on branded products that are not category leaders, but that leading brands will thrive.

“Neither retailers nor consumers can do without these reference products,” the report said. “Consumers need brands to benchmark the price competitiveness of their supermarket. Food retailers need the A-brand as the price and quality anchor for each product category.”

Rabobank predicts that growth in the private label sector will be fuelled by indirect effects of the recession in the coming years, as consumers have become more aware of the quality and value of private label products. According to recent research from market research organization Mintel, 44 percent of consumers consider quality to have improved in the sector in the past five years.

Meanwhile, smaller ‘B-brands’ will need to find a market niche to survive, Rabobank said, either by innovation or cost leadership.

The research group also predicted more consolidation in the private label sector over the next 15 years, triggered by consolidation of leading brands and private equity involvement.

“Acquisitive growth is an important building block for private-label specialists,” Rabobank said. “Expanding private-label production capacity by means of a takeover avoids adding even more production overcapacity to the market, possibly eliminates a competing B-brand, and improves the chances of attaining relative cost leadership. Any merger and acquisition (M&A) steps are likely to trigger reactions by other players.”

Author of the report Sebastiaan Schreijen, associate director of Processed Food & Retail at Rabobank, said: “Our research shows that private label and A-brands are an inseparable combination…This report is an early warning to B-brand suppliers to adapt their strategies to survive.”

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