Private label is a threat to the branded dairy sector

Covid-19, war and inflation have resulted in six in ten (61%) global shoppers being extremely or quite concerned about their personal financial situation (GlobalData 2022 Q2 global consumer survey) and cheaper, private label options are going to gain in popularity across the year, as price hikes push branded products out of consumer’s budgets. GlobalData’s UK Monthly Retail Tracker (June) has revealed that 35% of shoppers respond to higher food & grocery prices by picking up cheaper products at the same retailer. This shift in shopping habits is causing retailers to invest and expand their private label ranges – putting pressure on big-name brands to maintain appeal, especially in the dairy category. Asda, for instance, has rolled out its ‘Just Essentials’ range with 300 products earlier this year, Carrefour has invested in its Simpl range, and Co-op Sweden is relaunching Xtra, a low-cost private label brand.

In spite of a flurry of results from high-profile FMCG companies over the last week revealing that price hikes volumes have remained fairly resilient, largely due to the strength of their brand reputation and credentials, we do forecast the market to become even more challenging in H2. Those companies exposed to the dairy category have felt the pinch sooner than the cereal & bakery firms such as Grupo Bimbo, with Danone’s volume growth sitting at a muted +0.9% in H1 2022 and Nestlé’s milk products and ice cream category reporting a 3.3% drop in volumes.

Dairy products and baked goods are categories that are especially exposed to private label trading down. They both rank in the Top 3 food categories in which consumers noticed price hikes – 60% became aware of price increases in dairy across the last two months, and 58% say the same about bakery and cereal products (GlobalData’s UK Monthly Retail Tracker – June). Private label alcoholic and non-alcoholic drinks are least likely to be typically bought, illustrating that consumer loyalty is stronger in beverages. Distinctive tastes, which private labels are less able to replicate, set brands apart, so beverage companies will be less exposed to the risk of trading down versus dairy companies.

Subcategories within dairy, such as yoghurt, a certain type of cheeses, white milk and children’s products will be targeted, as the private label has come fairly close to the original tastes and families will need to trade down everyday essentials.

Meanwhile, plant-based milk or speciality cheeses will be less impacted due to lower trust levels in private label alternatives and less choice – restricting the ability to trade down in these subcategories.

Globally, opinion on private label quality is generally good, with only 5% believing it to be low and 62% giving it a positive rating. These quality perceptions do vary across regions, with the Netherlands claiming the top spot in being the most positive. When consumers are assured of quality, they are more likely to venture into more experimental products, making way for more innovation in private labels.  In regions with more positive perceptions of private labels, we expect the grocers to maximise private label opportunities to steal share from the brands – especially those also in markets where consumers are particularly facing intense financial pressure.

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