Categories, a country perspective

Private labels are the winners of down-trading

A closer look at Europe displays similarities, but also vast differences between countries. For example, a high number of people in a country struggling financially does not necessarily correlate with a high hard discount share, as can been seen in the visual below. In Ukraine, 45% of people are struggling financially, however, the hard discount share reaches only 10%, whereas in Denmark hard discount achieves a 46% share, while 33% of people are struggling financially.

Together with our CPS GfK experts from different European countries, we will take a deeper dive into country specifics to understand respective coping strategies, shopping behavior, channel choices – and opportunities.

In depth – Ukraine

Marina Zabarilo, Consumer Panel, FMCG & Retail Ukraine, CPS GfK Ukraine

The Ukraine is obviously the most challenging market in Europe, even in “calmer” regions towards the west of the country. Since the Russian invasion, production sites had to close, manufacturers have relocated sites, struggling with supplies and logistics.

Ukrainian consumers are in general very cautious in their spending. Obviously, this has now intensified, with the rate of people severely struggling – not having enough money – being estimated to have risen from 4 to 14%.

FMCG sales increased by 13% in the first nine months of 2022, but this was “eaten up” by a 24% inflation. Real consumption decreased by 9% since the war started. Not surprisingly, the shopping frequency declined – for safety reasons –, while the spend per trip increased. Retail loyalty is very high as people are trying to buy as much in one place as possible.

From our experience, when in a crisis, Ukrainians tend to buy less but stick to the products they know. By contrast, brand switching peaked directly after the invasion and still ranges above 2021 levels, which to some extent is due to availability. Though supplies and logistics were – to a large extent – reconstructed by summer 2022, nearly half of all categories still saw a change in brand leader.

To date, many Ukrainians have not yet experienced a depletion of their income and household budgets. As a result, a switch to the economy segment has not happened. Instead, premium and especially private labels are seeing an increase in share, with people striving to maintain a normal life: balancing budget prudence with buying their familiar brands represents very much an emotional release.

UKRAINE: Market polarization - private labels and premium brands benefit

Source: CPS GfK Consumer Panel Ukraine

A closer look at categories further nuances the situation:
If shoppers see the brand value, they are willing to pay for quality, they will stick to the brand, but buy less. This is the case, for example, in confectionary and alcoholic beverages, where premium and middle brands have experienced an increase in 2022 compared to the previous year. In oils and fats, the value proposition was obviously less convincing, and for that reason, premium, middle and brand leaders lost to economy brands and private labels. Interestingly, brand leaders lost in all four categories analyzed, i. e. confectionary, alcoholic beverages, oils and fats as well as dairy products.

While further changes are to be expected in 2023, as inflation is predicted to increase to an annual rate of 30%, Ukrainian consumers remain optimistic about the future.

In depth – Romania

Diana Scaunasu. Consumer Panel Lead, CPS GfK Romania

In Romania, a neighboring market to the Ukraine, the race between private labels and brands has experienced some interesting variations: in 2019, private labels contributed most to the growth in FMCG, with brands taking the lead in 2020. In 2022¹, private labels again won the game with an average value share of 25% and peaks of 34% in food or even 39% in dairy products. The only exception: brands score in beverages with private labels reaching a value share of only 11%.

Despite the current cost-of-living crisis and private labels costing – on average – slightly more than half of the respective brands, price is not the main reason for choosing a private label product and a big price gap does not necessarily drive shoppers to buy the latter. The quality message and trust therein drive the choice: where brands deliver with regards to value, innovation and benefits, they dominate the category, such as in beverages and personal care.

However, across the board, seven out of ten brands in Romania have experienced a decrease in loyalty and the average loyalty has declined compared to 2020 – with considerable differences: the average loyalty for toothpaste, for example, reaches 45%, the one for yoghurt only 13%. Influencing factors to consider though are shopping frequency – i. e. how often does a shopper have the opportunity to switch to another product – and market concentration of brands and products – i.e. what are alternative options.

Private labels, be it budget or premium, are clearly the market winners in Romania, with economy brands remaining stable and mainstream brands being squeezed. Food and dairy products are down-trading to private label brands, non-food categories, including home care, to economy brands. But at the same time, some categories still offer room for premiumization, such as beverages up-trading from mainstream to premium.

A similar polarization can be observed in the channel, with premium and mainstream brands dominating online shops, while mainstream brands becoming entrenched in proximity stores, and budget private labels – not surprisingly – achieving the largest value share at discounters. Besides mainstream brands, traditional trade seems to be a good channel for economy brands and we also notice premium private labels gaining ground at hypermarkets and discounters, albeit starting from a small base.

ROMANIA: Polarization of brands by channels

Source: CPS GfK Consumer Panel Romania | FMCG excluding Fresh and Home Made

¹ YTD August 2022

In depth – Germany

Anna-Katherina Kraus, Commercial Director, Advanced Solutions, CPS GfK Germany

Is Germany, being able to rely on a stronger economy, in a different position and are shoppers acting differently? The country is facing similar price increases as other European countries, reaching +11.6% in FMCG in September 2022. In comparison, the respective demand shift is considerably smaller, with down-trading scoring at -2.3% in September. Does this imply that shoppers accept inflation?

GERMANY: 60% of categories see down-trading (with varying strength)

Source: CPS GfK Consumer Panel Germany CP+ 2.0 FMCG, Inflationtracker, 309 categories in 18 product groups

Both trading-up and trading-down is happening. Consumers shop less or change to a cheaper product in 60% of categories, including personal care, diapers and dishwashing detergents. On the other hand, shoppers are trading-up in categories such as rice and laundry care – sometimes unintentionally: in a number of cases, for example margarine, manufacturers implemented a “hidden” price increase, keeping the packaging size, but reducing the content. Shoppers often enough do not realize the change and continue to buy the product, thus accepting the silent price increase. Categories can also serve as substitutes with shoppers up-trading in one category to compensate the "loss" in another one, for example buying premium instant coffee instead of roasted coffee or dry instead of wet pet food.

Similar to other countries, down-trading has become predominant in Germany, and it is happening in favor of private labels, especially price entry

private labels. In general, premium and market leader brands are growing single digit and way below FMGC market growth, which reached +11,4% (packaged goods, Q3/2022). Looking at supermarkets, price entry private labels scored the highest growth rate at +25.8%, with premium and mid-tier private labels both just above +12%. In hard discount, all three private label categories show similar growth rates between +18% and +20%.

It is interesting to observe that all retailers have increased their promotion of private labels and shoppers “buy” the value-for-money-story.

Not every category is the same and there is one good example, where German shoppers accept inflation: butter has seen the largest price increase of +51.5%, while down-trading only reached -1.6%. A more detailed analysis reveals, that – in this segment – mid-tier brands and market leaders have significantly gained in value, whereas premium brands as well as private labels are less in demand. However, the increase in market share of around 40% has more or less been paid by a 50%-boost in promotion.

In general, premium brands are currently under a lot of pressure in Germany, so brand identity and intense brand promotion are indispensable to maintain brand loyalty.