Risks for brands

A story of treasure hunt or frustration

Shoppers will always engineer from a total basket perspective, based on a mix of functional and emotional factors. In the current situation, shoppers must, more than usual, make changes. At the same time, there are choices shoppers are simply not willing to compromise on. The balance becomes more delicate: shoppers do not totally down-trade on their needs or principles, but will accept cheaper alternatives if considered good enough.

A closer look at the German market showcases the implications of the stronger basket focus for brands. We measure product sales on four key trends – convenience, sustainability, health and lifestyle/premium. Considering these trends to be a synonym for added value, we can see that private label reaches an above average contribution. Even if this is partially due to the above-average price increases, private labels are, nonetheless, part and parcel in driving trend development. And confirming the “stuck-in-the-middle”-conundrum: especially the mid-tier brands are struggling.

Germany: Value growth in key trends – mid-tier brands are losing ground

Private labels are particularly well placed to thrive in today’s market circumstances. They typically have a 30% higher share in categories with low brand activity such as advertising, innovation, and differentiation. And what is more worrying: private labels have a better chance to keep the share, they have won, on a longer term¹. So, once lost, it might be harder to win shoppers back. This is especially true as the distinction in positioning is increasingly fading, resulting in serious complications for brand reputation and differentiation.

Sure enough, the current cost-of-living-situation is not a strain for everyone: to one in five shoppers the “money-saving”-journey feels like a bit of a nice discovery, a treasure hunt, and even brings some form of self-pride.

Shoppers hold brands and retailers responsible

But many shoppers (14%) feel helpless, not in charge of their lifestyle and the choices they would like to make. Dangerously, a majority of shoppers are angry at brands and retailers, holding them accountable for especially high price increases.

37% of shoppers feel angry at brands and retailers, holding them responsible for food inflation.

What is the right remedy?

For retailers, it is important to understand that more private label can set off a race to the bottom: there is a tipping point where more private label stops being beneficial, both from a margin perspective and from a retailer loyalty perspective.

Driving Private Label can erode loyalty

Source: Ailawadi & Harlam 2004; GfK and Kantar – average for Albert Heijn NL, Mercadona Spain and Tesco UK

Strong brands can thrive when focusing on the right strategies: extensive distribution and market leadership are always safe bets. Depending on market developments, advertising and the focus on umbrella brands can be more successful to drive market share growth. By contrast, in times of economic growth, premium price and long-line length are key factors for winning brands.

Source: Rajavi, K., Kushwaha, T., & Steenkamp, J. B. E. (2022). Brand Equity in Good and Bad Times: What Distinguishes Winners from Losers in CPG Industries? – Journal of Marketing

¹ – Source: Europanel Global Private Label study; BG20 30 countries, 100 categories and 11500 brands, 2015 to 2019 | BG 20: 3800 brands 563 categories: AT/BE/DK/FR/ES/SE/UK 2008 -2018