The rise of the 'no-name brand'
Sake24 - Jul 19th 2010, 00:00
Cape Town - Sales of house-brand products - the so-called 'no name' brands - are growing significantly but for some time these have not been the cheapest options on shop shelves.
In general, the popularity of house brands has increased in the past five years, says Spar group [JSE:SPP] merchandising executive, Mike Prentice.
Retailers attribute the value of house brands to reasonable packaging and marketing which is why the products can be sold more cheaply. They may not be the cheapest in the product category, but are generally cheaper than the market leader's product.
Coronation Fund Managers analyst, Quinton Ivan, says Woolworths Holdings [JSE:WHL] probably has had a lot to do with changing consumer perceptions of house brands.
A large proportion of this retailer's products are sold under its own name which many consumers associate with quality.
It's also true that retailers have in recent years taken more trouble with marketing their house brands to reflect a stronger image of good quality.
These products were initially marketed to consumers mainly from a price perspective, but the perception that they are necessarily inferior products has changed, says Ivan.
According to Prentice, those purchasing house brands were initially people under the greatest financial pressure, but this has changed which has, in turn, changed the nature of house brands.
Spar focuses on quality which is emphasised, for instance, by the popularity of its fresh fruit juices. House brands are not the "cheapies" on the shelf - they have to equal the best.
Both Spar and Shoprite's house brands are very popular with the higher income groups. Shoprite Holdings [JSE:SHP] director Brian Weyers says they are finding that house brands have become more popular with clients in higher LSM brackets.
Value for money
Over the past six months sales of groceries and perishable goods in the Shoprite group's house-brand series have grown 5% faster than branded products in the same categories. The recession has also contributed to an increase in sales.
Cindy Jenks, corporate brands GM at Pick n Pay Stores [JSE:PIK], says that in the past year the shift to house brands has been remarkable and the group has experienced a 26% rise in sales.
According to Ivan, in difficult times consumers tend to fall back on brand names they trust because they know what they will get for their money.
Yet in times of recession the point arrives where consumers' preferred brands become too expensive and then there is a shift to house brands.
Weyers says if sales of house brands grow faster than those of branded products, it becomes difficult for the retailer to negotiate lower prices with the suppliers of branded products.
Suppliers of branded products, according to Ivan, include food groups like Pioneer Foods Group [JSE:PFG], Tiger Brands [JSE:TBS] and AVI [JSE:AVI]. Pioneer, for instance, manufactures certain types of bread and soft drinks for Woolworths.
He says manufacturers do not necessarily prefer to produce house brands because profit margins are smaller on goods that do not carry their own brand name. It becomes profitable for them only if their factories are not working at full capacity and they want to increase volumes in order to reduce unit costs.
He explains that it is therefore often not the market leader that produces house brands, but the manufacturer of the third or fourth most popular brand - which explains why there are house brands that do not compare well with the market leader's version.
But, according to Prentice, Spar does not ask the market leader to produce certain products on its behalf. There would then be a stronger focus on their own brand name than on what they produce for Spar.
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