Private Label Brands Captivate Europe’s Consumers

By Maria Nemeth-Ek

Consumers worldwide are starting to discover what U.S. shoppers already know–that store brands often match national brands in quality and value.

In the United States, one of every five products bought in supermarkets is of a retail store brand. And further growth is expected in the future. Not only do consumers buy the basic economy line products, but they often opt for private label premium lines of specialties and delicacies.

Today, U.S. supermarkets are venturing into perishables, dairy, meats, produce, bakery, convenience foods and home meal replacement menus to tap into this growing demand. Most would agree that it is not only profitable but makes good business sense to differentiate stores with these readily identifiable products that help maintain customer loyalty.

Private Labels Also Shine in Europe

As in the United States, European supermarkets target different segments of their customer base with differentiated private label products–the most premium item usually bearing the name of the store. Specialties that target local or regional tastes comprise another segment. Economy lines like Euroshopper often cut across several European countries, offering a budget line for good value.

The private label trend has been growing in sales and significance in several European countries. According to a 1999 Nielsen report, the United Kingdom is the leader, with 44.7 percent share (by volume) of the retail market, followed by Belgium with 34.8 percent, Germany with 33.5 percent, the Netherlands with 21.1 percent, and France with 22.2 percent. The fastest growth–with 6.7 percent in volume and nearly 5 percent in value–was in France, and growth exceeded 4 percent in Germany and 3 percent in Belgium. The leading 20 product categories in the U.K. were dominated by fresh products ranging from pasta to poultry and fruits and vegetables. In Belgium, France and Germany the top list also included non-food items.

According to Mintel, a group that monitors innovation and new product launches, the following trends will impact private label product sales and innovation:

• Organic foods are going mainstream. Demand for organic products is going beyond basic foodstuffs, and major supermarkets are getting involved in marketing organics. Examples include the Netherlands’ major supermarket retailer Albert Heijn, which carries organic pasta, ice cream, tea, juices and sweet spreads. In the United Kingdom, the Sainsbury supermarket chain markets more than 50 different organic products, including chilled ready-to-eat meals, sauces, dairy products and dry groceries. Opportunities also exist for organic convenience foods.
• Europe wants convenience in the chilled sector. In the United Kingdom, 95 percent of chilled meals are private label. Ethnic meals, meat and fish dishes are the leaders. Also, there is a "convenience with a twist" trend. For example, herbs, sauces and other ingredients are packaged together with the meal for quick and easy preparation.
• Short-life and high-margin food products are in. These include fresh organic soups, pre-packaged salads or meals with extra ingredients such as specialty ethnic sauces and balsamic dressings.
• Healthy and functional food sales are rising. These are foods that claim to have positive health benefits such as foods focused on bone health, stomach, and heart/circulation. They offer high margin to manufacturers and retailers. ( Europe’s functional food market alone is estimated to be worth about $1.6 billion annually.)

Future prospects for private label foods are strong in the following categories:

• Functional foods (dairy, breakfast food, soft drinks, pet food)
• Organic and natural foods
• Convenience foods
• Full-fat, full-flavored foods
• Dietary supplements

In the recent decade, the European retail scene has gone through major transformation. Retailing is becoming more concentrated and is dominated by a handful of companies. Metro, Rewe, Auchan, Ahold, Carrefour, Intermarche are among the most prominent.

In addition, there is concentration in purchasing from suppliers through buyer cooperatives and associations. Associated Marketing Services and EMD are the two largest buying associations in Europe, but others function based on similar principles.

Due to the concentration of buying power, U.S. manufacturers will have to consider supplying larger quantities, possibly private label products, and dealing with fewer buyers. The introduction of the Euro is likely to complicate this picture. On the one hand, regional, local differences in tastes and preferences can be expected to continue, while on the other hand, prices may equalize through a more controlled and sophisticated electronic purchasing and distribution system.

As of now, few American manufacturers have ventured systematically into this new retailing world in Europe. And fewer have discovered one of the best kept secrets, the annual private label show, held in Amsterdam.

The Private Label Manufacturers Show

The Private Label Manufacturers (PLMA) Show has been held in Amsterdam for over a decade, and has grown into a significant, highly specialized show. PLMA restricts exhibitors to only manufacturers or exclusive agents, and targets retailers/supermarket buyers as visitors. Trade-only participation is strictly controlled.

The show is very Eurocentric and characterized by a club-like, somewhat exclusive atmosphere. Most successful exhibitors plan their meetings with retailers in advance, rather than rely on chance contacts. Sampling is limited and not offered as widely as at consumer or general food shows. Thus, to make a success of it, pre-show advertising and/or invitation is vital.

In 1999, the show had 2,508 booths, a 20-percent increase from the previous year. Buyers (major supermarket retailers and specialized wholesalers) came from 40 countries. International participation reflected an increase, with 11 national pavilions present, although the major European countries such as the United Kingdom, Italy, France, Germany, Spain and Belgium are among the most highly visible with their dominant pavilions.

There were few U.S. exhibitors, but American themes and tastes were notably present.

One of the U.K. companies was promoting Cajun, Creole and Tex/Mex-type foods; most of those products are made in the United Kingdom–with some U.S. ingredients. Apparently, these products are doing very well on the market, suggesting opportunities for the "real stuff" made in the United States.

Lots of Opportunities To Learn

Excellent educational seminars are on hand, in the form of panel discussions. On opening day, a report by Nielsen and Mintel companies took center stage, outlining private industry trends, market share, product innovations and opportunities.

Two new features were introduced last year: a fresh product pavilion was organized for convenience and fresh products, and a "new products" section showed new and innovative items. This latter feature is common to the most sophisticated food shows, like SIAL in Europe and the Fancy Food Shows in the United States.

Tips to U.S. Exporters of Private Label Products

The United States enjoys a positive image in Europe, particularly among the young generation. Although red, white and blue–the American colors–are a draw and can help marketing and promotional efforts, they may also "color" consumer expectations. American foods do not always enjoy a "fine cooking" or haute cuisine reputation.

In addition, American manufacturers may face some subtle or implied biases. According to one U.S. exhibitor interviewed at the last show, Europeans are more disposed to buying their own products, believing them to be of higher quality than American foods.

This source emphasized that, to develop ties with European retailers, U.S. firms must have a warehouse and/or distribution facility in Europe to handle the small and frequent orders (stores are usually much smaller than in the United States). Securing that facility, of course, requires financial commitment to the market.

The PLMA show is an excellent venue to find partners in Europe provided your company:

• Has innovative/novel products that are price competitive,
• Has sufficient capacity and flexibility to adapt your product to European tastes,
• Is flexible enough to meet European distribution and financing requirements, and
•  Has the ability to develop warehousing/distribution facilities or contacts.

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The author is the USDA Trade Show Office Program Leader. Tel.: (202) 720-3623; Fax: (202) 690-4374; E-mail: nemeth@fas.usda.gov

Last modified: Thursday, October 14, 2004 PM