Woolies private label plan spells trouble for brand owners
The supermarket announced on its Investor Day that it has firmed up a five-year plan to double its customer take‐up of private label products that have seen a growing demand in the past year.
Tjeerd Jegen, managing director of Australian supermarkets at Woolworths, said there is a clear opportunity to capitalise on customers’ increasing level of trust inand appreciation for Woolworths’ own brands.
“We have three very successful and well trusted multi-category own brands [Select, Homebrand and Macro] and there is a fantastic opportunity to make them better,” said Jegen.
“Customers also tell us that they appreciate the fact that own brands inject additional competition into the grocery sector by offering the same or better quality as national brands but at a cheaper price,” Jegen added.
Food processors jittery about Woolies’ new plans
The news that Woolworths would increase its focus on own brands was predictably met with disappointment across the local food processing industry that has long being vocal about the negative impact of private label on their business.
A marketing manager with a leading Australian maker of beverages and juices told FoodNavigator-Asia, on conditions of anonymity, that there is no doubt that the retailer’s plan is a cause of concern for food makers.
“These private labels are not Australian. They are cheap imports being helped along with a strong Australian dollar. Simple economics. [Woolworths] saying that they will maintain an Australian bias as long as quality is met is an eyewash,” he said.
He added that now that Woolworths has committed to this path, so would its rival supermarket Coles, “pressuring local food makers into a situation where they will not be able to negotiate the best terms for themselves.”
Earlier in October, the Australian Competition and Consumer Commission (ACCC) said that it would keep an eye on the two supermarket chains over long-standing concerns that they were wielding too much power in the country’s food sector.
Previously, Heinz's CFO Arthur Winkleback also singled out Australian retailers publicly, during an earnings call, claiming they were the main reason behind the company's faltering margins in that country.
Dr David McKinna, founder and director of Victoria-based food industry consultancy Strategic Insights, also told this publication in August that the dominant position of two retailers was putting pressure on food processors’ margins.
“The ramping up of private label programmes by the major supermarkets is creating intense competition and devaluing categories, i.e. volume is growing but value is declining,” said McKinna.
The woolies private army
The company said that in the last quarter, new product launches such as Frozen Crumbed Fish and Select Sauces have helped drive a significant sales increase for the Select brand of products.
The retailer also said that Woolworths’ health and wellbeing brand Macro now encompasses 400 organic, gluten free and ‘good for you’ lines, sales for which have grown 43% in the last year alone.
