China focus

Environment means it's a tough task to boost private label popularity

By RJ Whitehead

- Last updated on GMT

Related tags Private label

Environment means it's a tough task to boost private label popularity
A Rabobank report this week estimated that India and China will by 2030 see the growth of private label food goods reach similar levels to which European retailers currently enjoy. However, one China specialist has urged caution in accepting such long-term predictions, based on current levels of public acceptance of food brands and a lack of safety oversight by the authorities.

It’s always tricky to project that far​,” warns James Roy, senior analyst at China Market Research Group, in an interview. “The fact of the matter is right now the main issues that are at the front of consumers’ minds are the constant food safety scares that they see in the news and on the internet​. 

This leads them to play it safe and stick with known brands - larger brands that are established and which are known for their safety, and Western brands that have more standardised procedures to keep their food products safe, although within this group you still see large brands getting hit with safety scandals​.”

Opting for what they know best

Current trends show Chinese retailers opting for trusted brands, with little aggression in promoting private labels due to their lack of awareness and understanding of these lines, Roy says. 

And with well-documented cases of retailers getting into trouble for mislabelling, such as happened with Walmart in 2011 and saw the departure of senior executives as a result, and for sell-by dates, stores have some way to go to instill trust with the consumer for their private label products.

Chinese consumers are focused on what companies specialise in, and prefer to buy food made by known food producers. Retailers focus on sourcing and distributing food products, not making them, so that leads to a level of public caution. So we don’t see any signs yet that people will be drawn to white label products​,” continues Roy, before adding that consumers always have the potential to change their habits over time. 

This depends significantly on how the government and authorities approach the huge lack of trust and oversight that allows food safety problems to continue​.”

Paying for names

Slotting fees, the practice whereby retailers charge brands to carry their goods, is well established as an extra revenue stream and helps to mitigate the cost to a supermarket of fast-rising rents and soaring wage costs. According to Roy, it might stand in the way of greater moves by retailers towards promoting their own brands over stocking known names.

This is a well-accepted practice and there isn’t a huge momentum against it, so it would be almost a self-defeating move to give up slotting fees. With pressure on retailers to maintain their margins, they run the risk that private labels will not sell as strongly as other brands do - it ultimately hinges on consumer response. But in the current environment, consumers aren’t willing to accept private labels​.”

At the end of the day, is it push factors like slotting fees that determine consumer trends? Effectively, is the tail wagging the dog, with retailers dictating consumer demand?

There’s certainly interplay between those factors​,” says Roy. “Retailers are creating the experience that consumers are having in their stores, but on the other hand, consumers will always make sure they stock the items that they want​. 

If they stock private brands, they must make sure they don’t run into quality issues. After all, it will take just one or two slip-ups to have a major impact across the broad spectrum of their products - a mistake can hurt a retailer’s entire line​.”

Related topics Markets Asian tastes China East Asia

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