Managing the Private Label Supply Chain

According to leading industry researchers, IBISWorld, an expected $31.8 billion will be spent on private-label grocery products in Australia by 2017-18. This represents a massive growth of nearly 50% compared to just five years ago, as the phenomenon of private label continues to increase exponentially.

Thirty years ago the leading manufacturers were significantly larger than their retail customers. Today, as retailers have evolved into national and international corporations, the balance of power has shifted, and with it has come a greater focus on retailer’s own brands, or ‘private labels’. Most manufacturers are now either engaged in supplying private label products, or wrestling with the decision as to whether they should introduce a private label strategy. For those considering private label, the cost and effect on the supply chain needs to be given serious consideration.

This white paper uncovers the secrets to understanding, embarking on and managing the private label supply chain.

Why get into private label

The retail landscape has undergone rapid transformation over the past decade. In the UK, market share of private label products has grown to over 40% of the grocery market. In the US private labels continue to increase in popularity, with rapid growth in multi-tiered private label programs (good, better, best) and in Australia growth has been faster still. Private labels now account for a quarter of supermarket sales, with major grocery retailers, Woolworths and Coles, who control 70 per cent of the nation’s available shelf space, having significantly increased the proportion of their private label products as they battle for customer loyalty in an ongoing quest to deliver greater value to consumers. Whilst Aldi, a grocery retailer stocked almost exclusively with private label products, is significantly growing its share of the grocery market.

And it’s not just grocery private labels and retailer brands that have grown. Private label has penetrated other categories including clothing and apparel, electrical goods, wine and beer, even furniture. For the consumer, private label means the choice and opportunity to purchase products at lower costs compared
to manufacturer brands, often at the same or better quality. For the retailer, private labels enhance profit margins, promote differentiation from the competition, and build customer loyalty. This, combined with lower cost competition from overseas, leaves less and less space for manufacturer brands.

For manufacturers, falling sales of branded products often results in underutilised manufacturing capacity, as well as lower revenues. The obvious solution is to switch idle machinery over to private label production. And with no country or market immune to the increasing competition of private labels, it seems there is no better time to enter the private label industry.