Global food giant Heinz has made a bit of a fuss about the growth of private-label or in-house brands in our major supermarkets.
William Johnson, executive chairman, CEO and president of the $US16.4 billion company, complained to shareholders in the US last week that the firm would have to rework its strategy in Australia to “cope with the growing domination of private label goods and the never-ending discounting on branded goods by the supermarket chains.” Johnson labelled Australia as the “worst market” to do business.
Obviously, Heinz and other national brands should be doing everything they can to try and deal with this growth in supermarket private-label brands. It is in their interests to have as much of their product on the supermarket shelves as possible.
Similarly, the two major grocery chains, who command between 70 - 80% of the market, also have every right to do what they like, within the law, to get people to buy their private label products.
By shifting from national brands, such as Heinz, Kellog’s and others, to private label brands on their shelves, Australian supermarkets increase their already substantial control of the distribution chain by entering into highly controlled, vertical networks. In doing this, supermarkets are able to increase their profit margins, and force wholesalers and manufacturers into difficult, and often unprofitable, agreements.
Whether this is good or bad depends on how you look at it. I would argue that two particular perspectives are worth considering, which can be broadly termed the micro and the macro views.
A micro perspective – consumer behaviour
One of the arguments arising out of this debate has been that the private labels are “mimicking” the packaging of the national brands so that they can trick consumers into accidentally buying the private label version.