The most significant trend to emerge from the own-label market in the year to 22 April has been the polarisation between premium and value brands; both segments are growing faster than average. While the value changes of standard offerings ranged between an 8% rise at Waitrose to a dip of 4% at the Co-Op, Sainsbury's Taste The Difference rose 29% to £610m and Tesco Finest grew 20% to £755m, and the two grocers' value ranges increased at 18% and 11% respectively.
The trend is reflected in the strong performances of value brands such as Aldi and Lidl, which both rose up the rankings one place this year with growth of 7% and 9% respectively. It can also be seen in the strong accomplishments of Marks & Spencer and Waitrose with their mainly premium offerings. While these four players each have a fairly distinct customer base, the biggest winners, arguably, are the major multiples because of their presence across the price categories.
Mix and match
'Rather than buying primarily from either a premium or price-led range, people increasingly shop across the piece,' says Richard Hyman, managing director of Verdict Consulting. This reflects a more sophisticated understanding among consumers of what constitutes 'value', he believes. 'They will buy a value tin of tomatoes and a pack of premium Fairtrade coffee in the same way that they will team a Topshop T-shirt with a Prada jacket.'
The polarisation also partly reflects our growing debit/credit attitude to life, says Hyman - the idea that you deserve an indulgent treat if you economise on the basics. But it is also indicative of consumers' multi-faceted lifestyles, which make a mockery of traditional segmentation techniques.
Despite the increasingly pronounced trend toward healthy eating, Tesco's Healthy Living brand and Sainsbury's Be Good To Yourself are growing less strongly than some of the other ranges. This suggests that consumers have a more sophisticated understanding of a balanced diet. In the same way that 'diet' brands have declined over the past couple of years in favour of items such as seeded breads and probiotic yoghurts, retailers' efforts to 'clean up' their food - by reducing salt, fat and artificial colours and flavours, for example - have succeeded in winning over health-conscious consumers. Organic ranges have also benefited from the trend toward a healthier diet, and the appearance of Tesco Organic as the first such brand in the own-label top 20 is significant.
Sainsbury's relaunched Taste The Difference last September with the strapline 'Rediscovering taste', and the revamped range focuses on the provenance, seasonality and quality of ingredients, as well as new and improved recipes. 'We have worked hard to improve the integrity of the brand, by removing hydrogenated fat, artificial flavours and colours and so on,' says Tim Adams, head of own-brand innovation and marketing at Sainsbury's. 'The fact that it is doing so well shows that most consumers define "health" more broadly now.'
Own-label accounts for 49% of grocery sales, and grew 4% last year, in line with total grocery sales and just behind the branded sector, which grew by 5%. Sainsbury's own-brand line represents 50% of its total sales, and its premium offering accounts for an increasing proportion of its own-brand business.
'Our own-brand will always be hugely important to us,' says Adams. 'At a corporate level, it reflects the core values of Sainsbury's, so when we respond to consumers' concerns, by using cleaner ingredients for example, that reflects on the Sainsbury's corporate brand.'
It also works at a category level, adds Adams. In June, Sainsbury's became the first retailer to remove artificial colours and flavourings from its range of more than 120 own-brand soft drinks, including fizzy drinks, squash, cordials and mixers. 'Not only can we make these innovations quickly, but the scale of the range means we can have a dramatic impact.'
The proportion of own-label sold in the major multiples has remained about 50:50 with branded goods for the past 25 years and retailers would be unwise to increase their own share, warns Hyman, because of the effect it would have on customers' perceptions of choice, the threat to product innovation from brand owners struggling to find funds, and dilution of the price/quality reference point that brands provide.
Retailers will continue to drive value from own-label by investing in premium products and increasing quality and 'healthiness'. But they should guard against complacency in the commodity sectors, in particular dairy, where they have been traditionally dominant. Cathedral City, one of the few branded cheeses, entered the top 50 overall sellers on the back of 25% growth over the past year, while Cravendale, the filtered-milk brand, grew 20%.
While retailers continue to take the biggest share of margins generated by their upmarket own-label brands, the success of Cravendale and Cathedral City suggests that the brand manufacturers are quite capable of fighting back.