Seventeen years ago, Britain was a very different country from the one we inhabit today. Back in 1992, Labour had lost another general election and John Major, rather than Gordon Brown, was trying to pull the nation out of recession.
For many of today's marketers, 1992 equalled the heady days of university and the incessantly annoying song Ebeneezer Goode by The Shamen. And, in the middle of it all, on a bright September day, Sainsbury's launched Novon - its own-brand washing powder.
We'd had private labels for many years by then, of course. However, Novon was different. Rather than the drab, blank design of traditional budget lines, this was a well-designed package with little, if any, mention of the master brand on the box. Novon was also given promotional support by the supermarket chain, with outdoor ads and a brief TV campaign.
Within a year, Novon was accounting for one-in-three soap powder sales in Sainsbury's, and had taken an 8% share of the national market. Sainsbury's managing director at the time, David Quarmby, was delighted with Novon's performance. More importantly, its success convinced the supermarket that private labels could take on the big boys at their own game and win. 'Clearly,' Quarmby declared to an industry magazine in 1994, 'it would be a surprise if we weren't looking for further opportunities in this area.'
Tesco, Asda and the rest soon followed suit. The modern era of private labels had begun. For the next 17 years they would gradually increase their presence in the baskets of most British shoppers. Back in the 80s, many shoppers turned their noses up at the thought of cheaper store brands. By 2005, however, ACNielsen confirmed that private labels had achieved 100% penetration in UK households - literally everyone was buying them.
Meanwhile, the major manufacturers scrambled to respond to a strategic threat for which they had simply not been prepared, and one to which, apparently, they had no effective response.
Initially, big players such as Heinz and Unilever refused to produce private labels for the big British supermarkets. But as private labels grew and took a bigger share of their categories, most manufacturers quietly resigned that position and began to manufacture for the super-markets - effectively producing a rod for their own back. Even Kellogg, which had famously promoted the fact that it did not make cereal for anyone else, started supplying discount store Aldi in Germany in 2000.
Private-label sales have progressed over the past nine years, consistently out-stripping the growth of manufacturer brands. The big British supermarkets began to aim for 50% of sales (and, because private labels are more profitable, a considerably higher proportion of profits) from their store brands. Tesco was the first across the line in 1999 - 50p of every £1 spent in its stores was accounted for by Tesco private labels. Other big players followed, and the Private Label Manufacturers' Association predicted that 2009 would be the first year that store brands would pass the 50% market share mark across all British grocery sales.
Over at Aldi, where more than 90% of sales are derived from its own brands, the power of private labels was even more pronounced. US retailer Costco, meanwhile, was also making headlines. It delisted all manufacturer brands in some of its categories, such as olive oil, and replaced them with a private-label offering. Marketers began to wonder whether the rise of private labels was also the inexorable decline of manufacturer brands. As the global recession took its toll, many speculated that private labels were about to take the upper hand across the grocery sector.
But over the past 12 months, something remarkable has happened. Despite the recession, the growth of private labels in the UK has dramatically slowed. Private label as a share of British grocery sales reached 49% this year but then, according to Nielsen Scantrack, it began to fall back. Remarkably, manufacturer brands from companies such as Procter & Gamble, Unilever and Heinz have begun to outpace their private-label competitors and reclaim market share.
Eric Sher, research associate for investment firm Bernstein, has been tracking store-brand sales for years. He believes that private-label growth peaked last summer and is now gradually slowing in the UK. It's an observation also confirmed by Reckitt Benckiser boss Bart Becht who, while announcing another impressive performance for his 17 'power brands' earlier this year, noted a growing consumer backlash against private-label products. 'Now across Europe people are bringing back more branded products,' he said. For all Becht's bluster, it's important to acknowledge that this is a plateau of private-label growth and not evidence of its imminent decline. In all the charts and diagrams marking the past 20 years of private-label growth, not one has ever shown a major decline in share. However, it does seem that stalemate has been reached in the aisles of British supermarkets: private and manufacturer labels have evenly divided the supermarket business in half. Both sides must now get used to a 50% share for the foreseeable future.
That does not mean, though, that private labels will stabilise. Retailers are restless beasts, and if 50% is the high-water mark for grocery penetration, they will look to expand their private-label model into non-traditional categories - in beauty and cosmetics, for example. Where private labels have traditionally achieved only a small share of the business, own-brand products are likely to continue to take sales from their branded competition. The success of the Boots No7 private label, the bestselling cosmetics brand in the UK, for example, suggests that the next 10 years will witness store-brand cosmetics attempting to increase their presence in the beauty routines of British women.
It won't stop there, either. Supermarkets will look to expand their private-label model into categories where manufacturer brands are relatively weak and profits are plentiful. For example, in the past six years, Tesco has very successfully launched private-label mobile phones. Double-digit growth in subscribers and the Consumers' Association's award for the highest customer satisfaction in the industry demonstrate that retailers such as Tesco can, and will, migrate their private-label approach to other, initially unlikely, but ultimately successful new categories, such as finance.
UK marketers unaccustomed to dealing with the highly competitive private-label sector should prepare for battle. Big brands such as Vodafone, Rimmel and Duracell are all likely to face further store-brand competitors in the years ahead.
Changes in distribution
In addition, the traditional definition of a private label - a product designed for and sold by retailers exclusively in their own stores - is rapidly becoming outdated as retailers look to alternative distribution channels to sell their products.
The trend started in the 90s when Canadian store Loblaws began selling its premium President's Choice private label through other retailers in the US. More recently, US retailer Safeway made head-lines when it began to sell its organic store-brand line O through other US stores, as well as overseas.
British private labels are likely to follow suit. Indeed, Boots No7 already provides a notable example of the potential for channel expansion. It has been successfully selling some of its lines to US retailers such as Target and CVS for the past five years.
In a sign of things to come, US consumers do not perceive No7 as a store brand, but as an upmarket, international manufacturer brand.
Another likely place for private-label growth over the next decade will be in non-traditional retail sectors, where, unlike the grocery business, store-brand sales are still relatively small. Exxon Mobil, for example, might seem an unlikely producer of private labels. Aside from the petrol it sells, the company's forecourts have almost completely been dominated by manufacturer brands. Exxon is beginning to change this, however, as it eyes the profits and differentiation that private labels can confer. Exxon has invested $10m (£6m) in the development and promotion of its Bengal Traders coffee brand as it begins to explore sales possibilities in the US.
It's a similar story for Amazon, which recently launched a private-label line of basic cables and computer peripherals. Closer to home, retailers such as B&Q, which traditionally have sold branded goods or commodity items, are now also beginning to focus more on their own-store brands. B&Q's kitchen line, Cooke & Lewis, has had millions spent on its development and is currently being advertised on TV.
Private labels have reached a plateau in British grocery stores, but they still have potential for significant growth across cinemas, convenience stores and DIY out-lets in the years to come, which is bad news for the consumer brands that expanded into these channels when grocery-store sales became increasingly difficult.
Perhaps the biggest potential for private labels, however, lies outside the UK.
British marketers often fail to realise that their market, along with Germany and Switzerland, is the most evolved store-brand environment in the world. In other regions, the penetration of private label is still at levels last seen in the UK in the 80s. In the US and Australia, for example, the grocery sectors have only half the level of private-label share seen in the UK. Big brands such as Wal-Mart and Costco are struggling to drive more than 20% of their sales from private label.
In South America and, most notably, in Asia, private labels' penetration of supermarket sales still remains in single digits. The new frontier for store brands will be places such as Shanghai, Santiago and Singapore. Moreover, despite the far-flung locations, it's likely to be British marketers who will charter these territories.
The UK's relative lead in private-label development and merchandising has led to an exodus of senior British retailers to international positions, where their experience of working with store brands has proved invaluable to their employers. Wal-Mart's private label, GreatValue, for example, is run by ex-Tesco manager Jack Sinclair. At Australian supermarket giant Coles, almost the whole senior management team is made up of former British retailers.
Seventeen years after a soap powder product called Novon was introduced, the world of private labels has evolved beyond all recognition. In a relatively short space of time they have managed to overcome the stigma of being seen as cheap and nasty. The story of store brands has really only just begun.
The first: St Michael
St Michael was launched in 1928, named in honour of Marks & Spencer's founder, Michael Marks. For 70 years the private label stood for quality and value. The line was removed in 2000 after dismal results in the UK forced managers to seek a fresh approach.
The genuine competitor: Novon
Launched by Sainsbury's in 1992, Novon looked and performed like a manufacturer brand. Thanks to strong in-store promotions, the soap powder stole 33% of the category from Persil and Ariel and began the modern private-label revolution.
The range: Tesco Value
Sixteen years ago, many analysts questioned whether a complete private-label range of low-priced products might damage Tesco's brand equity and reduce sales. It did the opposite. Tesco Value helped deliver the 'Every little helps' positioning and cemented Tesco's place as Britain's leading retailer.
The lookalike: Asda Puffin
With private labels increasing their assault on manufacturer brands, things came to a head with the launch of Puffin by Asda. United Biscuits sued Asda for copying its famous Penguin biscuit. The court found in favour of Penguin, and Asda had to redesign its Puffin packaging.
The total strategy: Good/Better/Best
The launch of Tesco Finest in 1998 demonstrated that private labels did not have to be less expensive than their manufacturer competitors to sell well. Finest also completed Tesco's triptych of good (the Value range), better (the main private-label range), best (Finest products priced above brands).
The category leader: Asda Extra Special Tea Bags
Rather than wait for manufacturers to introduce nylon tea bags, Asda launched them first. It was one of the first of many examples of private labels shifting from a second-mover strategy to a genuine leadership position in many categories.
Multichannel distribution: Safeway Organics Range (US)
In 2008, US retailer Safeway took the next step for private labels by marketing its O range of organic products through other retailers. The line between private labels and manufacturer brands had become even more hazy.
The legal monopoly: Kirkland Olive Oil
This year, US giant Costco decided not to offer any manufacturer brands in certain private-label categories. Using its Kirkland range, it provided consumers with variety and choice without the need to include any other brands on the shelves. A frightening development for manufacturers.
Diversification: Bengal Traders Coffee
Private labels will begin to pop up outside the supermarket aisles. Exxon Mobil has invested more than $10m in creating a private-label coffee that it will roll out across its petrol stations in the US during 2010. What next for private label? Watch this space...
Mark Ritson, PPA columnist of the year (business media) is an associate professor of marketing and consultant to some of the world's biggest brands