Supermarket chains are reducing the price gap with hard discounters by lowering prices and adjusting their private label strategy. This increases the gap between private label and A-brands.
Strategic turn
Standard private labels are now on average 47% cheaper than A-brand products, International Private Label Consult (IPLC) calculated in a new report. In 2016, that price gap was only 33%. The average price gap between Lidl and national brands remained almost the same (55% now compared to 54% in 2016) but the price gap between the private labels of mainstream supermarket chains and those of Lidl is narrowing: it is currently only 8%, measured across a wide range of categories. In 2016, this difference was still 21%.
There is clearly a change in strategy, says the private label expert. Supermarket chains have significantly lowered the selling prices of their own brands to compete with hard discounters. Initially, supermarket chains competed with Aldi and Lidl by introducing their own value lines or so-called budget brands: think of 365 at Delhaize, AH Basic at Albert Heijn or Everyday Selection at Colruyt. But this strategy has not been very successful: consumers have found that these products are often of inferior quality. Now, more and more retailers are changing course. They are reducing or even discontinuing their range of value products and lowering the prices of their mainstream private label offerings.
Share of private label will rise
In its report Mind the Gap, IPLC analyses the private label architecture and pricing strategy of 16 retailers in 8 countries. What does it show? At retailers such as Albert Heijn, Jumbo, Edeka, Rewe, Mercadona and Pingo Doce you won’t find a value line anymore. Other retailers copy the strategy of Aldi and Lidl by introducing discount brands that do not refer to their own brand, like Simpl at Carrefour or Smart at Esselunga. Delhaize renamed its budget brand to 365 essential and removed its logo. Colruyt reduced the range of Everyday products. Tesco even introduced a whole range of ‘fancy’ brands, following the example of the hard discounters.
At the same time, these supermarket chains lower the prices of their mainstream private labels in order to compete with the discounters with products of equivalent quality at competitive prices. The use of private label to fight discount retailers is remarkable and, according to IPLC’s estimation, will eventually lead to a further increase in the volume share of private label in many European countries. At the same time, it increases the price gap between private labels and A-brands. A gap that threatens to become very confrontational when shoppers look at supermarket shelves.
