Recent years have shown an upward trend in the private-label category in South Africa, with improving consumer perceptions around their quality and value. This is driven by a greater focus from retailers to develop value for money offerings resulting in increased innovation and differentiation within this space.
As a result, private label continues its growth trajectory in South Africa and the product sales now equate to R49.3 billion annually, commanding a healthy 21.1% share of the South African retail sector, up from 20% in 2017, and ahead of branded product growth in the country. These insights stem from the 2018 ‘Nielsen State of Private Label in South Africa’ syndicated report.
Private label is defined as products that are sold exclusively by a specific retailer or chain of stores and includes store brands, which feature a retailer’s own branding and ‘confined brands’ that are exclusively manufactured for a particular retailer but do not feature their branding. Against this backdrop, Nielsen’s research on the private-label segment covered 155 categories, within eight supergroups and across a range of leading local retail groups within South Africa.
Private label currently over indexes in terms of sales in perishables and dry groceries; almost 70% of private-label sales come from these super groups. Overall, however, the biggest contribution to incremental growth in private label is coming from perishables, with products like prepared convenience meals, chicken, and pre-packed cheese driving this growth.
Overall the top private-label category remains long life milk with fresh chicken in second place. One of the biggest movers has been prepared foods, which has jumped from number 12 to the third position, in line with a big move in South Africa toward convenience options and the desire to reduce food preparation times.
Sugar has also moved up from eighth to fifth position, while butter has moved from 10th to fourth on the top category ranking. Given the increase in prices in both sugar and butter, private label seems to be a more viable option for consumers in these categories.
Improved consumer perceptions about private label have also contributed to an increased willingness to try these products across multiple categories. Previously smaller super groups in private label like baby care, personal care and confectionary are achieving double digit growth, which is well ahead of branded product growth. This shows the trust that consumers are now showing private label products and their willingness to use them in categories that were previously reserved for trusted brand names, categories like diapers and pet food.
Shopping experiences for consumers are driven by an evolving retail landscape, e-commerce and omnichannel facilities. A Nielsen e-commerce study across 30 countries indicates FMCG online sales are growing an estimated five times faster than offline sales, and by 2020 global FMCG e-commerce will be worth more than US$400 billion and comprise 10% – 12% of overall FMCG market share.
In South Africa, the eCommerce market is not as developed, despite the saturation of mobile devices. This indicates an opportunity to tap into the ability of consumers to now be connected anytime, anywhere. This prevalence of connectivity provides multiple touchpoints for manufacturers and retailers to interact with consumers, and leverage localisation to improve engagement through personalised and in-the-moment recommendations.
Looking at how South African grocery retailers can solidify their online eCommerce presence, some of the factors that would encourage respondents to definitely buy online include, 45% who said retailers who provide same day product replacement service for products that aren’t currently available, 43% said a precise delivery window (at 30 minute intervals) to fit their schedule and 41% said a website that provides real time detailed progress on the status of their order. In terms of customisation, 36% said that they would like to see online retailers who would allow them to make special product requests to suit their needs.
What is clear is that omnipresent technology adoption is providing an ever-increasing array of consumer data, enabling greater customization. As a result, FMCG players need to adapt to circumstances and provide integrated shopping experiences that allow consumers the freedom of greater choice of solutions that meet their needs.
Convenience is a fast emerging trend and is impacting the way consumers shop and interact with products and brands. Successful manufacturers and retailers of the future will be the ones who embrace this trend and offer innovative solutions for consumers’ rising quest for convenience.
Looking at the deeper dynamics within the category and the reasons for its healthy performance, the 2018 ‘Nielsen Shopper Trends’ syndicated report found that 77% of shoppers claim to compare the prices of store brands with leading manufacturer brands and the majority of consumers say they buy private label products because they are cheaper.
The value for money proposition of private label is also seen to be a major factor in its popularity, and overall, the quality of products is seen to be improving and there is an increase in the number of people recommending them.
In terms of the demographic profile of South African consumers choosing to purchase private label goods, 55% of sales currently come from LSM 7-10, but the growth driver in 2018 has been the middle LSMs which have contributed approximately 30% of sales. Lower LSMs have also shown that they are now willing to try private label within certain staple categories like maize, compared to years gone by, when trusted brands were preferred and making the switch was not an option.
This is due to the fact that lower LSMs don’t have as much access to private label products as the majority of their shopping trips are done within traditional trade outlets, where these types of products are not as prevalent and available for purchase. However, some retailers have expanded to previously underserved areas, bringing private labels to more South Africans, resulting in a shift in perception and more willingness to try private labels.
Looking ahead, the expectation is that private label will continue to carve out a healthy share of retail sales within the next five years, off the back of good growth over the past three years. In addition, the growing middle class, urbanisation and increasing modern trade access is expected to drive private label growth in the country.
Overall, there is a clear focus from retailers to up private label’s share of their sales with an enhanced focus on the development of premium and niche private label products and enhanced labelling, all of which bodes well for the rapid evolution of this sector in South Africa.