The rise of retail own labels

When we vote for politicians or pay senior public servants large amounts of money to perform important roles, we expect a level of awareness and knowledge from them in order to be able to perform their duties. We also expect them to be able to see a bigger picture and create an environment in which business can operate fairly and shoppers can shop fairly. But I may just be being naive.

I was surprised at Industry Minister Kim Carr’s observations following the announcement by Woolworths that it intends to expand sales of its retail private label products. Carr observed that this increase in retail private label threatens to cripple innovation, destroy jobs and erode Australia’s capabilities as a food producing nation.

I had to re-read the statement and the balance of his reported comments a couple of times, in order to decide whether this was just a need for a sound bite from a “here today, gone tomorrow” politician, or a genuinely informed observation by a career public servant. I decided on the former for four reasons…

Firstly, the rise of retail private label has been evident in Australia and around the world for almost two decades. It built Costco and ALDI into two of the world’s largest food retailers, and launched Tesco’s global brand expansion. Tesco was a seller of Tesco-branded product in Eastern Europe and Asia way before it opened stores.

Over that time in Australia, retail private label has been a core offering of Woolworths, Coles, IGA, Dick Smith, Big W and Target – I’ll stop there because you get the picture. Basically every single retailer in our market has adopted and grown retail own brands, alongside national and international brands.

In the case of clothing retailers, companies like Kathmandu and Zara have 100% retail own-brand.

In Australia we shoppers have bought the products because we like them – we like the choice and the price. While we have adopted these retail own brands later than the rest of the world, the pace of our adoption has been similar to most other countries. The pace of growth has always increased when interest rates have been high and jobs have been scarce. So I’m surprised that Kim Carr finds this to be surprising.

And forgive me for stating the obvious, but given the closeness of Australia to Asia, it seems that this is not a move that should cripple innovation, destroy jobs and erode Australia’s capabilities as a food producing nation, as claimed.

In fact, the reality is quite the contrary. My company works with several very good Australian and New Zealand manufacturers and importers of high quality food products that have built their own brands and have a mixture of overseas sourcing and local manufacturers in order to manage risk, innovate quickly and widen their product offerings into “adjacent categories”.

The ability to manufacture or source high volume retail own brand products in close proximity to Australian retailers, to augment their own brands, is a huge opportunity for Australian owned or Australian domiciled companies.

Thirdly, when a major retailer removes a brand from their store in say postcode 7021, Lauderdale near Hobart in Tasmania, they do so because there is no longer a sufficient number of shoppers visiting their store in that postcode, choosing to buy that product from that retailer.

However, there may well be shoppers living in that postcode who wish to buy that brand, and will look in other stores for it. My own favourites include Chris’s Dips, Jalna yoghurt, Morpeth muesli and Republica coffee. I will hunt high and low for these products because they just taste so damn good. This a huge opportunity for independently owned retailers and manufacturers to plug these gaps formed by the steady increase in retail own label.

And finally, Coles, Woolworths, Bunnings and every other retailer who operates in Australia, creates jobs. About 1.4 million of them at last count. So does every importer and manufacturer.

The Government’s role is to assist all industry to operate in Australia; retailers, distributors, manufacturers and importers alike. If done well, all of those shoppers employed by all those companies will enjoy choice, good price and convenience when they shop.

Perhaps what we need is a specific minister for the retail industry to help this along.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.