The range of products available across the industry changed notably over the past five years. A number of factors brought about the shift in product mix. These included the introduction of private label goods by the industry’s major players, increased consumer demand for organic goods, consumer eating patterns changing towards more ready-to-eat and prepared meals, and trends in healthy eating. Other factors such as rising consumer awareness about the packaging used in products and concerns about the origin of products also affected the range of goods on supermarket shelves.
Private label goods across the industry did not fare well during their early days. They were often regarded as being of questionable quality, included a limited range of goods, and offered little to entice consumers due to their bland packaging. While such products filled a gap in the market, early private label goods traditionally focused on providing low-quality items at low prices. The turning point for private label goods came in 2001 with the entry of ALDI into the Australian market place.
ALDI (known as a low-cost operator offering private label merchandise across 95% of its product lines) effectively forced supermarkets to review their private label offerings. Due to this review, the industry experienced a major shift, with major players investing considerable resources into the development and introduction of their own private labels.
Regarded as sustainable, shopper-relevant and differentiated from similar goods on the market, the introduction of private labels offered retailers access to greater margins. Private labels also enabled retailers to gain a better understanding of the manufacturing cost involved and better manage their margins. At the national level, private labels account for about 25% the grocery market. This compares with over 53% in Europe and 35% in North America. While this segment increased in size owing to consumer demand, operators also expanded their private-label range as a means of responding to ALDI.
Private label goods are forecast to continue experiencing solid growth over the next five years and will account for about 30% of total industry sales. Greater promotional activity by operators and continued demand by value-conscious consumers will drive sales growth over the period. The future success of external operators, such as Costco, which entered the Australian market from the United States, is set to have a notable influence on the overall product mix on offer by industry players. The rising popularity of bulk retailers, such as Costco, may see consumers demand more bulk-packaged groceries. In November 2011, Woolworths announced that they will double the number of private label products in their stores, accelerating growth in the segment.
Growing consumer demand for organic goods was also an influential factor in the product range on offer by supermarkets. According to the Australian Organic Market Report 2010, retail sales are expected to surpass $1.0 billion in 2010, up from $623 million in 2008 and $947 million in 2009. Sales have been boosted by growth in the number of households buying organic goods, reported at over 60%, compared with 40% in 2008. Key performers across the organics market include essential oil products, poultry, eggs, milk and dairy, fruit, wine and meat. The rising presence of organic products in mainstream food marketing also fuelled growth across the organics market. The Australian Organic Market Report 2010 noted that supermarkets account for over 60% of all organic sales due to the permanent range on offer by major supermarkets such as Coles, Woolworths, ALDI and IGA.
Woolworths limited at 40% followed by Wesfarmers limited at 31% and other at 29%
Supermarket shelf wars will intensify over the five years through 2016-17. Increasing levels of competition between branded and private label merchandise and changing consumer shopping patterns will create a difficult landscape for operators. Sales are forecast to rise by 2.4% per annum over the next five years and will be affected by fluctuations in real household disposable income, consumer sentiment, changes to trading hour regulations and competition from convenience stores. In addition, the continued expansion of external operators such as Costco will play a major role in the future of supermarket retailing over the next five years
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