By / Tom Prendergast, Research Director, PLMA
Despite the global popularity of private label, there is one continent that seems to be trailing when it comes to the popularity and growth of store brands – Asia.
The possibilities for sales and profits are endless. With a growing middle class of hundreds of millions across the region, international retailers and name brands have been investing in the Asian Pacific rim for years. But when it comes to private label the market has not proven to be the land of milk and honey many expected.
According to Nielsen, no country in Asia has a store brand share higher than 6%. Singapore and Hong Kong reach this number while countries like Japan, Taiwan, and South Korea only have an estimated 3% of share for store brands. When it comes to China, Malaysia, Thailand, Indonesia, and the Philippines private label share is 2% or lower.
The question that everyone asks is why is the Pacific Rim lagging so far behind in store brands? Each country has major retailers both foreign and domestic, many with well-established brands. Yet a continent with 4.3 billion people, nearly 60% of the world’s population, seems to have not discovered the benefits of store brands.
There are many theories for why this is happening. Some say culture is an important part where well-established business traditions have succeeded for centuries and change is not something that is easily applied. Others believe Asia is still a growing market and the view of store brands resembled what consumers in the US thought of them in the 1970’s and 1980’s. Other think retailers have not invested the time and energy needed into their store brands the same way they have in other parts of the world; more interested in getting into the market and meeting the needs of their new customers rather than impose new ideas upon them.
Culturally, Asia varies from country to country. What is done in Japan may seem alien in the Philippines. The habits of consumers in Thailand are not the same as shoppers in Indonesia. Many know that China has 1.3 billion people but may not realize there are 56 different ethnic groups who speak over 250 different languages. Reaching such a broad base of consumers across such a huge country is a daunting challenge and bringing store brands to such a diverse culture is even more so. Bulk purchases are another example. While many in the US like to stock up on products, most shoppers in Asia shop on a daily basis and just do not have the room to store bulk purchases. Asian consumers seem to have a strong loyalty to brands they have grown up with and the growing middle class in many parts of Asia might shy away from products they see as a budget product, instead going for more expensive brands which they or their parents could not afford 10 or 20 years ago.
Nielsen tried to examine the views of consumers when it comes to private label in an online survey of global consumers. The report, entitled “The Rise of the Value-Conscious Shopper,” discovered the views of store brands by shoppers in the Asian Pacific region were not glowing.
When asked if the quality of store brands was as good as national brands, only 22% agreed, the lowest by far of any of the global sections. The same was true for the question “are store brands a good alternative to national brands” where only 28% said they were. Compare this to Europe with 47% or North America where 42% of consumers agreed with this statement.
Other results found most consumers in the Asia Pacific rim found store brands to have “cheap-looking packaging” (40%), “not suitable when it came to quality” (39%), and “private label brands are as good as name brands” only 19% said they agreed with this statement. The global average answer in the study to that question was 26%.
When it comes to price and value the news gets a little better for store brands but not by much. Only 36% think store brands are a good value for their money, 40% thought store brands were only for people who cannot afford high tier brands or who lived on a tight budget, and 30% thought name brands were worth the extra money. In Europe only 14% agreed with that last question and only 10% of North American consumers thought name brands higher costs were worth it.
This survey revealed that the perception of private label among consumers in the Asian Pacific rim is almost at a point where European and American consumers were in the 1970’s and 1980’s. But there is hope for store brands in the future according to Rabobank.
In their report, “Private Label Goes to Asia”, the company predicts that by 2030 private label share will hit 28% in China and perhaps even higher in countries like India. Rabobank’s Sebastiaan Schreijen commented in a press release about the report –
“It took 50 to 60 years for private label to reach a market share of over 40 percent in the likes of the UK and Switzerland. Central and eastern European countries such as the Czech Republic and Hungary took only about 20 years to reach half that level. With the maturation of modern retail markets in India and China, all the criteria for private –label growth will be met. The question is not whether private label in Asia will catch up with European levels, but when. Currently, we anticipate it will only take 15-20 years for countries such as India and China to catch up with the standard European privatelabel penetration rate of 28%.”
Rabobank believes as food retailers focus on profit margins and work with suppliers, as well as private label growing in acceptance among consumers both in price and quality, sales are poised to rise in the coming years.
Retailers like Wumart and Lianhua in China and 7-Eleven and Lawson’s in Japan have invested heavily in store brands in the past 2 years and companies like Good Home Supermarkets have partnered with Daymon Worldwide to increase their private label presence in the market. In South Korea, E-Mart has invested in their private label brands E-Plus, E-Plus Premium, E-Basic and Smart Eating. Central Food Retail in Thailand has a good range of store brands including a biodegradable line of products.
International retailers have always focused on their many private label lines but now Walmart has announced they have plans to increase their private label share of sales in China from the single digits now to 20% in the next seven to 10 years. Retailers like Auchan have already focused on their private label products as a way to brand themselves with China’s consumers.
While the presence of store brands in Asia might be disappointing today there are too many signs pointing to future private label growth to ignore. As consumers become more familiar with the retailer’s products on the shelves and their quality, sales should increase and place Asia among the most prosperous places on the planet for private label.
