rand private label as part of CEO Brad Banducci’s efforts to lift struggling sales. The supermarket heavyweight has instead turned its attention to rolling out the eponymously named ‘Woolworths’ private label over the coming years. At present, between 20 and 25 per cent of supermarket shelf space at the two major Aussie supermarkets is dedicated to private labels, according to Brooke Tonkin, a senior industry analyst from IbisWorld and author of IbisWorld’s recently released Supermarket And Grocery Stores industry report. This figure is expected to rise to 35 per cent by 2020-21 as supermarkets offer more private label products under fewer private label brands. So don’t expect the two supermarket leaders to be deterred from focusing on their private label offerings any time soon. “Considering the price war that’s been going on over the past five years and increasing push for their own private labels, I can’t see Coles and Woolworths doing a 180 on that strategy over the next five years,” Tonkin told Inside Retail Weekly. Both supermarkets have focused less on profit margins and more on market share in recent years – a strategy that has hurt Woolworths’ profitability, asserted Tonkin, while increasing private label sales has enabled Coles to post profit growth over most of the past five-year period. German discount supermarket, Aldi, has also enjoyed profit growth over that period, which Tonkin said has lifted the industry’s average profit margin over the past five years. Prior to Aldi’s entry into Australia in 2001, private label products were considered the cheap and nasty alternatives within supermarket aisles. “Consumers are very much surprised by the quality of these private label products, the lower prices help encourage them to actually give them a try,” said Tonkin. “And because Aldi is focusing so prominently on quality, it really forced Coles and Woolworths to improve their private label product offering as well. “With an increasing number of consumers actually going to Aldi, trying out their products and realising the private label products weren’t all that bad, Coles and Woolworths have obviously expanded their private product ranges in response to try and tap into that growing consumer demand for cheaper products, but also at a good quality level.” Aldi’s current everyday grocery range is comprised of over 90 per cent private labels, with the majority sourced from Aussie suppliers. “We are consistently recognised for our brand level quality, with more than 350 award-winning products available instore every day,” an Aldi Australia spokesperson told Inside Retail Weekly. “These exclusive brands are regularly benchmarked to be equivalent to, or better than, market leading products. While they are offered at a discount price, they never comprise on quality.” Queues nearly half a kilometre long at the recent openings of Aldi’s first Adelaide and Perth stores suggest this strategy is working. So too does UBS’ estimates that Aldi will reach $10.6 billion in sales by FY19 and have approximately 10 per cent share of the national grocery market by FY2020. A breath of fresh air One factor that’s fuelling Aldi’s rapid growth is the fact that they are different. Despite clocking up 15 years to date in the Australian market, entering an Aldi store still feels like a breath of fresh air compared to a Coles or Woolworths store, argues Tonkin. “Those two companies have obviously dominated the supermarket space for quite a while and Aldi’s come in with a very different offering. It’s very much a no frills supermarket; they’re not focused on trying to be fancy and keep customers in the store for a longer period of time like Coles and Woolworths have been known to do. They are very much trying to keep to that no frills model, but in that way also passing cost savings on to consumers.” Aldi said their success on the eastern seaboard has spurred the confidence to invest in expanding to South and Western Australia with the goal of, “driving greater competition as the price leader in the market”. Aldi’s spokesperson pointed to research conducted by Citigroup in its Aldi’s Price Advantage in Australia report that found that while, “other retailers use budget private labels such as ‘Smart Buy’ and ‘Homebrand’ to compete, shoppers actually view Aldi’s private labels as an alternative to Coles’ and Woolworths’ mid-tier private labels”. Research by Roy Morgan also found that shoppers are about twice as likely to trust Aldi’s private label products than customers at other retailers. “When consumers go into an Aldi store they know that they’re going to be buying private label products,” said Tonkin. “As soon as the consumer goes into Aldi – they’re already willing to try private label products, whereas in Coles and Woolworths, they have branded products sitting in the shelf right next to the private label products. So Coles and Woolworths have a sort of double-edge sword where they can draw consumers into their store because they have that product, but it also makes it more difficult for their own private label products because they’re sitting in the shelf right next to brands that consumers already know and trust.” Parallel sameness Lidl, the German global discount supermarket chain owned by The Schwarz Group, is the among the largest retailers in the world, operating across over 26 counties and generating over US$100 billion in annual sales. Lidl has enjoyed significant growth in the UK with over 5.5 million shoppers flocking to their supermarkets each week – half a million more than in 2014. “We attribute this ongoing growth to the fact that our shoppers know that, from farm to table, they are receiving the highest quality products from across our range,” a Lidl UK spokesperson told Inside Retail Weekly. Lidl’s success in the UK suggests consumers’ perceptions of private label products have changed, with the German conglomerate seeing rapidly growing interest in their private products. “The most recent Kantar Worldpanel figures showcased a 14.2 per cent boom in our sales, largely owing to the rising popularity of these products,” the spokesperson said. “Having also received 63 medals at the Grocer Own Label Awards last month, the Lidl Deluxe range is a key focus for continued development in order for us to maintain our current momentum and ensure we’re keeping in line with our customers’ expectations.” Lidl said it approached the price cutting strategies of major UK rivals Tesco and Sainsbury’s by focusing on providing quality products. “We pride ourselves on the quality of our products and being able to adapt in order to offer excellent value despite fluctuations in the global economic market,” the spokesperson said. “We can assure all our customers that we constantly review our retail prices to ensure that they remain market leading and continue to meet customer demands.” Lidl UK’s spokesperson reiterated that there are, “absolutely no plans for Lidl to launch in Australia”. There is a generally higher private label product penetration in many overseas markets than Australia, with Switzerland, Spain and the UK all seeing private label product penetration of around 40 per cent, according to Tonkin. “There’s definitely more room for private label products in Australia – if consumers are willing to accept that penetration. It will all depend on how consumers respond to the private label and how the supermarkets can continue to keep private labels relevant to consumers.” To understand what distinguishes successful from mediocre private label marketing in supermarkets, retailers need to picture the situation consumers are facing when standing in front of a supermarket shelf, Katharina Kuehn, head of neurostrategy and innovation, Winning Group, told Inside Retail Weekly. “They are more often than not confronted with a ‘sea of sameness’ – products are blending into one another in colour, shape, size and offer,” said Kuehn. “In the world of neuroscience, this is known as repetition blindness, a phenomenon that kicks in when hundreds of similar products are presented on-shelf, resulting in the brain taking a ‘short holiday’.” Kuehn noted that private label value shares globally are typically highest in developed and competitive markets such as Australia, Europe and North America. And they are especially high in highly commoditised, high frequency categories where customers perceive little differentiation between products. These represent environments where private label strategies can be successful. As a consequence, supermarket shoppers now more than ever shop on autopilot – a mix of impulse and habit, with very little conscious, cognitive involvement. “In fact, up to 95 per cent of their decisions in stores are taken that way and, accordingly, successful private label marketing needs to appeal to the non-conscious, limbic system in their brains and resonate instantly at an emotional level,” Kuehn explained. “The smallest cues in the packaging – such as colouring, packaging shape and iconography – can make the biggest differences, because they act like shortcuts into the non-conscious limbic mind and have the power to either reinforce or disrupt habit. However, it is critical that these cues are in line with the target market’s goals and emotional triggers.” The greatest form of flattery Aldi’s success at presenting private label products with an unabashed sense of authentic sameness is a recurrent theme that Kuehn believes holds credence. “Aldi provides an excellent example of a successful private label branding approach. Their packaging typically mimics the market leader in a category as closely as possible, knowing that these brands are spending millions in research to optimise each and every single cue in their packaging and have already worked out the ideal targeting of their product. “The shoppers’ decision heuristic then becomes simple – shoppers correlate the product non-consciously with the high quality and emotional reward of the market leader, however at a better price, which creates a positive value experience and thereby triggers a reward response, which then in turn reinforces future purchasing behaviour.” Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.