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MP52173

MAPS SUPERMARKETS OWN LABELS : APRIL 2003

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This report covers: own-label, supermarket, ready meals,frozen vegetables, frozen potato products, frozen desserts, frozen fish,cheese, bread and morning goods, biscuits, breakfst cereals, confectionery, bagged snacks,canned foods, delicatessen products,vegetables, fruit,fish, hot meats, cold meats, ready meals, pasta, sauces, condiments and sauces,cooking sauces,soup, drinks, soft drinks, alcoholic drinks,wines and champagnes, beer and lager,cider,hot beverages,household cleaning produicts, laundry aids, pet food,

Companies covered include: ASDA,Co-operative,Iceland Foods, Marks & Spencer,Safeway,J Sainsbury,Somerfield,Tesco,Wm Morrison Supermarkets, Waitrose, Ashbury confectionery, Greencore Group,Robert McBride,The Snack Factory,Uniq PLC,

Table of Contents
Executive Summary
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TABLE OF CONTENTS

Executive Summary 8

1. Introduction 10

BACKGROUND 10

REPORT COVERAGE 10

DEFINITION 10

Food 10

Drink 11

Non-Food 11

2. Strategic Overview 12

EVOLUTION OF OWN LABELS 12

KEY ISSUES 12

Own Labels — Product or Retailer Brands? 12

Own-Label Sub-Brands 14

Greater Concentration Among Retailers 15

Table 1: Market Share of Grocery Sales Taken by the Top Six Grocery Chains by Selected European Country by Value ( percent), 1998 and 2002 15

Figure 1: Market Share of Grocery Sales Taken by the Top Six Grocery Chains by Selected European Country by Value ( percent), 1998 and 2002 16

Table 2: UK Grocery Sales in the UK by Type of Outlet by Value ( percent), 1998-2002 16

Figure 2: UK Grocery Sales in the UK by Type of Outlet by Value ( percent), 1998-2002 17

Declining Importance in Retailer Sales Mix 17

Table 3: Own Labels' Share of Packaged Groceries† Sold by Individual Retailer by Value ( percent), 1998 and 2002 18

MARKET DYNAMICS 18

Table 4: The UK Grocery Market by Value (£m at rsp and percent), 1998-2002 19

COMPETITIVE STRUCTURE 19

Table 5: Market Share of UK Packaged Grocery Sales by Major Grocery Outlet by Value ( percent), 1998 and 2002 20

Own-Label Suppliers 21

PROMOTIONAL ACTIVITY 22

Table 6: Main Media Advertising Expenditure on Food, Household Goods and Drinks Brands (£000), Years Ending September 2001 and 2002 23

THE CONSUMER 24

MARKET FORECASTS 24

3. Foods 25

CHILLED READY MEALS 25

FROZEN FOODS 27

Table 7: Market Share of Frozen Food Sales Taken by Own Labels by Value ( percent), 2000-2002 28

Ready Meals 28

Frozen Vegetables 29

Frozen Potato Products 29

Frozen Desserts 29

Frozen Fish 30

DAIRY PRODUCTS 30

Butters and Margarines 30

Cheese 31

YOGHURTS AND CHILLED DESSERTS 32

DRY GROCERIES 33

Bread and Morning Goods 33

Biscuits 34

Breakfast Cereals 35

Confectionery 35

Bagged Snacks 37

DELICATESSEN PRODUCTS 39

CANNED FOODS 39

Table 8: Market Share of Selected Canned Foods Taken by Own Labels by Value ( percent), 2000-2002 40

Figure 3: Market Share of Selected Canned Foods Taken by Own Labels by Value ( percent), 2000-2002 40

Vegetables 41

Fruit 41

Fish 41

Hot Meats 42

Cold Meats 42

Ready Meals 42

Pasta 43

SAUCES 43

Condiments and Sauces 43

Table 9: Market Share of Condiments and Sauces Sales Taken by Own Labels by Value ( percent), 2002 44

Cooking Sauces 44

SOUP 45

4. Drinks 47

SOFT DRINKS 47

ALCOHOLIC DRINKS 48

Wines and Champagne 48

Table 10: Market Share of Wine Sales Taken by Own Labels by Value ( percent), 1998-2002 49

Beer and Lager 51

Table 11: Market Share of Beer and Cider Sales Taken by Own Labels by Volume ( percent), 1998-2002 52

Figure 4: Market Share of Beer and Cider Sales Taken by Own Labels by Volume ( percent), 1998-2002 52

Spirits 52

Table 12: Market Share of Spirit Sales Taken by Own Labels by Volume ( percent), 1998-2002 54

HOT BEVERAGES 54

Table 13: Market Share of Hot Beverage Sales Taken by Own Labels by Volume ( percent), 1998-2002 55

5. Non-Foods 57

HOUSEHOLD CLEANING PRODUCTS 57

Laundry Aids 58

TOILETRIES 58

PAPER PRODUCTS 60

PET FOOD 61

6. An International Perspective 63

EUROPE 63

Retailer Concentration 63

Table 14: Europe's Top 30 Grocery Retailers ( percent), 2001/2002 63

Own-Label Share by Country 65

Table 15: Own-Label Shares by Selected European Country by Value and Volume ( percent), 1998-2002 66

Table 16: Market Share of Individual Product Groups Taken by Own Labels by Selected European Country by Value ( percent), 2001 and 2002 67

Belgium 68

France 68

Table 17: Major Grocery Retailer Market Shares in France by Value ( percent), 1998, 2001 and 2002 68

Table 18: Own-Label Sales by Individual Retailers in France by Sector by Value ( percent), 2001 69

Germany 70

Italy 70

The Netherlands 70

Spain 71

ThE US 71

Table 19: Market Shares Taken by Own Labels in the US by Sector by Value and Volume ( percent), 2001 71

Table 20: The Leading Own-Label Product Categories in the US by Volume Sales (million units), 2001 73

7. PEST Analysis 74

POLITICAL FACTORS 74

Farming 74

Local Sourcing 74

Red Tractor Logo 74

ECONOMIC FACTORS 75

Gross Domestic Product 75

Personal Disposable Income 75

Unemployment 76

Inflation 76

SOCIAL FACTORS 77

Population 77

TECHNOLOGICAL FACTORS 77

Factory Gate Pricing 77

Open Book Costing 78

In-Store Digital Screen Networks 79

8. Consumer Dynamics 80

OVERVIEW 80

Table 21: Summary of Responses ( percent of adults), 2003 81

THE QUALITY OF OWN LABELS 82

"Shops' Own Brands Are Identical In Quality To Well-Known Brands" 82

"Shops' Own Brands Are Not As Good Quality As The Well-Known Brands" 82

"Shops' Own Brands Are Better Quality Than Well-Known Brands" 82

Table 22: Attitudes Towards the Quality of Own Labels ( percent of adults), 2003 83

REASONS WHY SHOPS SELL OWN LABELS 84

"Shops Sell Their Own Brands To Offer Lower Prices" 84

"Shops Offer Own Brands To Increase Their Margins" 85

"Shops Sell Own Brands To Increase Choice For The Consumer" 85

Table 23: Perceptions of Why Retailers Offer Own Labels ( percent of adults), 2003 86

"Shops Sell Their Own Brands To Gain More Customer Loyalty" 87

"Shops Sell Their Own Brands To Be Different To Other Retailers" 88

Table 24: Other Perceptions of Why Retailers Offer Own Labels ( percent of adults), 2003 88

OWN-LABEL PRICES 89

"Shops' Own Brands Are Lower In Price Than Well-Known Brands" 89

"Shops' Own Brands Are Either Identical Or Higher In Price Than Well-Known Brands" 90

Table 25: Perceptions of Own-Label Prices ( percent of adults), 2003 90

INVOLVEMENT OF RETAILERS IN CREATING OWN LABELS 91

"Shops Tend To Think Up Ideas For Their Own Brands But Do Not Usually Manufacture Them" 91

"Shops Tend To Manufacture Their Own Brands Themselves" 92

Table 26: Perceptions of Retailer Involvement in Creating Own Labels ( percent of adults), 2003 92

CONSUMER PURCHASING PATTERNS 94

"I Try To Buy Brands Instead Of Shops' Own Brands Where Possible" 94

"I Buy More Shop Own-Brand Products Than I Did 2 Years Ago" 94

"I Am More Likely To Opt For Shops' Own Brands For Items I Buy More Of" 94

Table 27: Consumer Purchasing Patterns for Own Labels ( percent of adults), 2003 95

9. Supplier Profiles 97

RETAILERS 97

ASDA Group Ltd 97

Corporate Strategy 97

Innovations 97

Own Labels 98

Profitability 98

Table 28: Key Company Data for Wal-Mart Stores Incorporated ($m and number), Years Ending 31st January 1998-2002 98

Future Company Developments 99

The Co-operative Group 100

Corporate Strategy 100

Own Labels 100

Profitability 100

Table 29: Key Company Data for The Co-operative Group (£m and number), Years Ending 12th January 1998-2002 100

Future Company Developments 101

Iceland Foods 101

Corporate Strategy 101

Own Labels 102

Profitability 102

Table 30: Key Company Data for The Big Group PLC (£m and number), Years Ending 29th March 1998-2002 102

Future Company Developments 103

Marks and Spencer PLC 103

Corporate Strategy 103

Table 31: Marks and Spencer PLC's Share of Selected High-Growth Food Categories by Value ( percent), 2002 103

Innovations 103

Profitability 104

Table 32: Key Company Data for Marks and Spencer PLC (£m and number), Years Ending 30th March 1998-2002 105

Future Company Developments 106

Safeway PLC 106

Corporate Strategy 106

Own Labels 107

Profitability 108

Table 33: Key Company Data for Safeway PLC (£m and number), Years Ending 30th March 1998-2002 108

Future Company Developments 108

J Sainsbury PLC 109

Corporate Strategy 109

Innovations 109

Own Labels 109

Profitability 111

Table 34: Key Company Data for J Sainsbury PLC (£m and number), Years Ending 31st March 1998-2002 111

Future Company Developments 112

Somerfield PLC 112

Corporate Strategy 112

Own Labels 112

Profitability 113

Table 35: Key Company Data for Somerfield PLC (£m and number), Years Ending 27th April 1998-2002 113

Future Company Developments 114

Tesco PLC 115

Corporate Strategy 115

Own Labels 116

Profitability 116

Table 36: Key Company Data for Tesco PLC (£m and number), Years Ending 27th February 1998-2002 116

Future Company Developments 117

Wm Morrison Supermarkets PLC 117

Corporate Strategy 117

Own Labels 118

Profitability 118

Table 37: Key Company Data for Wm Morrison Supermarkets PLC (£m and number), Years Ending 3rd February 1998-2002 118

Future Company Developments 119

Waitrose Ltd 119

Corporate Strategy 119

Own Labels 119

Profitability 119

Table 38: Key Company Data for John Lewis Partnership PLC (£m and number), Years Ending 26th January 1998-2002 120

Future Company Developments 120

SELECTED OWN-LABEL SUPPLIERS 121

Ashbury Confectionery Ltd 121

Corporate Strategy 121

Profitability 121

Future Company Developments 122

Greencore Group PLC 122

Corporate Strategy 122

Profitability 122

Table 39: Key Company Data for Greencore Group PLC (xm and number), Years Ending 28th September 1998-2001 122

Future Company Developments 123

Robert McBride Ltd 124

Corporate Strategy 124

Profitability 125

Future Company Developments 125

The Snack Factory Ltd 125

Corporate Strategy 125

Profitability 126

Future Company Developments 126

Uniq PLC 126

Corporate Strategy 126

Profitability 127

Table 40: Key Company Data for Uniq PLC (£m and number), Years Ending 31st March 1998-2002 127

Future Company Developments 127

10. The Future 128

MARKET FORECASTS 128

Table 41: The Forecast UK Grocery Market by Value (£m at rsp and percent), 2003-2007 130

11. Further Sources 131

Trade Associations 131

General Sources 131

Bonnier Information Sources 131

Government Publications 132

Other Sources 133

EXECUTIVE SUMMARY

With a 38.5 percent value share of grocery sales in 2002, the UK own-label market is the most developed in Europe. One reason for this is the particularly high level of retailer concentration in the UK compared with other European countries. This concentration has enabled retailers to harness the economies of scale that are so important in successfully developing own labels.

Since the late 1990s, there has been a much greater emphasis on premium-quality own labels. The creation of premium own-label sub-brands — e.g. Tesco's `Finest' and Sainsbury's `Taste the Difference' — is symptomatic of the extent to which retailers are seeking to enhance their brand identity and exploit sales opportunities to different target groups. Increased levels of disposable income and strong consumer demand (despite a weakening of other sections of the economy) have also been factors behind the greater focus of retailers on quality and premium own-label ranges. Creating a quality image is, therefore, an important element in encouraging own-label sales.

Price is an important weapon in what is now an extremely competitive retail environment in the UK. A number of the key grocery multiples have reduced their prices, including steep cuts in own labels, in efforts to attract customers. Own-label prices are easier to cut than brands — as the supermarkets own their brands, they therefore have larger profit margins on them.

Retailers' commitment to own labels is seen by the close relationships they have with their suppliers. Some companies are almost solely reliant on the manufacture of own labels. Moreover, major branded suppliers have also become increasingly involved in manufacturing own brands. However, this close relationship will be tested as competitive pressures and substantial investments by the retailers put pressure on suppliers to reduce their prices.

Retailers and suppliers have worked particularly closely in product areas such as chilled ready meals. This sector is probably the best example of the extent to which own labels have sought to exploit sales opportunities to various customer target groups. Consumers' desire for convenience products of a high quality, combined with their ability to afford such products and increased appreciation of different cuisines, lay behind the development of the sector, where growth has been spearheaded by retailer own labels.

At the same time, own labels also have a substantial share within commodity-type product sectors, such as frozen and canned foods. In other sectors — for example, yoghurt and chilled desserts — own labels have come under growing pressure as a result of increased polarisation between premium and value brands. This is especially applicable to the yoghurts sector, where the combined share of retailer own labels has declined.

While impulse outlets have been seriously challenged in sectors such as bagged snacks and ice cream, thereby favouring the grocery multiples and own labels, the major supermarket chains are nevertheless keen to extend the reach of their food by acquiring or developing a wider variety of outlets, be they neighbourhood, high-street or petrol station-type outlets; for example, Tesco Express outlets. Key to Marks and Spencer's growth strategy is the development of the Simply Food network of stores, which are smaller units of around 3,000 square feet, located in high-traffic areas where customers live and work. These stores stock around a third of Marks & Spencer's food range, with the emphasis on meal solutions, whether this be a cup of coffee and croissant in the morning, a sandwich at lunch or an Indian meal and bottle of wine bought on the way home.

Key Note forecasts that the overall share of own labels within the UK grocery market will increase slightly and settle at around 39 percent by 2007. This growth assumes an increased share for higher-priced/premium ranges and continued commitment to value-added sectors such as ready meal and snacking products. The forecast also takes into account some ambitious targets in terms of the opening of smaller, convenience-type outlets by some retailers between 2003 and 2005. Involvement in fresh foods will also help boost own-label sales, as will relative stability in macro-economic factors.

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Last updated by Amanda Porteous June 2003