PRIVATE-label brands will start to lead the way for South African retailers, so it is important that companies have a clear strategy on their use and show the value attached to their products, professional services firm Deloitte said on Thursday.
There are three categories of private-label or no-name products in South Africa: a value or cheaper alternative, a standard-priced alternative and a premium or more expensive private label.
A boon for retailers, private-label goods generate higher average price margins because they require minimal expenditure on advertising, are cheaper to research and development and usually cost less to package.
"Consumers seeking to save some money in tough times may be fuelling the current growth in private-label brands," said Michael van Wyk, partner and consumer business leader in the Western Cape for Deloitte.
"However," he added, "progressive retailers will continue to innovate and leverage the immediate access they have to their customers to the fullest advantage."
Compared with Europe and other developed markets, private-label penetration levels in South Africa are relatively low. Planet Retail, a data provider to the retail industry, estimates private labels now account for 9,3% of domestic consumer spending on groceries, as well as 24,7% of spending in modern grocery retail channels.
That pales, however, against the share of just more than 40% in the UK, the country with the highest private-label presence in Europe.
However, Planet Retail estimates that South Africa still has the highest private-label share of consumer spending on groceries within a group of emerging-market countries that includes Mexico, China and Russia.
Natalie Berg, research director at Planet Retail, said global retailer Walmart, which acquired a 51% stake in Massmart last year, would "no doubt" bring private labels to South Africa. She said Walmart might introduce its "Great Value" line, which is sold in every Walmart-operated market in the world except for the UK and South Africa.
Locally, upmarket retailer Woolworths' food catalogue comprises primarily private-label goods.
"We take full responsibility for the products we sell through very close collaboration with our suppliers," the company said. "We work with independent auditors who assure the quality through our supply chain. Most of our food is sourced locally, but all suppliers, even those abroad, are required to meet our stringent standards."
Pick n Pay launched its private-label brand last year.
"The decision to launch Pick n Pay Finest was in line with our strategy of good (No Name), better (Pick n Pay brand), best (Finest)," the company said.
According to Shoprite Holdings, its private labels Ritebrand in Shoprite and Housebrand in Checkers provide customers with the cheapest products on the shelf without compromising on quality.