GENERIC FOODS

14 Apr 2005, 03:38:07 PM

Reporter: Helen Wellings

Get ready for the supermarket revolution!

Hundreds of new products are about to hit the shelves, lots of familiar brands and products are disappearing before your eyes. It's a huge upheaval for shoppers, and it could spell the end of the road for thousands of manufacturers and small businesses, so the supermarkets can drive up their profits.

Robert Stockdill, of the independent grocery publication, Foodweek, says, "The power is definitely, very definitely with the supermarket chains ... It will be the death knell for smaller manufacturers."

Dairy Farmer Brendan Kennedy voices his concern, "We don't want people to have a monopoly, let the consumer have a choice."

"This is probably the biggest thing that will happen in most people's lives in supermarketing", says Barry Flanagan of "Retail World".

That "biggest thing" is about to happen - an explosion of new Own Label or house brands, products made by the supermarkets that sell them. At present in Australia, Own Label Brands make up around 12% of supermarket sales. Woolworths have "Home Brand" and "Woolworths", Coles currently offers "Savings", "Farmland", "Persona", "Reliance" and "Coles Organic".

But now, Coles Myer want to treble their share of Own Label products to 30% - 40% of the products in their stores ... within 2 years.

Barry Flanagan explains, "Coles want to lift the number of products in the shopping trolley to one third of what you buy."

He says supermarkets can make far bigger profits from their own house products than from manufacturer's brands.

"The population's not increasing so they've got to find new ways of making money out of the products they already sell is one way of doing it."

Woolworths are keeping their popular Home Brand - but they'll go into battle with Coles and soon introduce a new range of premium products with the Woolworths label. It's rumoured there will be 200 different products.

Coles are ditching all their current house brands and bringing in "3 tiers" of new ones - cheap, medium, expensive.

They'll call them "Coles Smart Buy", "You'll Love Coles" and the superior brand, "George J Coles". Expect to see them on the shelves in a few weeks!

This new move to flood the major supermarkets with "own brands" is based on the huge success of supermarket generics overseas, especially in the UK where they're 40% of overall supermarket sales!

"We have olive oils. Basic light. And garlic and basil. and then extra virgin. And here the top of the range ..", says UK Retail Consultant, Robert Clark as he shows us the huge range of generics at Tesco.

Robert Clark says, in the UK "own labels" have built up over 20 years, in all sorts of product ranges. He gestures to one typical example where the giant Tesco supermarket chain has its own label at the cheap, medium and expensive parts of the range.

"At the commodity end is Tesco "Value" range of milk chocolate digestive bars, more upmarket is Milk Chocolate Digestives, mid-range Coffee Time, then finest range. Virtually any product that you see in a supermarket is now the subject of an own brand product and probably more than one."

Tesco is in fact the UK's leading supermarket. It has 5 own label brand ranges. 84% of its customers buy it's "value" range of 1200 products. "Finest" range products are bought by 71% of customers. These premium ranges at Tesco and the big Sainsbury's stores, generate a staggering $2.1 billion dollars a year in sales, but at the expense of other manufacturer's brands.

Robert Clark, explains, "What tended to happen was the smaller manufacturers got squeezed. They couldn't get shelf space because of the growth of own label."

And that's exactly what critics predict in Australia. Products that are not the TOP 1, 2 or 3 sellers could collapse under the weight of the supermarket's new Own Labels.

"They'll just drop off the shelves, they'll not be there. It's already happening," says Robert Stockdill of the independent Foodweek publication.

"I know of one multinational that's had 40% of its stock deleted virtually overnight. Coles and Woolworths are basically screwing suppliers to the wall, but at the same time there's only one thing worse than dealing with Coles and Woolworths and that's not dealing with Coles and Woolworths."

In the heart of rural Victoria 3,500 dairy farmers are waiting anxiously to learn their fate. They supply the Murray Goulburn cooperative and they're just heard that Devondale cheese, which is made with their milk, will be removed from Coles and Bi-Lo shelves to make room for Own Label products.

"It's a fair chunk out of our market we're going to have to make up and hopefully somewhere else or in other supermarkets," says dairy farmer, Brendan Kennedy. His family has been supplying milk to Murray Goulburn for 3 generations. But, with 500 small dairy farmers in Victoria gone bust in the last 3 years, he's now praying that small Aussie growers won't be displaced by Own Labels made from cheaper imports.

"We want everyone to have a choice that's Australian owned it's proudly Australian all the way from the producer to the end product is made here and we'd like to see everyone have choice to get that," says Brendan.

Roger Corbett, CEO of Woolworths comments, "We've recently had a major project spending well over 100 million dollars relaying all our stores .... And that's been in preparation for this project, so we have made some new room in our stores."

Coles wouldn't talk to us on camera, but Woolworths Chief, Roger Corbett claims Woolies won't knock out other manufacturers, as long as they sell well.

"We're not about deleting, but customers will finally make their choice."

Roger Corbett says Coles is more likely to push out slower sellers.

"We will only have 2 pricepoints. I understand Coles will have 3 pricepoints and I think if you did that it would have a significant impact on the secondary brands."

But, some Aussie companies have told us they've been put on notice by Coles and Woolies to show why they should continue to be on the shelves.

Robert Stockadill says, "We've had some companies tell us on a no name basis that they've been asked to pay as much as $800,000 a year to keep their full range in one of the 2 chains."

In fact some say they've even been asked to pay sums of up to $2 million a year just for space on the shelves ... or face their products being dropped.

"It's effectively real estate, best doesn't come into it. It's who's got power, who can afford the shelf space, it's whether or not you are the biggest selling brand," declares Robert Stockadill.

It remains to be seen whether Australian shoppers embrace these new supermarket brands. As for smaller manufacturers, they're not necessarily doomed. Talks have already begun for some to supply ingredients for Own Label Brands instead.

But once again, it's the supermarkets that will call the shots.

Barry Flanagan - "They can go to a manufacturer, get a price they can set themselves and sell it at their own price so they can make more money from that product than they would from a big manufacturer."

For more information please see below references:

* Foodweek, published by Octomedia Pty Ltd. Co-Publisher and Editor, Robert Stockdill.

<www.foodweek.com.au>

* Retail World. Editor-in-Chief, Barry Flanagan.

<www.retailworld.com.au>

* PAPER ENTITLED, "An overview of Private Label in Australia" presentation to the Monash Food Executive program, October 2004. Coriolis Research <www.coriolisresearch.com >