A ruling by the Western Cape High Court in November 2023 underlined the growing importance of house brands to South Africa’s retail chains.
A copyright dispute between Shoprite Holdings and rival Pick n Pay over their respective Forage and Feast and Crafted Collection product lines led Shoprite to accuse Pick n Pay of copying Forage and Feast’s packaging.
The court agreed with Shoprite and “interdicted and restrained” Pick n Pay from “passing off” its Crafted Collection products as those sold exclusively through Shoprite’s Checkers chain.
Though the retail chains’ rivalry is intense, it is rare for them to take legal action against each other. In this case, however, the increasing importance of their private-label brands meant that they were prepared to go to court.
Shoprite told the court that it had invested R60m in advertising Forage and Feast.
This investment has paid off for the retailer. It launched the brand in November 2020 as a “new premium luxury range of products” to be sold exclusively through its speciality delicatessens and food emporiums. It told the court it had sold 2.56-million products in 34 categories, generating more than R180m in sales.
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But retailers having their own brands is nothing new — Pick n Pay launched its No Name brand in 1976. Back then, the idea behind having a house brand was to offer a range of affordable, no-frills products to consumers.
Former Woolworths Group CEO Ian Moir said he did not think of Woolies as a department store but as a private-label retailer.
Retailers’ and consumers’ views of private-label products — initially marketed as low-cost alternatives — have changed notably in recent years, according to the 2023 “Private Label Report: Africa” by agri-foods data group Tridge.
The report says: “No longer relegated to being perceived as lower-quality alternatives, private labels now encompass a diverse spectrum of offerings. These range from budget-friendly options to premium selections, reflecting retailers’ commitment to providing consumers with products that align with their preferences and requirements.”
It adds that consumers no longer see house brands as cheap alternatives, as they increasingly recognise “the value, quality, and affordability that private-label products bring to the table”.
This shift is paying off for retailers, as the private-label market in South Africa accounted for 24.3% of total basket value sales in 2021, translating to a substantial R71bn in annual sales, according to NielsenIQ.
In a blog published in November 2023, NielsenIQ says the move to private-label products is holding.
“Private label now commands more than R89bn in value sales [for the third quarter of 2023] vs branded products, which account for R285bn.”
Having a house brand offers significant advantages for retailers. They can boost margins, as they can control production costs and set prices without adding marketing and advertising costs, which national brands require.
Pepkor, for instance, expects subsidiary The Building Co to show an improvement in margins after the introduction of a house brand.
The private-label sector in South Africa is facing a changing landscape marked by shifting spending habits, inflation challenges and regional disparities
— Zak Haeri
In addition to margin gains, retailers can also sell exclusive bespoke products. Having a house brand also gives the retailer greater control over the supply chain and quality.
Checkers, for instance, sells the Simple Truth range, which includes plant-based products, and Shoprite is developing its own private-label medicines.
Though there are various reasons behind the growth in private-label brands, Tridge and NielsenIQ agree that one of the biggest was the pandemic.
“The pandemic and the subsequent lockdowns in 2020 played a pivotal role in accelerating the growth of private-label products in South Africa,” Tridge says in its report.
Faced with economic uncertainties, consumers turned to private labels as “reliable alternatives that could meet their evolving needs”, it adds.
And the private-label sector responded quickly to changing consumer behaviours and market dynamics brought on by the pandemic, such as the interruptions to global and local supply chains.
Aside from the pandemic, the stuttering economy has also driven many consumers to switch to buying house brands. Shoprite sees this as an opportunity to increase its market share with high-income earners.
“The shopping baskets of Forage and Feast customers are 3.5 times bigger than that of the average Checkers customer,” it says in its 2023 annual report.
“Increasingly, higher-income customers seek value without compromising quality and freshness. By serving this market segment in South Africa through our differentiated offering in premium, convenience and fresh food while offering exceptional customer service, we have made meaningful gains in our customers’ share-of-wallet while retaining our industry-leading value position.”
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The rise of private-label products is shaking up the fast-moving consumer goods sector and has forced some leading players to adapt quickly to the threats.
Tiger Brands says in its latest annual report that it has “refreshed its strategy to best defend its product offerings against the increasing threat of private label”. Its revenue fell 1% to R19.2bn and operating profit fell 3% to R1.3bn for the six months to end-March 2024.
Not everyone is a winner in the sector. Private-label supplier Libstar reported an increase in revenue of 5.2% to R12.38bn but a drop of 1.7% in normalised operating profit to R678.33m for the year ended December 2023.
And the private-label sector is not immune to South Africa’s tough economic environment.
“As consumer behaviour continues to evolve in a post-pandemic era, the private-label sector in South Africa is facing a changing landscape marked by shifting spending habits, inflation challenges and regional disparities,” NielsenIQ South Africa market lead Zak Haeri writes in the blog.
Even so, Haeri notes that despite saturation conditions in certain product categories, there are still opportunities for private-label growth in the health-care, home care and beverage sectors.
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