Bringing down the house (brand)

But the net effect of all this on primary producers? ... not a lot

IT is estimated that private label supermarket products, or house brands, now account for around a quarter of supermarket sales, with revenue of $22 billion. This is double what they were in 2007/08 and predicted to reach 33 per cent of the market by 2017/18.

There are plenty of people who do not like that. Chief among them are suppliers of branded products which are being squeezed out by house brands or forced to accept lower prices to retain shelf space.

A number of farm spokesmen have joined the criticism, arguing that house brands place them further within the bear hug of the supermarkets. They argue that diversity among processors gives them more options and the potential to pursue higher prices.

What distinguishes house brands is that they are not advertised and the supermarket is liable for inventory and quality. That means they are cheaper, but unsold stock cannot be sent back to the supplier and the supermarket’s name is the only one on the label.

In the rural merchandise market, house brands have cost distributors a lot of money due to seasonal fluctuations in demand that left them with unsold stock. And while supermarkets can avoid being blamed for recalls of branded products, they cannot do that with a house brand.

Some argue that house brands will have a downward influence on prices only until they become dominant, when prices will rise sharply. This assumes all consumers are willing to buy them, which is not the case in the UK and other countries where they have been widely available for much longer. It also overlooks the fact that the supermarket chains are fierce competitors.

Even if they were the only ones left, and even if it wasn’t strictly illegal, Coles and Woolworths hate each other too much to co-operate on prices.

Some consumers are not happy at the reduction in choice, with house brands replacing advertised brands with which they are familiar. That doesn’t seem to be holding back growth, but it is true that choice in some categories is considerably less than what it used to be. Milk, eggs and bread are probably the most well-known examples, but there are many in the processed food categories.

There are also claims that the trend to house brands is inhibiting innovation, particularly in processed products. Brand owners struggling against house brands or unable to retain shelf space are often in no fit state to be investing in new product development and risking failure.

But the net effect of all this on primary producers? Overall, probably not a lot.

People do not eat less food simply because it is sold as a house brand rather than an advertised brand. Wheat is still required to produce bread, no matter which brand it comes under.

In fact, a number of food processors are doing well by supplying supermarkets with house branded products, either in addition to their own branded products or as their sole activity. This is a low cost manufacturing exercise where the main challenge is competing against imports in our high dollar, high cost economy. Growers whose produce ends up in a house brand are generally not missing out because of it.

That goes for products sold by Aldi too, which despite selling nearly all house brands predominantly sources its products locally. Beyond the risk that imports will eventually become too competitive, growers who supply Aldi do not have a lot of complaints.

In addition, the ACCC will authorise growers to collectively bargain with supermarkets and processors, and is playing close attention to country of origin labelling classifications. This reduces the risk of growers being played off against each other and helps local producers compete with imports.

I am not one of those who buy house brands very often. I don’t believe the supermarkets are all that good at just being supermarkets, therefore they are well out of their depth when it comes to knowing what should go in processed food. I am much happier trusting a manufacturer that specialises in food.

But while each farmer is also a consumer and therefore can make the same choice as me if they wish, I doubt whether they have much at stake in the house brand debate. Others do, with good reason, but it’s not a farmer fight. There are plenty of other issues that matter more.

  • David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at reclaimfreedom@gmail.com
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    READER COMMENTS

    farmer barb
    28/03/2013 8:19:56 AM

    I agree entirely with the article. More and more of the brands that I have bought all my adult life are being replaced by house brands at Woolworths stores. Some are very good but I would like to have a choice and not be forced to buy only the house brand because that is all that is on offer.
    Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

    COMMENTS

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