Hope Lee, Senior Beverages Analyst, Euromonitor International12.06.16
There has been plenty of discussion about how mainstream brand owners build a portfolio of health and wellness (HW) foods and beverages. To ensure a share of consumers' health and wellness spend, private label suppliers are also making an effort to explore HW, and have achieved success in some categories. As consumers chase the buzz around HW claims, retailers introduced their own healthy ranges, avoiding or mitigating being looked down on as the old image of "cheap and nasty." This piece attempts to highlight a few key points in private label sales of HW beverages, with emphasis on the development in Western Europe and the U.S., sourcing data from Euromonitor International's soft drinks, health and wellness and retailing databases.
A Phenomenon in Developed Markets
Globally, private label continues to be a phenomenon in developed markets. Using soft drinks as an example, according to Euromonitor International's Soft Drinks database, overall private label soft drinks accounted for around 8% of off-trade volume sales globally in 2015—around 24% in Western Europe, and just 0.5% in Latin America. This regional difference is closely linked to the stage of development of the retail environment in a given market. In developed markets like Germany, for example, retailers are very powerful and the retailing industry is highly consolidated, with modern grocery retailers accounting for more than 78% of retail volume sales of soft drinks. These retailers and their contract manufacturers have established experience, capacity and the whole supply chain to market and promote private label. In terms of market share, private label soft drinks sales in Germany accounted for 43% of off-trade volume in 2015. By sharp contrast, in China, independent small grocers continue to contribute 39% of retail volume sales, while private label has no presence, with little awareness of the concept.
Potential for Naturally Healthy Beverages
From a HW perspective, global sales of private label beverages saw a net increase of $2 billion over 2011-2015, with Naturally Healthy (NH) beverages contributing to over 80% of the absolute growth; there were few changes in private label market shares though. Regarding the mainstream brand owners, The Coca-Cola Company, PepsiCo and Nestlé saw incremental losses in shares in HW beverages, while Danone, Red Bull and Monster managed to make share gains in the same period, offering products in strong growth categories, such as functional bottled water and energy drinks.
Regionally, North America's private label NH beverages were the driving force, increasing by around $800 million over 2011-2015. In the U.S., the general interest in all things naturally healthy has forced not only branded owners but also private label producers to compete on their degree of healthiness; NH spring bottled water, NH superfruits and plant-based water are attracting consumers' attention. Private label better-for-you (BFY) beverages, particularly reduced sugar carbonates, saw a huge decline in sales over the past few years. It is noted that when consumers reduced their consumption of branded reduced sugar carbonates, they also cut down purchasing private label variants. That said, consumers value the health aspect of a drink over the "money saving" notion; this should be alarming for private label producers as "value" is the cornerstone of private label. Health benefits of a product are a deciding purchasing factor in this context. Our field HW analyst stated that "fundamental changes in Americans' perceptions of what and how foods and drinks should be consumed will allow the naturally healthy beverages landscape a tremendous opportunity for development and growth in the years to come."
U.K.’s Private Label Healthy Range
In light of the huge potential for growth, abundant investments in new beverages or experimental beverages are evident. Private label producers need to compete with both start-ups and mainstream brand owners to create their version of a healthier beverage, often at a higher unit price than standard variants. Although HW drinks are priced higher, many consumers are still willing to spend marginally more for a product that pushes the boundaries, making it a worthwhile proposition for manufacturers to produce more naturally healthy beverages. Private label producers will need to diversify their HW category offerings to fill the shelves.
To satisfy consumers' needs and attract attention, in the U.K., some retailers have designed their own HW ranges of foods and beverages to compete with branded players and their retailing counterparts. The list of such ranges is long and includes Waitrose's Love Life, Marks & Spencer's Count on Us, and Tesco's Healthy Living. It is reported that products carrying Waitrose's LOVE Life logo achieved very good sales growth since its launch in 2011. Private label was able to maintain its appeal to consumers, however, and in Western Europe, private label accounted for nearly one third of the value sales of HW juice and 21% of HW coffee in 2015.
Organic Booming
Interestingly, while organic beverages are not yet a key offering for many branded manufacturers for various reasons, retailers are actively developing organic ranges. In North America, private label sales of organic beverages outpaced FF and BFY variants over 2011-2015, albeit from a relatively low base. However, as brand owners enter the organic field, the share of private label organic beverages appeared to be squeezed from 13% in 2011 to 11% in 2015.
Coca-Cola has the organic brands Honest Tea and Suja juice via previous acquisitions. Danone is poised to acquire WhiteWave. PepsiCo launched G Organic (USDA certified) at select Kroger supermarkets. The sports drink is made with just seven ingredients: water, organic cane sugar, citric acid, organic natural flavor, sea salt, sodium citrate and potassium chloride. Euromonitor International's HW database shows that organic beverages in the U.S. are set to grow around $300 million over 2016-2021, suggesting great business potential for brand owners and private label suppliers.
Recently, Aldi announced that as of Jan. 1 2017, it will be removing eight pesticides from all products on its U.S. stores shelves to rival Whole Foods. According to Euromonitor International's Retailing database, the German discounter had 1,375 outlets in the U.S. in 2015, with $9 billion in sales (excluding sales tax). The company is planning to open 500 more by 2018. Aldi as a major discounter, so widening its organic range would help to increase revenue, while driving the organic movement. Thus, private label suppliers are not always left playing catch up, and in organic beverages they are actually progressing well.
For further insight, contact Hope Lee, senior beverages analyst at Euromonitor International, at hope.lee@euromonitor.com; www.euromonitor.com.
A Phenomenon in Developed Markets
Globally, private label continues to be a phenomenon in developed markets. Using soft drinks as an example, according to Euromonitor International's Soft Drinks database, overall private label soft drinks accounted for around 8% of off-trade volume sales globally in 2015—around 24% in Western Europe, and just 0.5% in Latin America. This regional difference is closely linked to the stage of development of the retail environment in a given market. In developed markets like Germany, for example, retailers are very powerful and the retailing industry is highly consolidated, with modern grocery retailers accounting for more than 78% of retail volume sales of soft drinks. These retailers and their contract manufacturers have established experience, capacity and the whole supply chain to market and promote private label. In terms of market share, private label soft drinks sales in Germany accounted for 43% of off-trade volume in 2015. By sharp contrast, in China, independent small grocers continue to contribute 39% of retail volume sales, while private label has no presence, with little awareness of the concept.
Potential for Naturally Healthy Beverages
From a HW perspective, global sales of private label beverages saw a net increase of $2 billion over 2011-2015, with Naturally Healthy (NH) beverages contributing to over 80% of the absolute growth; there were few changes in private label market shares though. Regarding the mainstream brand owners, The Coca-Cola Company, PepsiCo and Nestlé saw incremental losses in shares in HW beverages, while Danone, Red Bull and Monster managed to make share gains in the same period, offering products in strong growth categories, such as functional bottled water and energy drinks.
Regionally, North America's private label NH beverages were the driving force, increasing by around $800 million over 2011-2015. In the U.S., the general interest in all things naturally healthy has forced not only branded owners but also private label producers to compete on their degree of healthiness; NH spring bottled water, NH superfruits and plant-based water are attracting consumers' attention. Private label better-for-you (BFY) beverages, particularly reduced sugar carbonates, saw a huge decline in sales over the past few years. It is noted that when consumers reduced their consumption of branded reduced sugar carbonates, they also cut down purchasing private label variants. That said, consumers value the health aspect of a drink over the "money saving" notion; this should be alarming for private label producers as "value" is the cornerstone of private label. Health benefits of a product are a deciding purchasing factor in this context. Our field HW analyst stated that "fundamental changes in Americans' perceptions of what and how foods and drinks should be consumed will allow the naturally healthy beverages landscape a tremendous opportunity for development and growth in the years to come."
U.K.’s Private Label Healthy Range
In light of the huge potential for growth, abundant investments in new beverages or experimental beverages are evident. Private label producers need to compete with both start-ups and mainstream brand owners to create their version of a healthier beverage, often at a higher unit price than standard variants. Although HW drinks are priced higher, many consumers are still willing to spend marginally more for a product that pushes the boundaries, making it a worthwhile proposition for manufacturers to produce more naturally healthy beverages. Private label producers will need to diversify their HW category offerings to fill the shelves.
To satisfy consumers' needs and attract attention, in the U.K., some retailers have designed their own HW ranges of foods and beverages to compete with branded players and their retailing counterparts. The list of such ranges is long and includes Waitrose's Love Life, Marks & Spencer's Count on Us, and Tesco's Healthy Living. It is reported that products carrying Waitrose's LOVE Life logo achieved very good sales growth since its launch in 2011. Private label was able to maintain its appeal to consumers, however, and in Western Europe, private label accounted for nearly one third of the value sales of HW juice and 21% of HW coffee in 2015.
Organic Booming
Interestingly, while organic beverages are not yet a key offering for many branded manufacturers for various reasons, retailers are actively developing organic ranges. In North America, private label sales of organic beverages outpaced FF and BFY variants over 2011-2015, albeit from a relatively low base. However, as brand owners enter the organic field, the share of private label organic beverages appeared to be squeezed from 13% in 2011 to 11% in 2015.
Coca-Cola has the organic brands Honest Tea and Suja juice via previous acquisitions. Danone is poised to acquire WhiteWave. PepsiCo launched G Organic (USDA certified) at select Kroger supermarkets. The sports drink is made with just seven ingredients: water, organic cane sugar, citric acid, organic natural flavor, sea salt, sodium citrate and potassium chloride. Euromonitor International's HW database shows that organic beverages in the U.S. are set to grow around $300 million over 2016-2021, suggesting great business potential for brand owners and private label suppliers.
Recently, Aldi announced that as of Jan. 1 2017, it will be removing eight pesticides from all products on its U.S. stores shelves to rival Whole Foods. According to Euromonitor International's Retailing database, the German discounter had 1,375 outlets in the U.S. in 2015, with $9 billion in sales (excluding sales tax). The company is planning to open 500 more by 2018. Aldi as a major discounter, so widening its organic range would help to increase revenue, while driving the organic movement. Thus, private label suppliers are not always left playing catch up, and in organic beverages they are actually progressing well.
For further insight, contact Hope Lee, senior beverages analyst at Euromonitor International, at hope.lee@euromonitor.com; www.euromonitor.com.
