Russia: Private Label brands grow again

Updated: Sep 24, 2020

In recent years, due to increasing promotional pressure, the share of private label brand sales in Russia has ceased to grow and even decreased. But the pandemic turned the trend abruptly. And although the promotion pressure is not weakening, now the growth rates of sales of goods under private labels on the FMCG market outstrip the growth rates of the market itself. The experts from Nielsen in Russia spoke about why retailers should develop private labels and what consumer trends contribute to their success in the long term during the Retail Connect on Private Labels conference held at the IPLS exhibition. 

According to Nielsen, today 81% of Russian buyers purchase goods under the private label of retail chains. And exactly the same number of consumers compare prices for private labels and brands. As Philip Klevtsov, the head of the group for work with retailers at Nielsen Russia , noted , the private label has quite tightly entered into everyday life and the shopping basket and will not leave it no matter how the income of buyers changes - decrease or increase. Nielsen polls confirm this: consumers say they will continue to buy private label goods regardless of income.

What happened to PL during the pandemic?

In terms of the degree of private label penetration into the shopping basket, Russia still lags significantly behind many European countries (in some, more than 40%). The share of private label sales in Russia in 2011 was 1.7%, in the last three years it exceeded 4%, but it did not grow, but decreased. But the situation has changed.

The pandemic has forced 34% of shoppers who have never bought online before to start shopping online. The share of online sales of FMCG goods has grown rapidly by 1.8 times - from 1.8% at the beginning of 2020 to 3.3% in May 2020.

Accordingly, online sales of private labels also increased - by 174% in July 2020. compared to the situation a year earlier. Online Russians prefer to buy private label products such as diapers, dairy products, hard and soft cheeses, coffee and tea, toilet paper, pet food. 

If in 2019 private labels showed a year-on-year growth of 5.5% in monetary terms, then in 2020 the rates tripled to 15.4%. Now, in terms of growth rates, private label sales are ahead of brands, which in the food segment are growing by 4.8%, and in the non-food segment are stagnating by 0.8%.

“All this suggests that the share of private labels in the FMCG basket of retailers is now stable and demonstrates constant growth. The pandemic gave retail an opportunity to invest in private labels and find a new source of growth in them, ”stressed Philip Klevtsov.

What is the reason for the popularity of private labels on the market today?

Rosstat officially recorded that by the end of the second quarter of 2020, the drop in real incomes of the population was 8%. What's going on with the promo? Against the background of rush demand at the beginning of the quarantine, promotional activity decreased: the availability of goods on the shelves was more important than prices for these goods. Now the pressure is returning to its growth rate.

According to a survey by Nielsen, 53% of buyers believe that the number of shares has not changed, while 32% admit that they are looking for promotions and discounts more often. The data of the analytical company show that the average share of promo in kind reached 56% by June 2020 (over 12 months), while in 2018 it was 52%.

Nielsen has calculated the FMCG rebate investment based on the average rebate for the top 10 categories in each industry from the top 10 manufacturers in each category. The amount turned out to be impressive - more than 380 billion rubles, including 240 billion rubles (US $4.93bn). - in food categories, RUB 60+ billion (US $780mn) - in non-food categories, RUB 70+ billion (US$ 910mn) - in alcohol.

And against the background of these huge investments, there is a decrease in the effectiveness of the promo. The share of promotions that generate additional sales growth dropped from 53% to 46% over the year. “The largest retailers have been losing margins not for the first quarter or for the first year,” said Philip Klevtsov. "Now is the point where private label development has become a source of growth and profitability for retailers."

How long will private label growth continue in Russia?

Today all more or less prominent retailers are developing private labels. The development of the segment began with “first price” products, then brands of the “affordable quality” category appeared, now on the shelves of chains you can see many different private labels in different price segments. According to a syndicated study by Nielsen, among the main factors influencing the growth of private label purchases, buyers note:

- high quality for reasonable money;

- private brands inspire trust;

- the taste of products matches the taste of manufacturers 'brands;

- the quality of private brands corresponds to the quality of manufacturers' brands;

- the factor of low prices is only in 16th place.

The data also show an increase in interest in more expensive private labels: 27% of high-income buyers began to buy private labels more often, 33% are ready to buy more expensive private label goods, 65% are interested in the premium segment of private labels. Earlier in the segment of high-income buyers, such numbers were not observed, which means that there was a switching of consumers.

During the pandemic, the basket of purchased goods under private labels has changed and expanded significantly. Consumers have become much more likely to prefer private labels in categories such as alcohol, tea, cleaning products.

It is impossible not to mention the trend for healthy lifestyle. 79% of shoppers surveyed by Nielsen are interested in private label products for healthy eating.

All this gives reason to say that consumers have appreciated goods under private labels, private label sales will continue to grow, and retailers should invest in their development.

“The promotion was not only an organic barrier to private label sales growth, but also devalued the value of brands in the eyes of consumers,” said Roman Fomin, Head of Retail Group at Nielsen Russia.

Therefore, the consumer, faced with the challenges of the pandemic, began to show more active interest in private labels. And we see that today buyers are more open to this segment. Moreover, they are open not only to goods of the first price, but also to more premium ones. On the other hand, retailers have also started to actively develop private labels in premium categories. Thus, today private label is not only a point of differentiation for a retailer, but also a segment that can provide a retailer with long-term growth."

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