Santiago Rubio, a 46-year-old security guard from Madrid with two kids in university, is so worried about his finances that he’s done the unthinkable -- trading in his favorite beer for house-brand suds that cost just 24 cents ($0.30) a can at his local Dia grocery store.
“We certainly look more for cheaper private brands, try to avoid expensive stores and spend less on average than we used to,” he said, leaving Dia with a shopping cart filled with the cheap brew, which is less than half the price of Mahou, a popular Spanish beer. “I’m so scared about the future.”
Rubio’s cart should worry consumer-goods makers across Europe, as they grapple with deteriorating consumer confidence, rising unemployment and crimped household budgets. At the same time it heartens retailers like Dia, owned by Madrid-based Distribuidora Internacional de Alimentacion SA, and Jeronimo Martins SGPS SA’s Pingo Doce chain in Portugal, which are goosing sales of their own-label goods.
While hard-discounters in northern Europe have been challenging rivals with private-label and store brands for years, the trend is accelerating in the region’s south as the sovereign-debt crisis persists. In Spain, private labels garnered a record 42.2 percent of sales in the first quarter, up from 40.7 percent for all of last year, according to data trackers SymphonyIRI.
And as the region’s bankers worry about contagion spreading from one country to the next, so too should manufacturers of everything from beverages to bath soap. The shares of private labels in Greece and Italy are also surging yet remain below 20 percent each, meaning there is plenty of upside for grocers wanting to sell their own detergent at a discount, said Boris Planer, chief economist at consultants Planet Retail.
The percentage of retail sales across six of Europe’s biggest economies that were private-label goods increased to 32.1 percent in the first quarter from 31.6 percent last year and 31.2 percent in 2010, SymphonyIRI data show. That represents $2 billion in additional revenue.
Spanish consumers’ shift away from more expensive branded goods led French dairy maker Danone, which gets an estimated 8 percent of its sales from Spain, to reduce its operating profit margin target for the year on June 19.
“Non-essential categories are fast becoming out of reach,” Planer said. “You need water and bread and rice. But do you need strawberry yogurt? No, you don’t. People are massively going into private label with their shopping behavior.”
According to a March consumer survey by the Boston Consulting Group, 71 percent of Spaniards are buying name brands less often, a higher proportion than shoppers in any other European country polled.
Those consumers include Ana Martinez, a 35-year-old dentist from Madrid, who said she loves Mercadona SA’s “Hacendado” store brand, which includes yogurt, chorizo, milk and pizzas. A four-pack of Hacendado coconut yogurt costs 55 euro cents compared with 1 euro for Danone’s version.
“I see customers think twice and compare prices much more, which didn’t happen in the past,” said Martinez, who is married with no children. “I still buy the same type of things but I now look more where I go shopping and what brands I buy in order to save some money.”
Even consumers with steady jobs like Martinez are spending less. In a country where about one out of every four people are out of work, Spanish domestic demand is set to drop 4.4 percent this year, more than twice last year’s pace, according to government forecasts.
Retail chains in southern Europe have capitalized on this by introducing more private-label products and improving the quality of existing house brands. Sales of the Dia label in Spain and Portugal are growing three times faster than those of national brands, purchasing director Alfonso Torres said in an interview.
Dia-branded yogurt, milk, beer and cooking oil usually sell for a discount of between 30 percent and 40 percent, Torres said, and the retailer recently overhauled the packaging on 7,400 store brand products to give them a more modern, fresher look. About half of the chain’s total sales come from private- label products, he said.
At Jeronimo Martins (JMT)’ Pingo Doce chain in Portugal, private brand sales increased by 7.6 percent in the first quarter, “significantly” above the company average, the company said April 26. The retailer’s store-brand know-how stems from a joint venture with Unilever that dates back to 1949 and makes ice cream, laundry detergent and shower gels.
“This manufacturing expertise that they have in house, it’s been massively popular with Portuguese consumers and it’s pushed branded items off the shelves,” Planer said.
Proliferating store brands have pressured even Procter & Gamble Co. (PG:US), the world’s largest consumer-goods company, which cut its earnings and revenue forecasts on June 20 for the second time in less than two months, hurt by slowing sales growth in Europe.
Cincinnati-based P&G has fought back by introducing less- expensive versions of its top brands, such as Pampers Simply Dry diapers. Other brands that have held up well against the private-label onslaught by offering high quality at an affordable price include Danone (BN)’s Fantasia yogurt and Henkel AG’s Syoss hair-care line, Planet Retail’s Planer said.
Almudena Oteo, a 59-year-old nursing assistant in Madrid, said one brand she can’t do without is Nestle SA (NESN)’s Nescafe instant coffee. And sometimes she’ll pay more for Kraft’s Philadelphia cream cheese. Beyond that, though, store brands are easier on her food budget, which has shrunk to about 200 euros a month from as much as 300 euros.
“I literally go hunting for private brands as there are many good and cheap products out there,” she said in an interview.
Not all branded manufacturers are feeling Danone’s pain. “For Nestle and Unilever, Spain just isn’t that important,” Jon Cox, an analyst at Kepler Capital Markets, said in an interview. Unilever gets about 1.5 percent of its sales from Spain, and Jean-Marc Huet, Unilever’s chief financial officer, said at a June 19 investor conference that Greece, Spain and Portugal “are small countries for us.”
Still, Huet acknowledged that it’s tough: “Over the last three years, all these businesses have gotten smaller. Europe is difficult for everybody.”
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