COVID-19 and PL retail chains: new opportunities for exporters

The COVID-19 pandemic has had a significant impact on consumer behavior around the world, including the demand for private label products (PL) in retail chains. With the economic downturn and declining disposable incomes, demand for these products has increased as consumers seek new products and brands of familiar quality but at a lower price. In addition, during the buying craze at the beginning of the pandemic, a number of traditional brands disappeared from store shelves, forcing consumers to try and evaluate private label food, which was generally more affordable.

These two main factors – lower price and high availability – have led to a marked shift in consumer interest away from manufacturer brands towards private label retailers, even in countries where their penetration is already high. According to a survey conducted by EY in the middle of last year, in the UK, 67% of respondents did not rule out the possibility of purchasing private label packaged foods, while their actual market share did not exceed 37%. In the USA61% of consumers considered purchasing private label food products (current penetration rate 17%), in Germany 57% (35%). At the same time, not only thrifty buyers, but also those who prioritize quality and care for the environment showed increased interest in private labels.

In 2019, the volume of global sales of private label food products was estimated at $343 billion. About 20% of this volume was accounted for by dairy products, 16% by meat and seafood, 8% by ready meals and confectionery, 5% by processed fruits and vegetables, 4% - sauces and dressings.

On average, about 8% of total food retail sales came from private label chains, but this share differed significantly depending on the region. If in Europe it reached 15.5%, North America - 10%, then in the Asia-Pacific region - only 2.4%, and in the Middle East and Africa - 2.3%. In the future, according to forecasts, the market for private label products in emerging markets will tend to the level of developed European markets. At the same time, despite the focus of retail chains on local suppliers, imported private label products are no less important for them, as they increase the retailer's attractiveness to customers.

The Federal Center "Agroexport", together with a team of international experts, has developed a Concept for the promotion and development of exports of agricultural products through foreign trade networks using private labels. Within the framework of the project, key categories of products and the capabilities of Russian companies were studied in the context of promising markets and networks in these markets, and the main principles of interaction between retail chains and suppliers were identified and described.

“Practically any manufacturer that meets the requirements that foreign retail chains impose on their suppliers can be a supplier of private label products abroad. The fundamental characteristics of a potential private label supplier, which are of the greatest importance for all retail chains, are the cost and quality of products, as well as the ability to produce goods according to the parameters set by the retail chain,” notes Konstantin Korneev, Executive Director of Rincon Management. You should also keep in mind the following list of criteria, which can be called universal for retail chains around the world:

Availability of accreditation / permission to export products to the country where the outlets of the partner network are located. Availability of implemented international quality management systems (HACCP, ISO 22000). Availability of free production capacities at the level of 30-35% for the production of private labels (optimally, if about 15-25% of the capacities will be loaded with private label products). Availability of a warehouse and production infrastructure that ensures the fulfillment of orders for private label products in accordance with the agreed delivery schedule. The age of technological equipment is not more than 10 years. The production cost is at or below the average for the industry where the potential supplier operates. Experience in working with retail chains (including Russian ones) as a supplier. The advantage will be experience in the supply of private label products. Availability of an R&D department within the company. The presence of an electronic document management system (EDI) and the ability to connect to a specific trading network system.

“Of all the listed criteria, only the first 4 points are mandatory, the presence of the rest is recommended or desirable. However, in the context of competition for the right to be a private label supplier for foreign retail chains, any of the above factors can become decisive,” Korneev points out. In addition, the policy of working with private labels of almost all retail chains implies the possibility of shipping goods through distribution companies, which allows not only large, but also medium-sized companies to participate in deliveries.

Rospotrebnadzor estimated the economic damage from coronavirus at almost 1 trillion rubles 

The Concept for the Promotion and Development of Exports of Products through Foreign Trade Networks Using Private Labels presents a list of conditions necessary for the development of exports to retail chains, defines the main tools for promoting food products under private labels, and forms a roadmap for entering domestic food producers into retail chains. The concept will be published on the website of the Federal Center "Agroexport" in the near future.