Going to the supermarket or discounter is torture for many consumers. Food prices have been rising for months. According to a report by the consumer advice center, butter costs around 55 percent more than it did a year ago, and fresh milk costs between 33 and 43 percent, depending on the type.
The list could be continued indefinitely, after all, the costs of vegetables, meat and pasta have also increased. So it’s no wonder that more and more people are turning to brands such as “Gut und cheap” (Edeka) or “Ja!” (Rewe) when they do their shopping.
According to the market researchers of the Society for Consumer Research (GfK), these had a sales share of 42.8 percent of the 149 billion euro market in September.
That is around two percent more than in the previous year. Nevertheless, the manufacturers are under pressure. According to a report by the “Handelsblatt”, some have even ceased operations.
That sounds paradoxical. How is it that private label manufacturers are pulling out when demand for their products has increased? The explanation is quite simple. “As a rule, these are the same manufacturers as the branded products,” says Gerrit Heinemann in an interview with CHIP.
Heinemann works at the Niederrhein University of Applied Sciences. His areas of focus include online trading, e-commerce and the future of retail. He is regarded as one of the most prominent German trade experts.
“The manufacturers of branded goods usually use free capacity to produce their own brands such as ‘Gut und Billig’ for supermarkets and discounters,” he says.
Because private label sells at lower prices than branded items, margins are smaller. Increases in the cost of energy, raw materials and freight caused by the Ukraine war have a greater impact on no-name products than on branded goods.
This means that even if the demand for “Gut und CHEAP”, “Ja!” and other brands increases, it is not worthwhile for many branded goods manufacturers to expand the range of cheap products.
But not just since the Ukraine war, according to the “Handelsblatt” such producers have been gradually withdrawing from the no-name business for years.
Bahlsen, for example, sold one of its private label biscuit plants in 2019 to focus on other areas. According to the report, Frosta is also investing less and less in its own brand Copack.
In addition to branded companies, there are also manufacturers who only produce private labels, for example for Aldi. “They live from the scaling and reduce their unit costs with the quantity,” says Heinemann.
According to the “Handelsblatt”, it is also difficult for them. The pasta manufacturer “Schätzle”, for example, is one of the companies that stopped production because the cooperation with Aldi and Edeka was no longer lucrative enough.
All in all, Heinemann does not believe that cheap brands will disappear from the ranges of Kaufland, Edeka, Rewe and other chains. “Private labels are closely linked to discount retail, the end of which has been predicted several times, but never happened,” says the economist.
“According to the motto ‘those who are declared dead live longer’, there will be a further increase in the share of retail brands, particularly due to the difficult environment, i.e. rising inflation with falling purchasing power.” Heinemann therefore assumes that “good and cheap”, yes!” and similar brands will hold.
Many consumers will probably welcome the continued existence of private label. After all, private label is a way of cushioning the rising cost of living.
“The products are usually significantly cheaper than comparable branded items. The price difference is usually more than 20 percent,” says Heinemann.
However, he fears further price jumps in the no-name segment. Because the manufacturing costs are increasing. In relative terms, private label prices have already increased more than branded ones.
As the “Handelsblatt” reports, branded products at Rewe cost around 13 percent more in November than at the beginning of the year, while own brands such as “Ja!” went up by almost 29 percent.
An evaluation of the price comparison app “Smhaggle” for the newspaper also showed that the prices of 85 percent of the private labels increased. At the same time, 63 percent of branded products became more expensive.
“The times are obviously not getting any better and the available purchasing power is decreasing. Experts consistently expect the situation to worsen,” says Heinemann.
He also believes that consumers will soon run out of ways out of the price trap. “In the next step, only reducing consumption will help,” says the economist. So shopping will not become any more pleasant in the coming months either – quite the contrary.
High energy costs, inflation: Many Germans are currently suffering from money worries. A topic that has not been discussed much so far are so-called index leases.
They allow the landlord to increase the basic rent each year as much as the consumer price index has risen. Currently, an increase of 10.4 percent would be possible.
We want to devote ourselves to the topic of index rental contracts and draw on the experiences of our readers. Do you have an index lease? If so, are you concerned about potential increases? Or did it already exist? How did you react?
Write us your story to mein-bericht@focus.de, preferably with your full name, place of residence and a telephone number for queries. We will publish some of the submissions.
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The original to this post “Private labels are booming, but they are becoming a problem for manufacturers” comes from chip.de.
