'Price war to ensue' as small, medium brands losing to own labels

A “price war” is likely to kick off in the first half of next year, analytics firm IRI predicts, as small and medium sized FMCG brands are increasingly squeezed by private own labels amid the pressures of inflation.

The “squeezed middle” is already losing volume and value, IRI finds. In the year-to-date (YTD) to May 2022, medium sized manufacturers had a 25.4 per cent share of food sales, down from 26.1 per cent in the second half of 2021. Similarly, small brands saw their share of food sales decline from 14.1 per cent to 13.8 per cent.

On the contrary, own labels increased their share of food sales from 35.8 per cent in H2 2021 to 37 per cent over the YTD to May. Inflation has risen even further since then, and consumer concerns about the cost of living over the winter months is likely to drive an increasingly rapid move towards cheaper private label goods, IRI says.

Nielsen IQ too reported similar trends, saying that private label now accounts for 53 per cent of FMCG spend, up from 52 per cent a year ago as more and more consumers switch to own-brand products to tackle the cost of living.

Categories like alcohol and confectionary, where there will be a desire to liquidate stock after Christmas, are particularly likely to find themselves at war, Marketing Week reported citing IRI's prediction. Retailers and brands will likely turn to lower prices to keep margins.

Smaller, artisanal brands in categories like alcohol and cheese will be at risk of getting cut out completely from consumer baskets, says Roy. He gives the example of shoppers choosing to buy just cheddar rather than a variety of cheeses, as consumers look to cut out luxuries.

Elsewhere, IRI’s head of manufacturers Steph Cullen says it will be those on the lowest incomes that are most feeling the impact of inflation and having to make the hardest choices.

“The more affluent shoppers, they can switch to a cheaper retailer. They can switch things out of their basket, by either choosing not to purchase at all, if it’s a discretionary item or switching to cheaper alternatives,” she adds, pointing out that many low-income shoppers were already doing these things before inflation kicked in.