PJL-21

Tracking the growth of discounters and private labels in Germany

In the consumer products area, manufacturers follow their market share very closely to gain insight into the success or failure of their marketing efforts. Here we look at some of the methods and data behind the market share numbers in the big German market, where cost-conscious consumers have most strongly moved over to private label products.

Hugh O’Brian


To get a little better understanding of the manner in which consumer behaviour is monitored, Perini Journal recently visited the company GfK Panel Services in Nuremberg, Germany. The GfK Group is the world’s No. 5 market research organization, with sales of EUR 559 million for financial year 2002. Its five business divisions include: Consumer Tracking, HealthCare, Non-food Tracking, Media and Ad Hoc Research. In addition to 15 German subsidiaries, the company has over 120 subsidiaries and affiliates located in 50 countries. Staff is currently around 5,000 employees, with approximately 30% located in Germany.

Helmut Hübsch works with GfK Panel Services Consumer Tracking business in Germany, where he is the division director responsible for the “Personal & Homecare Categories”. With experience of over 20 years in the field of market research, Hübsch offered his insight into the recent trends in German consumer purchasing behaviour and the movement to higher use of private label products instead of brands.


PJL: CAN YOU DESCRIBE THE METHODS YOU USE TO GATHER CONSUMER TRACKING DATA?

HÜBSCH: “We are a consumer tracking business, rather than a retailer tracking service. The differences are very important.

We base our findings on direct input from 13,000 households throughout Germany. Since this data is coming directly from the consumers, we feel it goes much deeper than other retailer tracking services. It offers a better picture of consumer preferences over the entire market, rather than simply reporting what is going out of the big retailers at the checkout.

“The retailer tracking data also has the disadvantage that not all retailers participate. For example, in Germany one of the biggest players on the market is the discounter Aldi. But their data is not included in the standard retailer tracking, meaning there is a mysterious black box for a big part of the market.”


PJL: HOW DO THE 13,000 HOUSEHOLDS PROVIDE YOU WITH THE DATA ON THEIR PURCHASES?

HÜBSCH: “Each household has a scanner which is used each time they make a purchase. This data is fed to a modem which relays the information to us. In this manner we know what is coming into each household, and where it is coming from. Since we know the profile of each household with respect to the number of members, age, income, etc., we can get a much better idea of the trends in the marketplace.”


PJL: WHAT MOTIVATES THE HOUSEHOLDS TO BE PART OF YOUR SURVEYS? ARE THEY PAID?

HÜBSCH: “No, they are not paid. We feel that if we were to pay them that might distort the results in one way or another. The motivation seems to be that, by participating as what we call ‘panelists’, they feel they can help to improve the offering of products on the market. They feel good about being able to influence big companies and the retailers.”


PJL: WHAT DOES YOUR DATA SHOW AS FAR AS TRENDS IN THE GERMAN RETAILING MARKET?

HÜBSCH: “It is very clear to everybody that the discounters are taking market share from both the big supermarkets and the smaller traditional corner stores. Our biggest discounter is Aldi, which has seen very large growth in recent years (Figure 1). For the market as a whole, the discounters now have about 37% of the total market turnover. This is up sharply from just under 30% five years ago.”

“Aldi is a real phenomenon in Germany, having gained an aura something like Robin Hood in that it offers low prices to the masses. Aldi only sells private labels, with no brands at all. So if you go to Aldi it is clear that you are a private label customer.

Aldi is such an important force on the market that we break down the data into three categories: Brands, Private Label and Aldi.”


PJL: WHAT IS HAPPENING IN THE FIGHT BETWEEN PRIVATE LABELS AND BRANDS?

HÜBSCH: “In all categories of fast moving consumer goods (FMCG) that we track, we see a clear trend to private labels. This has been going on for many years. For example, in 1999 the total share of private labels was 23.4 % on a value basis (Figure 2, Figure 3). The latest figures for the first half of 2003 indicate that this is now up to 32.1%, with the increase being around 3% each year for the past five years. There was a slight indication in 2003 that this might be slowing down.”


PJL: WHAT ROLE HAS ALDI PLAYED IN THIS TREND TO PRIVATE LABELS? IS THE SHIFT TO PL MAINLY DUE TO ALDI’S GROWTH?

HÜBSCH: “No, not really. The growth in private labels is pretty well split between growth at Aldi and growth of PL at other retailers. Both have taken market share away from the brands in almost all categories.”


PJL: HOW HAS THE PRIVATE LABEL MARKET FOR TISSUE GROWN?

HÜBSCH: “Our data shows that the private label sector for tissue paper products such as toilet paper, kitchen towels and hankies is already at the highest level of all the FMCG categories we follow (Figure 4). The latest numbers for the first half of 2003 show that PL makes up nearly 64% of the tissue market, which is up from 62.6% for the whole year 2002. For comparison, PL tissue in 1999 had 53% market share, meaning the upward trend has been rather sharp in recent years (Figure 5).

“Across every tissue paper category there is a strong share of private labels and that share is increasing. It does not seem to me that brands like Bounty and Charmin can reverse this trend. We have seen a very high level of marketing spending by Procter & Gamble when they introduced both Bounty and Charmin. This established those brands in the market but this has been at the expense more of other brands than the private labels. The long term trend in Germany is to private labels.

“In every paper category, we see a strong market share for private label. There has been a major move by Procter & Gamble to push the higher quality branded through air dried kitchen towels and toilet tissue. Is this a way back for the brands? It is hard to say. We do have some preliminary indications that the PL growth is slowing down. For 2003, the rate of PL growth in market share is more moderate than in the past, growing by 6.3% during July 2002-June 2003 vs. 12.7% July 2001-June 2002.”


PJL: WHY DO YOU THINK TISSUE IS THE CONSUMER GOOD WHERE PRIVATE LABELS HAVE THE BIGGEST SHARE?

HÜBSCH: “My feeling is that there are three main reasons for this. First I would say that there is a low level of involvement with these products. You don’t relate to these products like you do some others, such as champagne or perfume for example.

Also, it is difficult to make emotional ads for tissue products.

Second, if we look at technical advances, they are quite easily copied or matched by the private label makers. When Charmin TAD was introduced, Aldi quickly offered a 4-ply toilet tissue in reaction. So the perceived technical advantage does not really last very long.

And third, I think the perceived quality difference for a brand versus the private label is not seen to be worth the extra cost.

There is a perceived value gap which is difficult to bridge. For example, if you are having a party, you may want to serve branded champagne because the risk associated with a private label may be too great to take. If you serve PL champagne and it is bad, it will reflect poorly on you. But at the same party you may have PL kitchen towel or toilet tissue in use but the risk that it will be of a lower quality, or that it will even be discussed, is quite low.”


WHY NOT PUT THE BRAND NAME ON THE PRODUCT?

As far as the answer to the branding difficulties that tissue producers are facing, Hübsch doesn’t have any magic solutions. One thing that he has considered is the fact that tissue products generally don’t have a brand name on the product itself. “Why isn’t the word Bounty or Charmin or Zewa written on each sheet of the product? It is on the package but that is discarded before the product is used. If the brand name were to be more visible for the consumer, that might lead to higher brand loyalty. I have never understood why the brand names are not embossed or printed directly on the tissue products.”

Concerning the reasons that the German market has gone over so strongly to private label products, Hübsch believes it has to do with lifestyle changes and, of course, economic choices. “Each decade in Germany seems to be characterized by different trends or lifestyles. The 1960s were characterized by redevelopment after the war and the needs were fairly basic, food and beer. In the 1970s, we developed a little more leisure attitude, with a feeling that ‘we have it good.’ The 80s were more career oriented and the 90s more self-oriented.”

“Now, in the first decade of 2000, there seems to be more emphasis on saving money, or at least spending it wisely. Perhaps it is due to the economy or unemployment, or simply to the fact that people want to make the most of the money they have.

There is an electronics chain here that is pushing the slogan: ‘I’m not stupid!’ I think that is a main reason that discounters and private labels have grown so very rapidly in recent years. People are more concerned about being smart with their money and the discounters make them feel that they are smart and saving money at the same time. Thirty years ago it was somewhat embarrassing to shop at Aldi, as it indicated that you needed to save money. Now, in the parking lots you can see cars such as Porsche or Ferrari. Everyone shops there.”


BEER DRINKERS A LOYAL BUNCH!


When looking through the data for private label penetration by category, one other item stands out: the extremely low level of PL penetration for beer, at only 3.8% of the market. Says Hübsch, “the German beer drinkers are very loyal to their own local brewery. In addition, there are so many different kinds, there is no room for private labels. Beer seems to be one thing the Germans are not worried about spending a little extra money on!”•

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