LONDON -- British food retailers want to make sure their private-label sales don't suffer as consumers increasingly switch to organic foods. So they're launching their own versions.
Almost all the U.K.'s leading food retailers now have extensive private-label lines of organic foods. In addition to fresh vegetables and meats, these lines include dairy products such as cheese, milk and yogurt; fresh juices and breads.
Industry executives told SN the companies plan to consistently expand their offerings wherever possible. For example, several retailers, such as J. Sainsbury plc here, are beginning to offer a limited selection of prepared foods in organic versions, like garlic bread, prepared pastas and salads.
Supermarket operators here, including Sainsbury and Tesco plc, Cheshunt, England, currently offer more than 500 private-label organic products, including canned and frozen lines. These companies tend to group these products into separate organic departments within their larger stores to make it easier for consumers to find them.
"We probably had 12 private-label organic products two years ago," a Tesco spokesman said. "We now have more than 400 lines and it continues to grow. In bread alone, the expansion has been dramatic. We now offer five or six different versions of organic loaves; a year ago we had one.
"It is now firmly established that the organics movement is not a fad," he added. "Demand for organic foods is growing consistently year after year and we have to cater for that."
Industry executives expect the demand to increase further, even though these products tend to be more expensive than the conventional versions. But there are signs the same trends affecting regular private-label foods are beginning to affect organic foods, especially in regard to price competition.
Asda, the Leeds-based subsidiary of Wal-Mart, is increasing its market share with an emphasis on value and price. Analysts said such competitors as Tesco and Sainsbury have been forced to follow suit and predict the British food retail market will increasingly be focused on price over the next few years.
Asda announced plans in late February to bring its low-price stance to organic foods by launching a line of private-label organic products that were 10% to 15% cheaper than the branded equivalent. The lines include fresh broccoli, carrots, breads, eggs, milk and butter.
"A basket of organic products can be more than double the price of standard items," said Sue Malcolm, Asda's nutritionist. "We're selling these products at a fair price and, as with everything at Asda, that means offering the best value around. And we'll be introducing more products into our range over the coming months."
Executives said the major factor fueling demand for organic foods is the series of food scares in Britain over the last several years, including so-called Mad Cow disease and the controversy over genetically modified ingredients or foods. The scares have led to increased consumer attention to food ingredients and food safety.
Many retailers first reacted to these scares by altering their regular private-label lines. For example, retailers such as Tesco, Sainsbury, Marks & Spencer plc here and Asda all launched farm-assured schemes for their beef in an effort to convince consumers that their meat came from carefully monitored herds.
In addition, retailers moved rapidly last year to eliminate GM foods from their private-label lines after consistent consumer resistance to the ingredients. According to a new study by consumer-trends firm KPMG, called "Customer Loyalty and Private Label Products," the British retailers were quicker to react to consumer tastes than the major branded producers.
"It is often easier and quicker to alter lower-volume, private-label product specifications than higher-volume, manufacturer-branded products, in response to changing consumer preferences," the study said.
KPMG studied the private-label strategies of such European retailers as Tesco, Marks & Spencer, Asda and Boots the Chemist in the United Kingdom, and Aldi and Metro of Germany. While it did not address private-label organic lines directly, its study indicated that retailers had no choice but to launch such products just as they had no choice in eliminating GM foods. Retail executives stressed their organic lines don't replace non-organic products. Generally, they offer both versions to provide customers with better choice.
"Private-label products are a critical tool in building customer loyalty," said the study's author, Emyr Williams, a partner in KPMG's Global Consumer Markets group. "This is extremely important in the light of the growing e-tail market, in which traditional barriers to customer 'disloyalty,' such as store location, are swept away."
Rapidly adapting to changes in consumer tastes by launching such things as private-label organic foods is particularly important for U.K. food retailers, who have the second-highest penetration of private-label products in Europe, after Switzerland, Williams said. According to his study, private-label products represented 34% of sales by value of 13 food categories in the United Kingdom and 42% of volume. In Switzerland, private-label lines represented 50.7% of sales by value and 59.6% by volume.
KPMG found that the major U.K. food retailers get more than 50% of their sales from their private-label lines. The percentages range from 50.6% at Somerfield plc, London, to 63.1% at Sainsbury.
"In the U.K. grocery sector, one of the major reasons for a high level of private-label penetration is the fresh and chilled product categories, as it is difficult for branded manufacturers to handle these very short shelf-life products," the study said. "For example, private-label penetration in the chilled ready-meals category is around 95% in the U.K.," according to a study by U.K. researchers Mintel.
Ironically, prepared meals are one of the last categories where British retailers expected to launch organic versions. This results from the problems of guaranteeing consistent supply as well as ensuring that all the ingredients used in the meals are, indeed, organic.
"Putting together processed foods in organic versions is relatively expensive vs. the conventional method," the Tesco official said. "The supplies of some organic products, such as vegetables, remain very up and down and if you can't get an ingredient for a prepared meal you can't substitute that easily."