Retail ‘bargaining power’ commands private label boom in Russia: Euromonitor

18-Aug-2013 - Last updated on 19-Aug-2013 at 10:16 GMT

Russian retail giants are shaping the private label market but shouldn't move too quickly, warns analyst

Major Russian retailers are using bargaining power to ensure heavy private label presence on shelves – hitting smaller domestic brands, Euromonitor says.

In 2012, private label sales in Russia increased by 22% in value terms, according to data from Euromonitor International. And this growth isn’t set to stall any time soon - private label is forecast to surge a further 19% in 2013 and see double-digit growth over the next five years.

Lamine Lahouasnia, head of packaged foods research at Euromonitor International, said it was interesting and important to note how retail action has also shaped, and continues to shape, the market.

“The priority for retailers in Russia is to go in low – that’s their target market – to try and dominate the lower segment of the market in terms of price,” Lahouasnia told FoodNavigator.

“One of the interesting findings in Russia, was that a lot of retailers wouldn’t stock B brands (those that aren’t the top sellers) unless manufacturers agreed to provide private label products too. They have that bargaining power,” he said. This was hitting the lesser-known, domestic brands, he added.

The initial growth was kick-started, primarily, by the economic crisis with private label packaged food sales surging more than 200% between 2008 and 2012, Marija Milasevic, research analyst for Euromonitor, explained in a podcast.

“The post-crisis consumer behaviour is totally different from the pre-crisis one. Consumers have become more price-sensitive and rational,” she said.

Retail consolidation and domination? Not necessarily…

Two mega chains – X5 and Magnit – have boomed in recent years, Lahouasnia said. “X5 has consolidated a lot recently and is dominant in the hypermarket section. Magnit has expanded through franchise. Both are increasing and turning to private label,” he said.

However, he said Russia’s retail market remains fairly immature which could prove a challenge for the retail heavies. “A lot of consumers still shop in green grocers and smaller independent stores.”

While retailers can leverage their dominant and powerful position in modern retail channels, consumers may start switching back to green grocers if the choice isn’t provided, he warned.

Retail own brands and premium tiers

Milasevic said retailers will continue to be active in promoting already existing private label products but also new ranges. She said retailers will soon move to develop middle and high-priced own label ranges.

However, Lahouasnia said this shift could prove a little early for Russian consumers.

“Russia isn’t ready yet. It still needs to develop a bit of trust with existing private label. I just don’t think you can start an economy private label range and then bring in a premium version a year later.

“Consumers need to trust the range first. Then you can start to play around with premium tiers,” he said.