BUSINESS MANAGEMENT UNIT 2
The rise of supermarket house
brands: a marketing case study
Julie Emerson-Drake
St Bede’s College, Mentone
The following activities focus on the marketing of supermarket-owned
products, including the key elements of establishing objectives, identifying
the target market, the marketing mix and the product life cycle. The
activities draw on part of the key knowledge in Area of Study 2 of VCE
Business Management Unit 2. They require students to analyse and evaluate
the purpose and effectiveness of using house brands in Australian
supermarket chains as a marketing strategy.
The growth in supermarket-owned brands (known as ‘home’, ‘house’, ‘generic’ or ‘private-label’
brands) is transforming the retail industry, particularly supermarkets. House brands account for 23 per
cent of the grocery market in Europe, 20 per cent in the United States, and 25 per cent in Australia
and New Zealand’ (IBM Institute for Value, 2011). House brands are no longer simply cheap, no-frills
grocery products, for example staples such as tinned tomatoes, peanut butter and margarine. At the
budget end of the scale, house brands give shoppers a cheaper alternative to manufacturer brands.
At the premium and super-premium grocery end, supermarkets offer products such as ready-to-heat
gourmet meals for busy people, good-quality biscuits, dips and cheese, as well as speciality and
niche foods such as gluten-free foods. Packaging and the quality of ingredients distinguish the
different categories of house-brand products, with more than one home-brand range being available
in most supermarkets.
Supermarkets use in-store marketing, social media such as Facebook and Twitter, banner
advertisements and mainstream media to promote their home brands among target consumer
segments.
Business objectives and strategies
Australia has one of the most concentrated grocery markets in the world. Woolworths and
Wesfarmers (Coles) account for almost 80 per cent of supermarket sales, 60 per cent of alcohol and
retail, 50 per cent of petrol retail, and 40 per cent of all retail in Australia.
A key business objective of some supermarket chains is to increase the shelf space of home brands
in order to improve profits and profit margins. Some supermarket chains hire product and brand
managers to grow these lines.
In the United States, a 1 per cent consumer shift from the purchase of a national brand to a privatelabel brand can increase revenue by $5.5 billion, due to generous profit margins.
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‘”House brands” mean big profits for supermarkets and are geared towards customer loyalty by
creating products that can only be purchased in their store. Most major supermarkets are trying to
shake the poor-quality image of generic brands by rolling out their own tiered labelling structure, each
tier cleverly marketed to appeal to a different customer base.’
Source: Ethical Consumer Guide, http://www.ethical.org.au/issues/?issue=16
‘Australia's leading supermarket chains, Coles and Woolworths, have lodged hundreds of trademark
applications for new house brand goods covering a universe of consumer items, such as organic
food, hardware, baby accessories, booze, bed linen and cosmetics in a push that will further squeeze
brand owners and manufacturers.’
(Source: ‘Private-label blitz looms’, The Age, 23 November 2011, http://www.smh.com.au/business/privatelabelblitz-looms-20111122-1nsth.html)
Market structure of the supermarket industry in Australia
The market structure of the supermarket industry in Australia has the following characteristics:
 Woolworths and Wesfarmers (Coles) account for almost 80 per cent of supermarket sales.
 Metcash (which supplies IGA) accounts for 16 per cent of supermarket sales. Metcash
distributes to independently owned stores and supplies IGA, Foodland, Foodworks, 7-Eleven,
Lucky 7, BP and several liquor retailers.
 Aldi has more than 215 stores, all along Australia’s East Coast. Most brands are Aldi owned.
Over 80 per cent of products are Australian made.
 Cosco Wholesale is another retail supplier of groceries, which started operating in Australia in
March 2009 at the Docklands. It has three warehouse stores in Australia (Melbourne, Sydney
and Canberra) and is planning to open more stores in Queensland and other cities. Cosco
operates a membership-based format and has around 100 000 members in Australia.
References: Ethical Consumer Guide, http://www.ethical.org.au/issues/?issue=16 and ‘Cosco rings up
membership boom’ (The Age, 25 May 2012), http://www.theage.com.au/business/costco-rings-up-membershipboom-20120525-1z8yz.html)
There is quite a price difference between
most home-brand products and branded
equivalents.
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Consumer trends
 Consumers increasingly prefer to purchase private-label brands instead of national brands
where the quality is ‘adequate’ and the price is lower.
 Around 75 per cent of consumers who ‘traded down’ during the economic downturn have no
plans to revert to their previous shopping patterns when the economy improves.
 From the consumer point of view, there is traditionally a 20 per cent saving in the retail price
when purchasing house brands. However, this may change as retailers employ more staff to
manage these profitable new lines.
Marketing strategies
Supermarket-owned brands account for nearly one quarter of Australia’s $70 billion grocery market.
House brands are expected to grow from 25 per cent to 30 per cent market share in the next five
years. Marketing strategies are used by the large supermarket chains to drive growth. These include:
 Private-label brands can only be purchased from stores in the same supermarket chain, such
as Coles Lite Olive Oil Spread or Aldi’s Belmont Creme wafers. This can result in greater
customer loyalty to a particular store due to the restricted availability of house brands.
 Many supermarkets are aiming to dispel the poor-quality image of house brands by producing a
tiered labelling structure with each house-brand category appealing to a different customer
base.
 The strategy of allocating more shelf space to house brands ‘squeezes’ known brands that are
not top sellers. This gives the home brands greater exposure, but means less variety for the
consumer. It also means an increasing shift in bargaining power from the suppliers to the
retailers. Australian farmers and wholesalers have little choice but to sell through supermarket
brands and are forced to compete with cheaper, heavily subsidised foreign imports.
 The two big supermarket retailers, with their dominant market share, are able to alter prices
across their entire product range. As perishable products join this range, poorer quality
ingredients may be used to meet the higher turnover of these products. As people are forced
towards certain types of products throughout the year, the quality of the products may level out
as ‘average’. Seasonal cycles of quality goods usually seen with fresh fruits, milks, breads and
meats may cease to exist.
Aldi specialises in staple products and
inexpensive household items, and most of
its products are house brands, with the
number of branded items limited to very
popular brands only
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Social and ethical concerns about house branding
‘One in four Australian vegetable growers is facing financial ruin as they fight a losing battle against
cheap processed imports, mounting labour costs and greater competition for our traditional export
markets. The importation of processed fruit and vegetables is now worth $1.5 billion a year, a rise of
almost 60 per cent over seven years.’
Source: ‘Surge in imports sends Australian farmers to the brink’, 27 May 2012, http://www.theage.com.au/national/surge-inimports-sends-australian-farms-to-brink-20120526-1zc2u.html#ixzz1wF9LxSry
One in four grocery items now sold in Australia is a supermarket house brand. Many of these items
are produced overseas or the ingredients for locally produced generic brands are sourced from
overseas, as well as from Australian suppliers, A social responsibility issue faced by many
supermarkets and other food outlets is the dilemma about whether to increasingly source processed
food from other countries. Supermarket importing is putting home brands in direct competition with
Australian-made processed food and small to medium-sized firms are losing shelf space to home
brand products. While some local producers of processed foods are losing market share, many
primary producers are unable to meet the supply required. Despite the concerns and criticisms,
Australian supermarket chains make a significant contribution to the Australian economy.
A key benefit of house brands for the supermarket chains is large profit margins and minimal
marketing costs. The disadvantage to consumers is the reduction in choice as shelves become
dominated by house brands, and the space available for manufacturer brands diminishes.
Questions and tasks
Activity 1: Business objectives and marketing strategies
Read the following articles:
 ‘Private-label blitz looms’ (The Age, 23 November 2011):
http://www.theage.com.au/business/privatelabel-blitz-looms-20111122-1nsth.html
 ‘Cheap food comes at a price’ (The Age, 28 May 2012):
http://www.theage.com.au/world/cheap-food-comes-at-a-price-201205271zd6a.html#ixzz1wFC7WcMz
 ‘Supermarkets in Australia’ (Ethical Consumer Guide):
http://www.ethical.org.au/issues/?issue=16
 ‘Where’s the value add’, (Value Acceleration, 6 December 2011):
http://valueacceleration.wordpress.com/2011/12/06/wheres-the-value-add
 ‘’Milk wars pointing the finger at Coles and Woolworths’ (The Conversation, 30 March 2011):
http://theconversation.edu.au/milk-wars-pointing-the-finger-at-coles-and-woolworths-529
Questions and tasks
a. What percentage of supermarket items are house brands? In the next five years, what
percentage of supermarket items is likely to be house brands?
b. Why do supermarkets stock house brands? Give reasons for the increase in the growth of
house brands.
c. Which supermarket items are most likely to be sold as house brands? In pairs, discuss
common items and the reasons that they are house brands. Do you think there is potential for
change to some of these categories? Share your answers in a class discussion.
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d. ‘House brands usually show a sales increase during an economic downturn’. Explain this
statement.
e. In relation to house brands, define the term ‘tiered labelling structure’. Provide examples to
illustrate your answer. What is the rationale behind having a tiered labelling structure for homebrand products?
f. Describe the future pricing and placement strategy for supermarket shelves? (Hint: What is the
ratio of brand leaders to private-label products?)
g. How does supermarket shelf space occupied by house brands in Australia compare with that of
Britain and the USA?
h. Identify the ways house brands are promoted In Australia. Give examples.
i. The marketing mix is a combination of the elements of a company’s marketing plan and is
commonly referred to as the 4Ps: product, price, place and promotion. Select one supermarket
house brand product that your household purchases. Complete the following table by
identifying which of the 4Ps each question applies to and then write your answer in the
appropriate cell.
Questions
i.
Product
Price
Place
Promotion
Is the customer
price sensitive?
ii. Where do buyers
look at the
product?
iii. How does the
supermarket
chain reach its
target market?
iv. What is the value
of the product to
the buyer?
v. What does the
customer want
from the product?
vi. How is the price
differentiated from
its competitors?
vii. How do the
competitors
promote the
product?
viii. How and where
will the customer
use the product?
ix. How does the
price compare
with competitors’
prices?
x. When is the best
time to promote
the product?
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j. Describe two performance indicators that could be used to evaluate the success of housebrand strategies.
k. At which point in the product life cycle of supermarket goods are house brands likely to be
introduced?
Activity 2: Factors influencing consumer behaviour
Consumer behaviour involves the selection, purchase and consumption of products for the
satisfaction of a buyer’s wants. There are different processes involved in purchasing products, such
as choosing products that offer the most value and utility and taking into consideration how much
money the consumer can spend. In addition, there are other factors influencing the purchases of
consumers, including psychological, social/cultural, economic and government.
a. Complete the following table by outlining how each of the four factors influencing consumer
behaviour are likely to determine the purchase of a house brand (psychological, social/cultural,
economic, government). Provide examples to support your answer.
Factor influencing
consumer behaviour
This factor is likely to influence a consumer’s decision to buy a house-brand product in
the following way …
Psychological
Social/cultural
Economic
Government
b. Working in pairs, choose two products and evaluate how peer groups could influence buying
behaviour in relation to these products.
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c. Each culture contains different subcultures such as religions, occupations, people in the same
age group, nationalities and geographic regions. A subculture is a group of individuals whose
characteristics, values and behavioural patterns are similar. A person can be a member of
more than one subculture. Marketers can design marketing campaigns according to the
characteristics and needs of a particular subculture; for example, an age group such as primary
school students.
Describe a subculture to which you belong. Identify purchases that are unique to your
subculture. Explain whether or not you would be happy to substitute your purchases with a
house brand.
d. Read the following article:
 ‘Price war could spell the end of fresh milk on supermarket shelves’, The Age, 6 April 2011:
http://www.smh.com.au/opinion/politics/price-war-could-spell-the-end-of-fresh-milk-onsupermarket-shelves-20110405-1d1tr.html
With reference to the above article and others you have read, describe methods that marketers
can use to influence consumers’ buying behaviour.
e. Explain how important you believe the element of price is in the marketing mix of house brands.
f. Are there any negative consequences of the growth in house brands for consumers? Explain
your answer.
Activity 3: Ethical issues
Read the following articles:
 ‘Canned: why local tomatoes cop a pasting’ (The Age, 27 May 2012):
http://www.theage.com.au/national/canned-why-local-tomatoes-cop-a-pasting-201205261zc2q.html#ixzz1wF8eaqBQ
 ‘Surge in imports sends Australian farmers to the brink’ (The Age, 27 May 2012):
http://www.theage.com.au/national/surge-in-imports-sends-australian-farms-to-brink-201205261zc2u.html#ixzz1wF9LxSry
 ‘Cheap food comes at a price’ (The Age, 28 May
2012): http://www.theage.com.au/world/cheap-food-comes-at-a-price-201205271zd6a.html#ixzz1wFC7WcMz
 ‘Supermarkets in Australia’ (Ethical Consumer Guide):
http://www.ethical.org.au/issues/?issue=16
Questions and tasks
a. Identify what percentage of house brand foods (stocked by Safeway, Coles and Metcashowned supermarkets) is sourced from Australian producers.
b. From which countries (other than Australia) do our supermarket chains import ingredients and
processed foods? Give reasons for this growing trend.
c. Define the term ‘corporate social responsibility’. Explain this term in relation to the growth of
house brands. (Consider cheap labour, inferior quality products or the squeezing of profit
margins of suppliers and manufacturers.)
d. Click on the people/planet/animals/companies logo at the bottom of the following web page:
http://www.ethical.org.au/issues/?issue=16. Choose two of these categories and select one
issue for each category. Discuss the significance of the role these issues play in the marketing
mix when marketers launch a new grocery product.
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e. ‘The availability of house brands in supermarkets should be increased.’ Complete a Compass
Points thinking routine to evaluate the ethical issues surrounding this proposition.
E = Excited
What excites you about this idea
or proposition? What’s positive
about it?
W = Worrisome What do you find worrisome
about this idea or proposition?
What are the negative aspects?
N = Need to know
What else do you need to know
or find out about this idea or
proposition? What additional
information would help you to
evaluate the proposition?
S = Stance or suggestion for
moving forward
What is your current stance or
opinion on the idea or
proposition? How might you
move forward in your evaluation
of this idea or proposition?
Additional teacher reference
Brandquake: How House Brands are Transforming the Food and Grocery Industry, IBM Institute for
Business Value, 2011: http://www935.ibm.com/services/au/gbs/pdf/IBM_AFGC_Whitepaper_Brandquake.pdf
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