reLAKSation 108.
Privately for all: There has recently been a great deal of coverage in IntraFish, both on the website and in the newspaper, about the rise of private or own label seafood. This is where supermarkets label products as their own. The UK retailer Marks & Spencer have proved to be the exponents of this labelling as they only sell products which carry their name. Other supermarkets have recognised the loyalty, which such branding can create and are now rapidly catching up.
IntraFish published a table illustrating how this trend has impacted on major markets. About 20% of all products sold in the US and the Netherlands are private label, with France at 25%, Spain 27%, Germany 33% and the UK, a massive 40%. Interviewed in the IntraFish newspaper, Henry Demone, President of High Liner Foods said that whilst there is this growing trend towards private label as can be seen from these figures, the industry is not going to see the death of branded seafood products. He said that conventional wisdom is that there must be a mix of a major branded product, a less established branded product and a private label. Mr Demone believes that without the presence of branded products, there will be no new money invested in product development and no leader for private labels to emulate. This may well be the case in the American market but in the UK any attempt of conventional wisdom appears to have been thrown out of the window.
Firstly, this view of the wider market may actually be distorted. A few well-known companies such as Coco Cola, Pepsi, Kelloggs, Proctor & Gamble and Unilever dominate the branded sector. These companies are able to maintain their branded position in the marketplace against the inroads of private label because of their huge advertising budgets. This enables them to retain customer loyalty and hence their massive sales.
We have already seen that the British market has the greatest level of private label sales overall. Yet, there is an absence of such major brands in the UK with one possible exception. As a result, we at Callander McDowell would estimate that private label actually accounts for over 80% of the UK market, possibly even more. This does vary from store to store, but even the smallest supermarket chains now label most seafood as their own.
In the past, many consumers might have considered that private label products were of inferior quality to their more high profile counterparts. This may have been the case once, but the market has changed as private label has become more important to both retailers and their customers. (It is interesting that Kelloggs, who once said that they would never produce private label breakfast cereals, have had to start doing so).
Mr Denome said that the market must maintain branded products if product development is to be progressed, yet in the UK, it is the reverse and some of the most exciting developments are now packaged under private label.
However, not only are the products innovative, the supermarkets have also actively differentiated their ranges to create distinct ‘brands’ within their own private label. These ‘brands’ cover such areas as premium, traditional, value, organic, healthy eating and childrens as well as separate ethnic products, such as Chinese, Indian, Tex Mex, Italian, and Mediterranean. For example, Britain’s leading supermarket chain, Tesco market their premium products under their ‘Finest’ label.
Such labelling is something like the separate brands, which previously dominated the retail sector. Consumers appear happy with this development, as it appears to offer more choice than when they could only buy ‘branded’ products.
Clearly there is some concern that this increasing level of private label produce may harm the future possibilities available to suppliers and manufacturers, but this isn’t necessarily the case. Private label still requires that the products are manufactured and this is carried out by exactly the same manufacturers as if the products were branded. It is only the label that has changed. Equally, private label does not exclude the possibility of using smaller manufacturers since the branded products, which currently do exist, are the small volume specialist products in which such manufacturers excel, but which do not merit production under private label.
What is clear is that in the UK market the arrival of private label has increased consumer choice across the whole seafood sector and most especially in those products, which are produced by aquaculture.
PO.no: FHL Havbruk have asked former Norwegian ambassador to Brussels Torben Foss, now of Price Waterhouse Coopers to investigate whether Producer Organisations represents the way forward for the Norwegian salmon farming industry. According to IntraFish, this issue will be the main topic of discussion at the organisation’s next annual general meeting.
We, at Callander McDowell have never believed that Producer Organisations will be the panacea for the market problems endured by the salmon industry. PO’s were an essential part of the European Common Fisheries Policy because they were a way of effectively allocating a finite and fixed fisheries quota. By comparison, PO’s cannot help regulate a farming sector, which is capable of potentially infinite growth.
Advocates of the PO system believe that an independent committee of marketing experts will be able to predict future market demand and then set production levels to meet this demand. Unfortunately, no-one has yet been able to sufficiently predict market development to a level which could guarantee that prices would stabilise. Therefore it is unlikely that any committee would be able to do the same. After all, those people with the most knowledge of the market place already work in the industry.
However, any proof that Producer Organisations will never be the right strategy for the salmon industry can be seen from the recent attempts to initiate a freezing programme in Norway. The concepts of freezing salmon and Producer Organisations are identical in that they both aim to regulate salmon coming to market in support of higher prices. The freezing programme was only proposed in mid July and yet by the end of September, this proposal appears to have been shelved because prices have already risen sufficiently to satisfy many farmers.
Clearly, if the advocates of the freezing programme were unable to foresee what would happen to the market and also to prices in the short space of a couple of months, how will forecasters who have to set production limits be able to predict what will happen in one or two years time. For example, if Producer Organisations are established in Norway and then subsequent production limits set too low, with the expectation that prices would rise, the market will simply suck in imports from other producers, who are not so constrained. Any expectation that prices might stabilise, would not be met.
It is unfortunate that FHL still has not recognised that market development represents the future of the salmon industry, not production control. PO’s were never right for salmon farming when they were first proposed over ten years ago. Ten years on, they are still not the answer for those looking in pursuit of a successful salmon farming industry.