Around 10% of all samples submitted to the Favorite Food&Drinks tasting competition are private label products, imports and in-house production. Every year, Ukrainian supermarket chains increase the number of their own products in their assortment. This trend has intensified during the Great War. Why do retailers do this?
Suppliers of goods often find themselves in a confrontation with big retailers, trying to get their products on store shelves.
If the product is of high quality but has an uncompetitive price, it may be less interesting to the chain. In this case, the retailer usually either demands a discount or refuses to cooperate with the distributor.
One of the main problems in these negotiations is supermarkets' own brands, which are significantly cheaper than goods from external suppliers and thus take away a share of the latter's consumers.
Whereas at the beginning of their existence, FSOs were limited to a narrow list of goods, they now cover a growing number of categories, from fruit and cereals to alcohol and exotic foods.
Cheaper, but not always inferior, these products are no longer the exception and are actively pushing traditional brands off the shelves. Could supermarkets' own brands completely replace suppliers' brands in the future?
"Рhe retailers annually submit their own imports and products of their own production to the competition to demonstrate their assortment policy - the best for consumers. The Favorite Food&Drinks awards have been repeatedly given to products of national and regional chains such as Auchan Ukraine, Faino, VARUS, Welmart, WineTime." - says Elena Sinitsina, founder of the tasting competition.
Developing our own brands
Increasingly, Ukrainians are noticing cheaper analogues of retailer-branded products on store shelves, which are taking over new food categories year after year. However, the development of private label did not begin in recent years, but has a much longer history.
Large national and regional supermarket chains started developing their own brands in the early 2000s and 2010s. One of the pioneers of private labels in food retail was Fozzy Group*which launched its first brand, Premium, in 2006.
Currently, the group has 28 brands covering 2,000 products in various categories of all price segments. Most of them are sold in Silpo (24). According to the company, in 2024, 85% of its sales of FMCG were food products, and the remaining 15% were non-food products.
ATB*. started developing its own brands much later. About their appearance it became known in 2013. Today, Ukraine's largest retailer has three food brands: "Rozumnyi Vybir, Svoya Liniya and De Luxe, which represent budget, mid-range and exclusive product segments.
Another large network, Novus*., started production under its own brand in 2014, and since then this area has grown significantly. The brand name is simple and concise: Novus.
"Our own brand is not only about food - we are constantly working on expanding our range in the categories of household chemicals, household goods, hygiene, cosmetics and children's products."Natalia Pryanikova, head of Novus' FMCG product management department, says. According to her, the chain aims to make its products "a worthy alternative to branded products".
У VARUS**. launched its brand in 2010. The chain now uses 14 own brands in different price and product categories.
"VARUS's own brands cover the need from the minimum price segment, where products with low prices on the market are presented, to the middle plus category," VARUS told EP.
Market share of own brands
A new impetus for the development of Ukrainian retailers' own brands was the outbreak of a major war with Russia in February 2012.
The destruction of production facilities and the likelihood of shortages of goods from private label suppliers have forced retailers to focus on increasing the share of their own brands on store shelves.
According to a study by Nielsen IQ and RAU, sales of goods with retailers' brands increased by 13% in the first half of 2022. In 2023, Ukraine was included in the list of 30 countries with the highest share of private labels.
"In Ukraine, the average percentage of private labels is 14%. This applies only to classic food products."Andriy Zhuk, Chairman of the Ukrainian Retailers Association, said.
For example, Aldi, Lidl and Bedrianka have a share of their own brands exceeding 50%. The average figure in Europe is 39% and is gradually stagnating. At the same time, in Ukraine, the share of private label will grow over the next two to three years and reach 20%.
VARUS said that the share of its own brands in the chain's total turnover is 10.5%. In 2025, the retailer plans to launch four new brands and expand the range of existing ones.
Fozzy noted that its supermarkets are in the middle of the average sales figures for Ukraine (14%) and the EU (39%) in terms of the share of own brands and are striving to reach the EU level.
There are two popular models for the production and supply of FMCG products. Some products imported by retail chains can be presented as private labels. These are mostly premium and exclusive products.
However, most of the goods on the shelves are produced in Ukraine on a contractual basis: the chain orders companies to produce goods with its own brand. For example, 95% of Fozzy products are made by Ukrainian manufacturers. Novus told the EP that this percentage is higher - 98% from Ukrainian producers.
The bulk of the private label assortment is made up of groceries, including sugar, flour, buckwheat, rice and sunflower oil, according to industry experts. However, the war and the desire to maintain stability are not the only reasons why retailers are developing their own brands. Of course, it is also about economic gain.
Why supermarkets are developing their own brands
One of the key reasons for the rapid development of private labels in Ukrainian supermarkets is the desire of retailers to increase their profitability.
The key highlight of FMCG is the absence of additional operating costs that usually accompany the sale of goods from third-party manufacturers. After all, the retailer controls the entire supply chain and pricing, which can significantly reduce logistics, advertising and distribution costs.
According to Zhuk, "the manufacturer can sell goods to the retailer without the cost of logistics, advertising campaigns and distributors, and this becomes additional income for the chains."
"Manufacturers get access to a wide audience without having to invest in advertising, packaging design and market research, which makes it easier for them to enter the market. Of course, this is also beneficial for the chain. It is no secret that private label products are more marginal than branded ones."The Fozzy Group says.
Thus, ATB's own goods can cost one third cheaper than competitors' products.
While high profitability is often an advantage of the FMCG industry, margins on own label products can vary considerably depending on the category. Some of them may even be unprofitable, but this is practiced to maintain customer loyalty.
"Chains can operate with minimal margins or even break even to create the impression of low prices"Zhuk explains. This strategy helps to attract customers who pay attention to a favourable price, even if it temporarily does not bring in much income.
In addition, thanks to their own imports, supermarkets can offer a unique assortment that their competitors do not have. This can be a plus for consumers when choosing a store, so retailers do not neglect it.
Will supermarkets refuse goods from suppliers
Given the trend of developing own brands in supermarkets in Ukraine and the EU, the question arises whether it is more profitable for stores to completely replace products with their own?
On the one hand, private labels allow us to maintain attractive prices for our customers, as they require fewer operating expenses, which affects their cost. In times of war and economic instability, such goods may compete with those from distributors.
"Perhaps, if the terms of cooperation with retailers become unfavourable for food suppliers, supermarkets will start selling more of their own brands."Zhuk believes.
He adds that this could pose a threat to suppliers who provide supply chain logistics from the manufacturer to the store, as chains will be able to control most of the assortment without their involvement.
On the other hand, some consumers will be interested in a more diverse range of products, where they would rather choose a familiar brand than a cheaper offer from a supermarket.
In the future, we can expect to see an increase in the share of STM in stores, but this will require not only an acceptable price, but also the right quality to compete with traditional brands in the long term. Source: Economic Pravda
*Specialists of Fozzy Group, ATB, NOVUS are members of the independent tasting commission of Favorite Food & Drinks
** Every year, the products of our own brands and our own imports are awarded high honours for their excellent organoleptic characteristics.