McBride’s positive results announcement underlines growing strength of private label

Author: Jon Wright

Date published: 22 Jul 2009

McBride, the UK-based private label manufacturer, has announced a trading update, saying that “revenues in the fourth quarter (to 30 June) are stronger than the previous quarter, reflecting continuing strong growth in France and Italy, and an improvement in UK sales, including some contract gains.”

The statement from McBride provides physical evidence that private label's influence is growing in certain markets and product areas, building on the anecdotal evidence so far provided by grocery retailers.

Statement builds on recent positive results

The recent update continues McBride's upturn in sales growth, which was set out in its half-year results announcement for the 6-month period ending 31 December 2008. During that timeframe, revenue rose by 14% to £392.2 million, with growth driven by private label advances in the company's three largest markets - France, Italy and the UK. At that time, McBride noted that its strategy to concentrate on household and personal care products, which it described as being “large and dynamic with long-term growth”, was bearing fruit.

In the half-year results announcement, McBride said that in the UK “during 2008 the economic environment has resulted in consumers reviewing their shopping habits and spending patterns. One of the increasing trends has been the switch to private label products”. The company went on to say that a similar state of affairs was being seen in the other major markets in Europe, such as Spain, Germany and France, with particular gains being made in the French market, where the company enjoyed 9% sales growth. In France, McBride noted strong growth for private label in household cleaners, laundry liquids and washing up liquid, while in personal care it was being “driven by strong performances in bath and shower products, liquid soap and shampoos”.

In Eastern Europe, McBride pointed out that consolidation among retailers was aiding organic growth for private label, while consumers' increasing focus on price was helping build awareness of the product range. The company highlighted Poland as a market in which it was enjoying growth, with “private label and minor brand sales... up 3.5%.”

In the rest of the statement McBride went on to say that revenue growth in the fourth quarter is set to be 6%, against full-year growth of 4%. The company said that the boost to sales had come from “private label gaining market share in our major markets”. The company said that sales growth in the UK was being aided by the fact that branded manufacturers have been forced to cut investment in promotions, which had enabled private label products to steal a march on their branded rivals.

McBride’s revenue by origin – half-year results

£ mn

McBride plc

Looking to the future

McBride highlighted the opportunities provided by Eastern Europe in the half-year results announcement, but overall the company remains bullish about private label's growth prospects for the future. Speaking at the Reuters Global Retail Summit in June, the company's Chief Executive, Miles Roberts, pointed out that consumers are choosing private label over brands not only because of the recession, but because people are increasingly seeing the positive benefits that buying such products can bring.

Roberts was quoted as saying that: “Most people are habitual. When you've bought a (private label) product 10, 15 times, the fact is you don't go back to the brand because...you know the performance is absolutely as good as what you were using before”.

Such statements are going to be welcomed by retailers across the world, not just in the markets in which McBride operates. Private label products offer a range of benefits to retailers, not only in terms of margin, but strong private label ranges are giving retailers leverage with which to negotiate with manufacturers and can be used, especially at the premium end of the scale, as a way to differentiate themselves from competitors.

For manufacturers of brands, especially those which produce secondary or tertiary brands, the news is likely to be less well received. If McBride can generate similar levels of sales in Eastern Europe as it is doing in its other markets, it would clearly have an effect on the sale of branded products in markets across the region.

Nonetheless, the future is not set in stone and whether Roberts' strongly held belief that consumers will not return to branded products when economic conditions improve becomes reality is obviously open to debate. However, for the moment, private label does seem to be gaining traction in a number of markets and so branded manufacturers are right to be wary of their growth prospects for the future.