Melbourne, Tokyo, April 2 - Frugality isn't all that bad for retailers as growing demand for value-focused private brands helps both consumers and retailers in Asia take the edge off tough economic times.
Japan is struggling through a recession, while South Korea and Australia are perched on the brink of one. But even as spending tightens across the region, growth in private brands is surging as consumers hunt for ways to save money in a downturn.
"If something is cheaper, and it's a reasonable product, I will buy the cheaper one every time," says new mum Nicola Hayes, standing in front of one of Woolworths Ltd's Safeway supermarkets in Melbourne, Australia.
The private brand expansion is a world-wide trend, with Tesco, Britain's biggest retailer, launching a discount brands range in September.
But what sets Asia apart is that label conscious consumers haven't embraced private brands enthusiastically until now, so there is ample room for growth.
And analysts say the move could be a winning strategy for some of Asia's retailers that have been battered by the downturn.
Woolworths, Australia's largest supermarket operator, puts its private brand growth rates at more than double branded products, while rival Coles, owned by Wesfarmers, says private label growth is triple the level of branded products.
Homeplus in South Korea, majority owned by Tesco, said private labels account for about 26 percent of its sales and it plans to increase that to 30 percent by 2010.
AT WHAT PRICE?
The cheaper price tag on retailers' own brands doesn't mean they are missing out. Because there is one less link in the supply chain and the costs associated with producing private-branded goods are low, the return is higher.
"Private labels enable retailers to chase and catch two rabbits at the same time. Namely, they are cheaply priced but have a bigger gross margin than national brands," said Takayuki Suzuki, an independent retail analyst in Japan.
He estimates the gross margin on major retailers' private labels is as much as twice that of national brands.
In Japan private brand share by market value was just 4 percent in 2007, compared to a global average of 20 percent, according to researchers Planet Retail. In Australia's supermarkets, it was around 15 percent, an analyst said.
But the trend is changing fast.
Japan's largest retailer Seven & I Holdings, which operates Seven-Eleven convenience stores and Ito-Yokado general merchandising stores, expects private label sales to grow by about 60 percent to 320 billion yen ($3.2 billion) for the current business year.
The company only started to keep business year private label data from March 2008, but it said that private label sales stood at 80 billion yen between May 2007 and May 2008 and at 200 billion yen between March 2008 and Feb 2009.
Rival Aeon Co Ltd said sales of its "Top Valu" private label items are likely to have increased by 40 percent to about 371 billion yen for the year ended February, and it aims to double that within two years.
ALL ABOUT CHOICE
"Customers who buy our private label are not limited to a particular group of people. Income levels do not matter either," said Kunihiko Hisaki, head of Aeon's private label business.
Retailers and consumers say a few of the popular own brand products include tissues, canned tomatoes and underwear.
Retailers are trying to ensure the growing popularity of private brands outlives the economic downturn by focusing on quality, innovation and consumer choice.
South Korean Shinsegae Co Ltd's Emart, which last year introduced 100 "Smart Eating" health food products, runs a special private label brand management team and quality control team.
Where the retailers' brands are growing, companies like Australasian food group Goodman Fielder are suffering from the shift.
The maker of Helga's bread and Meadow Lea margarine said its 2009 financial year profit could fall as much as 23 percent as consumers drifted to cheaper alternatives.
"Once people switch to private labels and if they are happy with the quality, it is going to then be difficult to switch them back to brands," said Planet Retail analyst Robert Gregory.