Voluntary Report - public distribution

**Date:** 4/28/2006

**GAIN Report Number:** CA6019

CA6019

**Canada**

**Market Development Reports**

**Private Label Report**

**2006**

**Approved by:**

![](media/image1.wmf)Lisa Anderson

U.S. Embassy

**Prepared by:**

Alejandro Gonzalez

**Report Highlights:**

Although Canadian retailers are hard bargainers when it comes to
private-label agreements, U.S. food exporters should understand that
price is not the only concern, but innovation, product quality, and
service to the retailer are other factors to consider in developing a
long term and profitable relationship.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Ottawa \[CA1\]

\[CA\]

#  Report Highlights:

The private label industry in Canada experienced a radical
transformation over the last ten years, and now focuses more on the
production of premium quality goods, as opposed to the traditional
low-priced, low-quality items of the past. The shift came when retailers
realized that price sensitive consumers also needed better quality
products and were willing to pay extra for them. Now, Canadian retailers
are looking for innovative, premium quality goods that can build
categories and bring profits not only for them but for also for brand
name manufacturers.

# 

# 

# Introduction

Retailers worldwide are facing increasing pressure from all fronts. Not
only are customers more discerning and demanding, but traditional
barriers between products and services are also disappearing. The
phenomenal growth of e-commerce has increased consumers' expectations
for more competitive prices and 24-hour service. A tool supermarkets
have discovered to make them more competitive is the use of private
label products. Retailers pursue five key goals when developing and
selling private label goods:

1.  Improve profitability

2.  Build and maintain consumer loyalty

3.  Reinforce market position

4.  Increase consumer choice, and

5.  Match products more precisely to specific customers' needs

Other objectives include the enhancement of store image, better control
of supply chain and product quality, and differentiation from
competitors.

# Definitions

Private label products include all goods sold under a retailer's brand.
In regard to the actual brand, this can be the firm's own name or a
label created in order to be used exclusively by that retailer. In some
cases, a retailer can belong to a wholesale group that owns the brand or
brands that are available to only the members of the company.

Major supermarkets, mass merchandisers, drugstores, and discounters
today offer almost any product under the retailer's own brand. Consumers
can now find private labels covering full lines of food and beverage
products including fresh, canned, frozen, and dry foods; snacks, ethnic
specialties, and non alcoholic beverages.

According to various consumer research studies, the advantages of
private label are represented by the choice and opportunity to regularly
purchase quality food and non-food products at savings compared to
manufacturer brands, without having to wait for promotional pricing.
Also, private label items are made with the same or better ingredients
than the manufacturer brands, and because the retailer's name or symbol
is on the package, the consumer is assured that the product meets the
retailer's quality standards and specifications.

In general, manufacturers of private label products can be classified as
follows:

-   Large manufacturers who produce both their own brands and private
    label products.

-   Small and medium size manufacturers that specialize in particular
    product lines and concentrate on producing private label products
    almost exclusively.

-   Major retailers and wholesalers that operate their own manufacturing
    plants and provide private label products for their own stores.

The Private Label Manufacturers Association (PLMA), founded in 1979, is
the international trade organization dedicated to the promotion of
private label brands. With offices in North American and Europe, PLMA
represents more than 3,200 manufacturers and suppliers worldwide,
ranging from companies that specialize in private label to those that
produce private label products in addition to their own manufacturer
brands.

# Global Trends

According to ACNielsen, two thirds of consumers worldwide consider
private label products to be a good alternative to other brands. In the
developed markets of North America, Europe, and the Pacific, as many as
four in five consumers consider this to be the case. In Canada, 83% of
consumer survey respondents agreed that "private label is usually
extremely good value for the money".

At the end of the first quarter of 2003, ACNielsen reported that private
label value sales across 36 countries and 80 categories were at US\$85
billion, up 4% versus a year earlier.

The largest market worldwide in absolute sales dollars for private label
was the United States at just under \$26 billion, nearly twice the size
of the next largest market, Great Britain. In comparison, Canada showed
sales of \$3 billion.

### Sales of Private Label Products in Absolute Dollars

+---+------------+------------------+----------+----------+----------+
|   | ##         | **Region**       | **PL     | **PL     | **PL     |
|   | Country {# |                  | Value**  | Share**  | Growth** |
|   | country-1} |                  |          |          |          |
+---+------------+------------------+----------+----------+----------+
| 1 | United     | North America    | 25.8     | 15%      | -1%      |
|   | States     |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+
| 2 | Great      | Europe           | 13.8     | 31%      | 0%       |
|   | Britain    |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+
| 3 | Germany    | Europe           | 13.7     | 27%      | 10%      |
|   |            |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+
| 4 | France     | Europe           | 8.7      | 21%      | 5%       |
|   |            |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+
| 5 | Spain      | Europe           | 3.6      | 23%      | 16%      |
|   |            |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+
| * | **Canada** | **North          | **3.1    | **20%**  | **5%**   |
| * |            | America**        | B        |          |          |
| 6 |            |                  | illion** |          |          |
| * |            |                  |          |          |          |
| * |            |                  |          |          |          |
+---+------------+------------------+----------+----------+----------+
| 7 | S          | Europe           | 2.6      | 38%      | 3%       |
|   | witzerland |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+
| 8 | Italy      | Europe           | 2.2      | 10%      | 10%      |
|   |            |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+
| 9 | N          | Europe           | 2.1      | 19%      | 2%       |
|   | etherlands |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+
| 1 | Belgium    | Europe           | 1.6      | 24%      | 3%       |
| 0 |            |                  | Billion  |          |          |
+---+------------+------------------+----------+----------+----------+

Source: The Power of Private Label, ACNielsen Global Services, 2003

In regard to pricing on a global basis and taking into account all 80
categories, private label products were found to offer the consumer an
average discount of 31% versus its manufacturer counterparts.
Interestingly, this is similar to the price differences seen in a
comparable study also conducted by ACNielsen in 1998.

**Price Differential Between Private Label and Manufacturer Brands by
Country**

+------+-----------------+---------------------+-----------------------+
|      | ## Count        | **Region**          | **PL Price            |
|      | ry {#country-2} |                     | Differential**        |
+------+-----------------+---------------------+-----------------------+
| 1    | United States   | North America       | -31%                  |
+------+-----------------+---------------------+-----------------------+
| 2    | Great Britain   | Europe              | -31%                  |
+------+-----------------+---------------------+-----------------------+
| 3    | Germany         | Europe              | -45%                  |
+------+-----------------+---------------------+-----------------------+
| 4    | France          | Europe              | -24%                  |
+------+-----------------+---------------------+-----------------------+
| 5    | Spain           | Europe              | -43%                  |
+------+-----------------+---------------------+-----------------------+
| *    | **Canada**      | **North America**   | **-28%**              |
| *6** |                 |                     |                       |
+------+-----------------+---------------------+-----------------------+
| 7    | Switzerland     | Europe              | -29%                  |
+------+-----------------+---------------------+-----------------------+
| 8    | Italy           | Europe              | -26%                  |
+------+-----------------+---------------------+-----------------------+
| 9    | Netherlands     | Europe              | -28%                  |
+------+-----------------+---------------------+-----------------------+
| 10   | Belgium         | Europe              | -45%                  |
+------+-----------------+---------------------+-----------------------+

> Source: The Power of Private Label, ACNielsen Global Services, 2003

In summary, in 2003 the share of global private label sales was 15% of
total sales. This figure represents the aggregate value share of private
labels across 36 countries, grouped in five major world regions (Europe,
North America, Asia-Pacific, Latin America, and Emerging Markets).

![](media/image2.wmf)

Source: The Power of Private Label, ACNielsen Global Services, 2003

Even though the private label sales in North America account for a
significant percentage when compared to the same figure in Europe,
Canada and the United States represent a mature market for the industry.
ACNielsen found that there had been almost no private label growth rate
in North America from 2002 to 2003.

![](media/image3.wmf)

Source: The Power of Private Label, ACNielsen Global Services, 2003

Although U.S. ACNielsen coverage for the 2002-2003 period is based on a
consistent sample, it does not include sales in Wal-mart, a strong
player within the private label market. In a separate evaluation of
Wal-Mart in the U.S., over 70 categories were considered within this
chain; the findings show that its share of private label sales across
these selected categories was 17% of total sales, similar to the average
private label share of 15% in the remaining (i.e., non Wal-Mart) U.S.
market. However, Wal-Mart registered a 12% growth from 2002 to 2003 in
value sales compared to a less than 1% growth rate for other U.S.
retailers.

# Private Label Products in Canada

Private label has come a long way since the low-quality, low-priced
generic canned goods of the 1970's. Today, the majority of Canadian
retailers offer an ever-increasing number of private label goods that
offer quality at permanently discounted prices. The following is a
summary of key Canadian retail firms and of their private label
products.

+----------------+----------------+----------------+-------------------+
| **Chain**      | **Number of    | **Private      | **Website**       |
|                | Private Label  | Labels**       |                   |
|                | Pr             |                |                   |
|                | oducts/SKU's** |                |                   |
+----------------+----------------+----------------+-------------------+
| The Great      | 2058           | Master Choice, | www.              |
| Atlantic &     |                | Equality,      | freshobsessed.com |
| Pacific        |                |                |                   |
| Company of     |                | Eight O'Clock  |                   |
| Canada, Ltd.   |                | Coffee, Basics |                   |
|                |                | for Less, Body |                   |
|                |                | Basics, Bakers |                   |
|                |                | Oven, Fresh    |                   |
|                |                | Obsessions,    |                   |
|                |                | Fresh 200.     |                   |
+----------------+----------------+----------------+-------------------+
| Buy-Low Foods, | 1200           | Buy Low,       | [                 |
| Ltd.           |                | Western        | www.buy-lowfoods. |
|                |                | Family,        | com](http://www.b |
|                |                | Western        | uy-lowfoods.com/) |
|                |                | Classic, Value |                   |
|                |                | Priced, Good   |                   |
|                |                | N' Kind.       |                   |
+----------------+----------------+----------------+-------------------+
| Canada Safeway | 5000           | Empress,       | www.safeway.com   |
| Ltd.           |                | Safeway,       |                   |
|                |                | Cragmont, Town |                   |
|                |                | house, Taste   |                   |
|                |                | Tells,         |                   |
|                |                | Lucerne,       |                   |
|                |                | Bel-air,       |                   |
|                |                | Edwards,       |                   |
|                |                | Skylark,       |                   |
|                |                | Stonehedge     |                   |
|                |                | Farms,         |                   |
|                |                |                |                   |
|                |                | Truly Fine,    |                   |
|                |                | Nature's       |                   |
|                |                | Blend, Safeway |                   |
|                |                | Select, Oven   |                   |
|                |                | Joy.           |                   |
+----------------+----------------+----------------+-------------------+
| Federated      | 1200           | Co-op, Co-op   | www.fcl.ca        |
| Co-operatives  |                | Gold,          |                   |
| Limited        |                | Harmonie,      |                   |
|                |                | Country        |                   |
|                |                | Morning        |                   |
+----------------+----------------+----------------+-------------------+
| Loblaw         | 5000           | No Name,       | www.loblaw.com    |
| Companies Ltd. |                | President's    |                   |
|                |                | Choice,        |                   |
|                |                | Teddy's        |                   |
|                |                | Choice,        |                   |
|                |                | G.R.E.E.N.,    |                   |
|                |                | Natural        |                   |
|                |                | Choice, Too    |                   |
|                |                | Good To Be     |                   |
|                |                | True, Sunspun. |                   |
+----------------+----------------+----------------+-------------------+
| Longo Brothers | 200            | Longo's Own    | www.longos.com    |
| Fruit Market   |                |                |                   |
| Inc.           |                |                |                   |
+----------------+----------------+----------------+-------------------+
| Metro Inc.     | 2000           | Selection      | www.metro.ca      |
|                |                | Merite,        |                   |
|                |                | Irresistible,  |                   |
|                |                | Treebu,        |                   |
|                |                | Econochoix.    |                   |
+----------------+----------------+----------------+-------------------+
| Sobeys Inc.    | 3430           | Our            | www.sobeys.com    |
|                |                | Compliments,   |                   |
|                |                | Smart Choice,  |                   |
|                |                | Our Best,      |                   |
|                |                | Taste of the   |                   |
|                |                | Day.           |                   |
+----------------+----------------+----------------+-------------------+
| The North West | 103            | Northern, Best | www.northwest.ca  |
| Company        |                | Value,         |                   |
|                |                | Exclusive      |                   |
|                |                | Selection.     |                   |
+----------------+----------------+----------------+-------------------+
|                |                |                |                   |
+----------------+----------------+----------------+-------------------+

Source: Who's Who, Annual Directory of Chains and Groups in Canada,
Canadian Grocer Magazine, 2005

##### Private Label Products by Category - Refrigerated Food, The New PL Leader

The product area of Paper and Plastic wraps (PPW), which comprises such
categories as aluminum foil, paper towels, and plastic wraps, has long
been the dominant private label market share and sales leader when
compared against manufacturer brands. However, in 2005, ACNielsen
reported that Refrigerated Food, which includes such categories as milk,
cheese, and completely ready meals, was able to move to the top with
PPW. With a 2004 growth rate of 9%, Refrigerated Food more than tripled
the growth rate of PPW, which only grew 2% in 2004.

The rise of Refrigerated Food confirms a steady trend in the private
label strategy of retailers worldwide: pushing private label products
into premium segments that go beyond the "low price-high volume"
commodity driven practices of the past. In fact, when ACNielsen compared
the average price differential between branded and private label
products within 10 product areas, Refrigerated Food had the smallest
price differential at 16%.

+--------------+------------------------+--------------+--------------+
| **Rank**     | **Product Area**       | **Share**    | **Growth**   |
|              |                        |              |              |
|              |                        | **(%)**      | **(%)**      |
+--------------+------------------------+--------------+--------------+
| 1            | Refrigerated Food      | 32           | 9            |
+--------------+------------------------+--------------+--------------+
| 2            | Paper, Plastic & Wraps | 31           | 2            |
+--------------+------------------------+--------------+--------------+
| 3            | Frozen Food            | 25           | 3            |
+--------------+------------------------+--------------+--------------+
| 4            | Pet Food               | 21           | 11           |
+--------------+------------------------+--------------+--------------+
| 5            | Shelf Stable Food      | 19           | 5            |
+--------------+------------------------+--------------+--------------+
| 6            | Diapers & Feminine     | 14           | -1           |
|              | Hygiene                |              |              |
+--------------+------------------------+--------------+--------------+
| 7            | Health Care            | 14           | 3            |
+--------------+------------------------+--------------+--------------+
| 8            | Non-Alcoholic          | 12           | 3            |
|              | Beverages              |              |              |
+--------------+------------------------+--------------+--------------+
| 9            | Home Care              | 10           | 8            |
+--------------+------------------------+--------------+--------------+
| 10           | Snacks & Confectionery | 9            | 8            |
+--------------+------------------------+--------------+--------------+

Source: The Power of Private Label, ACNielsen Global Services, 2005

Strategically, retailers seem to be placing more and more of an emphasis
on branding and marketing their private label products to match the
lifestyles and values of their customers. From the *Tesco Healthy
Living* range of products to Loblaw's *President Choice* expansion into
organics and health-oriented lines, retailers are expanding their brands
far beyond a singular focus on low price. Now, these firms, after
realizing the profit potential of private labels, are leveraging their
equity outside of fast-moving consumer goods into areas such as personal
finance, insurance, and telecommunications.

##### U.S. Food Exporters and Private Label Opportunities in the Canadian Market

Traditionally, private label products have been considered anathema to
many consumer goods manufacturers. They are viewed as "category killers"
and cheap, me-too products that drain all the profits out of a market by
increasing consumers' price sensitivity. However, both retailers and
consumers have fully understood the benefits of this trend. Private
label offerings have steadily stolen share from popular brand-name
products. One-fifth of all grocery sales in the United States are now
sold under retailer's names. Private label accounts for a quarter of
sales in Canada, and in Europe the proportion is even higher.

According to some sources, manufacturers' fears seem justified, but only
on the surface. It has been pointed out that there has been a
fundamental shift in the private label world that has the potential to
give back to brand manufacturers the revenue and profits they require.

The biggest change in private labels is that they have gone up-market. A
premium private label may have once been an oxymoron, but that is no
longer the case. Following the lead of their European counterparts,
North American retailers have been introducing store brands that match
or even exceed the quality of brand-name goods, while still selling for
a slightly lower price. Safeway, Wal-Mart, and others have realized that
many consumers have the willingness and the cash to pay extra for higher
quality, and they want to capture a share of that spending.

It is important to consider the experience of Loblaws, the largest
Canadian grocery chain and a pioneer in this up-market trend. Back in
the early 1980s, it added the new premium President's Choice line to its
traditional unbranded product. In categories where consumers value high
quality, President's Choice products compete directly with major brands.
In its marketing messages, Loblaws stresses the quality of the
ingredients and the preparation of President Choice. Its olive oil, for
example, is "harvested from trees planted more than 80 years ago and
produced from first cold pressing of sun-ripened olives".

The move of private label from low-quality, cheap products to up-market,
premium, and high-quality offerings has actually helped brand name
manufacturers. Premium private labels now have enough appeal for
consumers that they are leading the way in creating entirely new
categories. Loblaws, in fact, has a large research and development group
doing just that. The group created, for example, President's Choice
frozen boxed meats -- a line offering chicken strips, sausage rolls, and
other products. Other manufacturers have since moved in with their
brand-name goods and are enjoying healthy sales.

**Canadian Retail Private Label Contacts**

+-----------------+----------------------+----------------+-----------+
| #### Retailer   | **Private Label      | **Address**    | **Phone   |
|                 | Contact**            |                | Number**  |
|                 |                      |                |           |
|                 | **& Title**          |                |           |
+-----------------+----------------------+----------------+-----------+
| The Great       | Jane Ellenton        | 5559 Dundas    | 416       |
| Atlantic &      |                      | St. W.,        | -239-7171 |
| Pacific Company | Director, Corporate  | Etobicoke, On. |           |
| of Canada, Ltd. | Brands Development   |                |           |
|                 |                      | M9B 1B9        |           |
+-----------------+----------------------+----------------+-----------+
| Buy-Low Foods,  | Ian Dikinson         | 19580          | 604       |
| Ltd.            |                      | Telegraph      | -888-1121 |
|                 | Director, Retail     | Trail,         |           |
|                 | Marketing            |                |           |
|                 |                      | Surrey, BC     |           |
|                 |                      |                |           |
|                 |                      | V4N 4H1        |           |
+-----------------+----------------------+----------------+-----------+
| Canada Safeway  | G. Quadros           | 1020-64^th^    | 403       |
| Ltd.            |                      | Avenue NE,     | -730-3500 |
|                 | Director, Grocery    |                |           |
|                 |                      | Calgary, AB    |           |
|                 |                      |                |           |
|                 |                      | T2E 7V8        |           |
+-----------------+----------------------+----------------+-----------+
| Federated       | D. Currie            | 401-22^nd^ St. | 306       |
| Co-operati-     |                      | E.,            | -244-3311 |
|                 | Director, Food       |                |           |
| ves Limited     | Marketing            | Saskatoon , SK |           |
|                 |                      |                |           |
|                 |                      | S7K 3M9        |           |
+-----------------+----------------------+----------------+-----------+
| Loblaw          | Pietro Satriano      | 1 President's  | 905       |
| Companies Ltd.  |                      | Choice Cr.\    | -459-2500 |
|                 | President, Loblaw    | Brampton, ON\  |           |
|                 | Brands Limited       | L6Y 5S5        |           |
+-----------------+----------------------+----------------+-----------+
| Longo Brothers  | Joe Longo            | 3767 Nashua    | 905       |
| Fruit Market    |                      | Dr.            | -673-3099 |
| Inc.            | Vice-President       |                |           |
|                 |                      | Mississauga,   |           |
|                 |                      | ON             |           |
|                 |                      |                |           |
|                 |                      | L4V 1R3        |           |
+-----------------+----------------------+----------------+-----------+
| Metro Inc.      | Jean Louis           | 7151           | 514       |
|                 | Carpentier           | Jean-Talon St. | -356-5850 |
|                 |                      | E.             |           |
|                 | Vice-President,      |                |           |
|                 | Private Label        | Anjou, PQ      |           |
|                 |                      |                |           |
|                 |                      | H1M 3N8        |           |
+-----------------+----------------------+----------------+-----------+
| Sobeys Inc.     | Belinda Youngs       | 115 King       | 902       |
|                 |                      | Street         | -752-8371 |
|                 | General Manager,     |                |           |
|                 | Consumer Brands and  | Stellarton, NS |           |
|                 | Innovation           |                |           |
|                 |                      | B0K 1SO        |           |
+-----------------+----------------------+----------------+-----------+
| The North West  | Carl A. McKay        | 77 Main Street | 204       |
| Company         |                      |                | -943-0881 |
|                 | Vice-President,      | Winnipeg, MB   |           |
|                 | Merchandising        |                |           |
|                 |                      | R3C 2R1        |           |
+-----------------+----------------------+----------------+-----------+
|                 |                      |                |           |
+-----------------+----------------------+----------------+-----------+

Source: Who's Who, Annual Directory of Chains and Groups in Canada,
Canadian Grocer Magazine, 2005

It is important to emphasize that, although Canadian retailers are hard
bargainers when it comes to private-label agreements, price is not the
only concern, and that innovation, product quality, and service to the
retailer are other factors to consider in developing a long-term and
profitable relationship.