Mercadona made a bold pivot in its commercial strategy following the severe crisis of 2008, the year that unleashed a global nightmare as the United States-led financial storm spread across the banking sector and the productive economy. At the time, the leader of Spain’s largest supermarket chain, Juan Roig, said that the traditional slogan of Mercadona, Always Low Prices (ALP), fell short: “Our obsession this year is to lower prices. In the morning, in the afternoon, and at night.” He spoke after facing criticism for removing 800 SKUs from shelves due to slow turnover, too many formats, or duplications.
Mercadona then doubled down on private labels. “We compared the crisis to World War III, but without bullets: we moved from abundance to scarcity, and those who don’t adapt will not survive,” the head of Spain’s flagship retailer remarked during those years.
Nearly two decades later, with the coronavirus pandemic now behind and inflation climbing in food costs for the past two years, the retailer brands continue to gain ground. In 2023 they already accounted for 43.7% of the Spanish shopping basket, a five-point rise in just two years from 38.5% in 2021, according to Kantar Worldpanel’s report.
Preferred option
Private labels are the preferred choice for most consumers in Spain and across Europe. Brands such as Hacendado, Bosque Verde, Deliplus, Bonté, Milbona, GutBio, or Auchan, associated with chains like Mercadona, Dia, Aldi, or Carrefour, are earning trust and expanding their reach among buyers. The rise of store brands has cemented Mercadona’s leadership as shoppers track the moves of all the major distributors. Juan Roig’s company allocates about 75% of its assortment to its own brands.
Rising competition
By the end of February 2023, the food consumer price index hit a record high of 16.7%. After two years of increases, it began to moderate. At the start of 2024, most supermarket chains announced stronger promotional strategies, with distributor brands taking center stage. Inflationary pressure has pushed up the shopping basket by about 26 euros since 2019.
If in April last year Mercadona (26.2% market share per Kantar) announced price reductions on 500 items, 2024 has seen many brands unveiling similar moves. Carrefour has reduced prices on around 500 of its own-brand products, spanning food, beverages, household goods, perfumery, and baby items—everyday buys that customers recognize as favorites. Meanwhile, Dia has disclosed a 150 million euro investment for promotions in 2024, focusing on weekly discounts for more than 200 SKUs.
Leading brands
Refreshing beverages, beers, sliced bread, potato chips, yogurts, milk, and canned goods are among the categories where store brands match or outperform manufacturer brands. Inflation in food costs and a deliberate recalibration of the grocery basket, with a heavier emphasis on price and frugality, have driven this ascent.
What about the food industry? The push of private labels is directly affecting major players. For instance, Danone has decided to close one of its plants in Parets del Vallès due to a drop in dairy consumption in Spain. Bimbo, owner of the donut bread brand, recently closed its Alicante plant in El Verger, and it also stepped away from the shelves of the Dia chain. Deoleo reported a 34 million euro loss in 2023 amid volatile oil prices and uncertain harvest prospects.
The research firm Kantar attributes the surge in private labels not only to consumer preference but also to increased competition among supermarkets within this market segment. It predicts 2024 will mark a new phase for major retailers, characterized by stability and a gradual recovery in volumes after recent declines, according to César Valencoso, head of Consumer Insights Consulting at Kantar Worldpanel.
Rethinking the business
According to the Aecoc survey Perspectivas del Gran Consumo, 2023 closed with strong value growth, but 2024 is expected to bring slower revenue growth and flat volume. The inflation’s impact on consumers is tempering spending and pushing savings, accelerating the shift toward distributor brands. Many companies are actively rethinking their business models in response.
Consumer analytics from NielsenIQ project 2023 ends with a 10.5% value growth for the sector and a slowdown in 2024 to around 3.9%, with volume nearly flat near 0.2%. An important part of future trends is how shoppers will balance manufacturer brands with store brands. Today, about half of products going into carts carry a store-brand label. Some 88% of survey participants in Aecoc expect private labels to continue growing and anticipate that this trend will change how households allocate their purchases between brands and storehouses.
All signs point to an ongoing growth trajectory for store brands, driven by two years of inflation and a broad shift in consumer habits. As NielsenIQ’s Patricia Daimiel notes, there seems to be no ceiling to the rise of store brands, a conclusion drawn as results from the region show persistent demand for affordable options.