Demand for healthier food in Ireland withstood what was one of Europe’s most severe downturns due, in part, to the increased presence of private label in the category. Euromonitor International’s Mickael Dominguez looks at the how the health and wellness packaged food sector has performed in the last year.
Ireland’s difficult economic climate has not stopped the growth of the health and wellness category in the country – but private label has made inroads into the sector.
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Ireland is one of the European countries that has been the most severely affected by the economic downturn of 2009/2010, notably because of its strong reliance on both US foreign investment and its close ties with the EU, which received almost two-thirds of Irish exports in 2009. Between 2008 and 2009, Irish GDP decreased by a frightening 11.3% and then again by a further 3.6% between 2009 and 2010.
Despite the tough trading conditions, the health and wellness packaged food category managed to have kept its head above water, outperforming the wider packaged food market. According to Euromonitor International, in 2010, health and wellness packaged food saw sales of US$2bn, up 4.9% on 2009. Over the same period, the overall packaged food market posted growth of 1.8% to reach sales of US$7.05bn.
As the disposable incomes of Irish consumers declined, they were forced to reduce their shopping expenditure, a decision which affected both manufacturers and retailers. As the economy turned sour, Irish consumers were quick to turn their backs on branded products and make the switch to cheaper private-label options.
And supermarket chains were the key drivers behind the strong performance of health and wellness packaged food throughout the recession. Their input came in two ways. Firstly, they helped by offering to the mass market products that, until then, had been found mostly in specialist health stores, such as organic and functional foods. Secondly, and probably more importantly, they sought to increase their revenues by offering a wide array of private-label products across most health and wellness food categories, particularly organic and fortified/functional food.
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By GlobalDataRetail chains revamped their products by improving recipes and providing more up-to-date packaging to match that of branded offerings. In doing this, they reversed Irish consumers’ general perception of private-label products as being generally cheap and of low quality.
The absence of advertising and low marketing costs mean that despite offering products relatively similar to what one would expect from a major brand, private-label prices remain well below those of brands, thus capturing an ever increasing share of the market.
To compensate for these losses in share, many major food manufacturers started to produce private-label products in parallel with their own brands, even though they are understandably reluctant to communicate this.
In 2010, private labels claimed over 12% of the Irish health and wellness packaged food market with sales of just below US$248m, making it the leading health and wellness manufacturer. In 2009, own label accounted for 11.9% of the category, with sales of US$245.7m.
Private label’s main source of revenue is the better-for-you category, which in 2010 accounted for 41% of private-label revenue, followed by naturally healthy products which claimed a 30% share.
Interestingly, the category in which private label has been the most aggressive is organic. In 2005, only 5.5% of value sales of organic food were claimed by private-label products, a figure which grew by a mind-boggling 72% over five years to account for 20% of total sales in 2010.
Better-for-you packaged food – both in terms of own-label and brands – had historically posted an impressive growth rate, with sales increasing by 35.8% between 2002 and 2007, equating to a CAGR of 6.2% over that period, making it the second most dynamic category in terms of value growth after fortified/functional packaged food.
However, just like any other market, better-for-you failed to sustain such healthy growth during the economic downturn and saw value sales increase by only 2.7% between 2008 and 2009 and 1.4% the year after, well below the category’s previous performance. In 2010, Euromonitor International data showed that sales of better-for-you packaged food reached US$600m.
The strong competition in this market brought about by the development of private label products resulted in a decline in the category’s average unit price. In addition, better-for-you products compete not only with one another but also with conventional and other healthy foods. If a lower unit price benefits the consumer, it also means a loss of potential revenue for manufacturers if volumes remain the same.
For example, in 2010, 117m tonnes of better-for-you milk (skimmed and semi-skimmed) were sold in Ireland, the same volume as was sold in 2005. However, with price per litre falling from US$1.30 in 2005 to US$1.20 in 2010, the category only posted value sales of US$140m in 2010 compared to US$155m in 2005.
When looking at brands and private label, fortified/functional food is the best performer in the health and wellness packaged food category in Ireland, claiming 38% of the sector in 2010, with sales reaching US$760m, up 2% from the previous year.
Ireland is long established as a key market for fortified and functional packaged food, especially yoghurts and breakfast cereals, so much so that fortification/functionality in food is no longer used as a tool of differentiation when positioning a product.
For example, yoghurt, the largest single fortified/functional packaged food category in 2010, with sales of US$214m, has been such a success thanks to Danone‘s Actimel, which many companies followed, making pre/probiotics a permanent fixture in many Irish households. As such, fortified/functional yoghurts are no longer regarded as a healthy alternative as they tend to have become the norm.
However, Irish consumers definitely seem to be ready to spend extra money on getting something additional from their food. Once again, milk is a good example. Sales of fortified/functional milk, usually fortified with vitamin D, grew by 76% between 2005 and 2010, equating to an impressive double-digit CAGR of 12% over the period, with total sales valued by Euromonitor International at US$101m.
All in all, the willingness to trade up to premium variants in order to obtain extra benefits from food, be it in the form of vitamins, plant sterols or probiotics, suggests that a recovery in Ireland could well be under way.
