Latest / The European Economy Podcast with Fexingo: ECB, Eurozone, and Continental Markets / Why Eurozone Consumers Are Trading Down to Private Labels
Transcript
- Lucas: I was looking at some NielsenIQ data this morning, and one number really jumped out. Private-label market share in the Eurozone — think store brands, own labels — has hit thirty-four percent in Germany and thirty-one percent in France. That's up about three percentage points year-over-year. Luna: That's a pretty big shift. I know private labels have been growing for a while, but three points in one year feels like a structural break, not just a blip. Lucas: Exactly. And what's interesting is the macroeconomic backdrop. Real GDP growth in the Eurozone is running at two-point-one percent annualised — that's actually decent, up from just half a percent a year ago. So consumers aren't in a recession, but they're clearly behaving like they are when it comes to branded goods. Luna: Right, because service inflation is still sticky. We saw that headline CPI came in at three-point-five percent for June, but services are running hotter. That eats into disposable income even if headline numbers look okay. Lucas: Exactly. And the interesting thing is this isn't just about discounters. We're seeing traditional retailers like Carrefour and Edeka really lean into premium private labels — not just the generic 'white box' stuff, but actual product lines that compete on quality. Carrefour's 'Carrefour Bio' organic line, for example, is growing at double digits. Luna: So they're trying to capture margin. Because private labels typically have higher margins for the retailer — they control the supply chain, they control the pricing. And in an environment where consumers are price-sensitive but still want quality, that's a sweet spot. Lucas: Exactly right. And it's not just groceries. We're seeing it in household goods, personal care, even over-the-counter medications. In Spain, private-label share in health and beauty is now over twenty percent for the first time. That's a category that was dominated by big brands like Procter & Gamble and L'Oréal. Luna: That's a big deal. And it has implications for investors who hold European consumer staples. If you're a branded goods company, you're losing shelf space and pricing power. Lucas: Yeah, and the data backs that up. According to a recent McKinsey survey, about forty percent of Eurozone consumers say they've switched to a private label in at least one category in the past six months — and more than half say they plan to stick with it even if inflation cools. That's the structural part. Luna: So it's not just about trading down in a pinch. It's about a permanent reset in brand loyalty. That's a big shift from the pre-2020 era where private labels were seen as lower quality. Lucas: Right. The quality gap has really narrowed. And retailers have invested in that — better packaging, better ingredients, better marketing. Edeka's own-brand 'Gut & Günstig' line in Germany is now the largest grocery brand by revenue in the country. That's a stunning stat. Luna: And yet we've seen some pushback from regulators. The French competition authority recently warned about the risk of retailer consolidation squeezing out smaller suppliers. Do you think that could slow the trend? Lucas: It's possible, but I think the consumer momentum is too strong. The real story here is that the Eurozone consumer has become more price-conscious in a durable way. And that's going to reshape the retail landscape for years. Luna: Speaking of durable changes — and this is a little meta — but if you've been following our episodes and finding these economic trends useful, a couple of euros a month genuinely helps keep this show ad-free and independent. We're on buy me a coffee dot com slash fexingo. It's a small thing, but it adds up. Lucas: Yeah, absolutely. And listeners have been incredibly supportive. It really does make a difference in terms of the time we can spend digging into data like this NielsenIQ report. Luna: So back to private labels — one thing I find fascinating is the geographic variation. In Italy, private-label share is still around twenty-two percent, lower than Germany. Why the gap? Lucas: A big part is the strength of local brands in Italy. Italians are very loyal to regional food producers — think Barilla, Lavazza, Parmigiano-Reggiano. Private labels have a harder time competing with that heritage. But even there, it's growing. Conad, a major Italian retailer, has its own brand line that's now over fifteen percent of sales. Luna: So the trend is consistent, just at different speeds. And what about the premium end? Are we seeing any 'premiumisation' of private labels? Lucas: Definitely. In the UK, which isn't Eurozone but often leads trends, Tesco's 'Finest' line is a billion-pound brand. In the Eurozone, Carrefour's 'Carrefour Selection' and Edeka's 'Edeka Selection' are growing fast. It's a way to capture customers who might otherwise go to a specialty shop. Luna: So the retailer is essentially becoming a brand manager. That's a fundamental shift in the value chain. Lucas: Yes. And it has implications for inflation measurement, too. Because if consumers are switching to private labels, the actual cost of living increase might be lower than CPI suggests — you're getting a lower price for a comparable product. Some economists call this 'effective inflation' versus 'headline inflation'. Luna: That's a really good point. The ECB has talked about this in some research papers — how substitution bias in inflation baskets might be understating the welfare loss from inflation. But if private labels are offering better value, maybe the welfare loss is smaller than the headline numbers suggest. Lucas: Exactly. And that ties back to the GDP data we mentioned — real GDP growth at two-point-one percent might understate actual living standards if consumers are getting more for their money through private labels. Luna: So what should listeners watch for in the coming quarters? Any key indicators? Lucas: I'd watch the private-label share data from NielsenIQ and IRI — they release quarterly updates. Also keep an eye on the earnings calls of major Eurozone retailers like Carrefour, Ahold Delhaize, and Metro. They'll give guidance on how their own-brand penetration is trending. And on the flip side, companies like Nestlé and Unilever — listen for any mention of market share losses in Europe. Luna: And for investors, are there any ETF plays on this? I know there's a consumer staples ETF, but that's mostly big brands. Lucas: There isn't a pure private-label ETF, but the Stoxx Europe 600 Retail index has gained about eight percent this year, and retailers with strong private-label programs have outperformed. So it's worth looking at individual names. I'd also note that discounters like Aldi and Lidl, which are essentially all private label, continue to gain market share. Luna: Final thought — do you think this trend could reverse if inflation drops back to two percent? Lucas: Partially, maybe. Some consumers will go back to brands they missed. But I think the habit has been formed. Once you've discovered that the store-brand pasta tastes just as good for half the price, it's hard to unlearn that. So I think we're looking at a permanent step-change in private-label penetration in the Eurozone. Luna: That's a good place to leave it. Thanks Lucas. Lucas: Thanks Luna. And thanks to our listeners. We'll be back with another episode soon.