Coles and Woolworths are being urged to rethink their private label strategies, with analysts highlighting the potential for these home brand ranges to become multibillion dollar success stories. While the current approach focuses on undercutting Aldi on price, this tactic may be undermining profitability and limiting long-term growth.
Private label products have been part of the Australian grocery landscape for decades, but rising inflation has accelerated their prominence. As more shoppers seek value, home brand ranges now make up a significant share of sales. At Coles, they account for about 35 percent of supermarket revenue. The company has pointed to its premium own-brand items as a key growth driver.
Despite this, both Coles and Woolworths remain heavily focused on entry-level products in an effort to retain price-conscious consumers and compete with low-cost rivals like Aldi and Costco. Analysts believe this focus on budget offerings risks reducing profit margins, especially as it draws attention away from branded goods that typically carry higher markups.
Retail research suggests that Coles and Woolworths have the infrastructure and customer reach to build home brands capable of competing on a global scale. International examples include Kmart’s Anko brand and Costco’s Kirkland Signature, both of which have become major revenue drivers beyond their home markets.
Kmart’s Anko has grown into a household name, expanding across international markets and expected to generate close to nine billion dollars in annual sales. Costco’s Kirkland Signature is even more dominant, bringing in 86 billion US dollars in sales last year, placing it ahead of many iconic global brands. It continues to outperform Costco’s overall sales growth.
Private labels can deliver greater margins compared to branded goods due to lower development and marketing costs. However, not all home brands are created equal. Premium own-brand products, typically priced about 70 percent higher than standard private labels, offer significantly better margins. These products tend to be of higher quality, more unique, and involve more innovation. In contrast, budget-tier private labels may actually reduce margins and negatively impact product perception.
In Australia, the private label sector is considered underdeveloped compared to markets in Europe and the United Kingdom. Analysts believe that more attention should be given to higher-quality own-brand ranges, particularly in categories such as health and home, fresh produce, and bakery goods, where profit margins can exceed 36 percent.
The price difference between value and premium private label products highlights this opportunity. For example, a basic Coles maple-flavoured syrup is priced at 67 cents per 100 millilitres, compared to 91 cents for a similar branded version. The premium Coles Finest Pure Canadian Maple Syrup, however, sells for 2 dollars and 40 cents per 100 millilitres, showing the potential for upselling through premium offerings.
Coles currently offers a wider selection of private label items than Woolworths, with the latter generating about 30 percent of its sales from own-brand products. This figure has only increased slightly in recent years. In contrast, Aldi derives approximately 80 percent of its total sales from private label goods, giving it a substantial cost advantage.
To stay competitive and capture more market share, Coles and Woolworths are being encouraged to increase their investment in premium offerings. As consumer confidence begins to recover, shoppers are likely to show more interest in higher quality alternatives if they offer good value for money.
Australia still trails international markets in private label penetration. To address this, Coles entered a strategic partnership with UK supermarket Sainsbury’s in 2019. This deal provided access to Sainsbury’s supply chain and expertise in private label development, giving Coles a boost in growing its Own Brands range.
While both Coles and Woolworths have made progress in building their home brand portfolios, there is room for further expansion. Coles is expected to continue adding to its Coles Finest range, which currently includes around 240 products. Woolworths could benefit by offering more premium, restaurant-style meals through its Macro and Gold lines to better compete with branded goods.
Global supermarkets have shown how private label strategies can drive customer value, grow basket size, and encourage trade-ups. Australian retailers are now being called on to adopt a more balanced and forward-thinking approach that goes beyond price alone and focuses on quality, innovation, and brand loyalty.
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