Cott struggling in private label push
The company, which only two months ago reaffirmed its commitment to the private label market, said a number of international difficulties had forced it to lower its 2008 full year profit expectations. Cott said it now expects to post earnings between 28 per cent below and 5 per cent higher than its $36.3m (€24.5m) gross in 2007, due to challenges facing the private label market.
With higher material costs for packaging materials and increased promotional pushes by branded beverage manufacturers, the group said that it now believed its original higher expectations remain out of reach for its private label focus.
Nevertheless, the overall market for retailer own-brand products has grown, according to Datamonitor. The analyst said that last year a credit crunch on both sides of the Atlantic has resulted in higher customer expectations of the segment and tightening grocery budgets.
Fiscal encouragement
Juan Figuereo, chief financial officer for the group said that the company’s current fiscal performance had not therefore been completely negative, with second quarter improvements in sales volumes reflecting the potential for its brands.
“However, the disappointing results we have seen over the past few weeks, at the beginning of our most critical quarter, indicate we will fall substantially short of our expectations for 2008,” he stated.
"Our focus for the remainder of 2008 is to implement our plans to refocus Cott on its private label business. We believe this remains the best path to improved profitability."
Current 2008 performance
In Cott’s domestic North American markets, the company said that sales volumes had proved to be particularly heavy over the period, due in part, to a loss in market share to branded goods and increased packaging costs for PET resins.
Internationally, the dreaded British weather and weaker sales within the Mexican soft drinks market were attributed to setting back Cott’s operations, the company said. As within its US operations, the manufacturer again highlighted packaging and ingredients costs as a major concern for the operations.
Market potential
Despite the difficulties faced by Cott over the current financial year, analysts such as Datamonitor suggest that there may be a bright future ahead for private label drink makers.
Back in June this year, Datamonitor’s Katherine Collins and Richard Parker said that Cott's strategy of reaffirming its presence in the private label market could prove prudent, with the segment to be more immune to the current economic downturn than other segments.
The analysts added that in the current beverage market, higher profile, quality-focused private label brands were increasingly likely to prosper as consumers begin to reassess their views of own-brand goods.
"Firstly, they may look to maintain their preferred branded choices, but are not afraid to shop around to get the best deals," they stated. "At the next stage, private label has become a serious contender as consumers no longer see own-brand premium ranges as inferior."
The company cited UK retailer efforts, like Tesco's Finest range or Sainsbury's Taste the Difference, as examples of private label brands that try and play up their luxury to court new additional consumer interest.
By contrast, the analysts claimed that growth in the market for premium products would remain exclusively within its core customer-base.
"The market may slow due to mainstream consumers freezing or reversing any propensity to trade up to branded premium products," they stated. "However, they may still trade up to private label premium items based on the price advantages they still offer."
