Are phantom brands behind Woolworths Limited’s turnaround?

Credit: James Arboghast

Woolworths Limited (ASX: WOW) has followed the lead of discount supermarket Aldi and introduced ‘branded’ private label products into its supermarkets.

The products don’t have any reference to Woolworths on the front of the packaging – the only way consumers can tell it’s a home brand product is by turning the product over and checking to see whether it says produced or packed for Woolworths on the mandatory product information.

These brands include Chevron batteries, Smitten cat food, Baxter’s dog food and Apollo pet food, Little One’s nappies and Hillview grated cheese. Interestingly, Hillview’s grated cheese product is cheaper than Woolworths Homebrand and Woolworths Select equivalent products. Woolworths Gold product Christmas range labelling has also been redesigned to simply the ‘Gold’ brand.

Associate Professor Gary Mortimer from the Queensland University of Technology, who specialises in food retailing, has told that what Woolworths is doing with this range of branded private label products is sometimes referred to as ‘phantom brands’.

In June this year, Woolworths announced that it was phasing out its Select and Homebrand labels with a new ‘Woolworths’ label, but the company didn’t mention the new strategy around phantom brands.

As Mr Mortimer told, “For some consumers, private labels carry a stigma of being cheap and nasty. So developing a phantom brand, with no [obvious] connection to a retailer, provides consumers with a product that looks like a national brand but still at a great price.

He added, “For these products, the perception of quality comes from the nice packaging.

Aldi has successfully copied the branding of big name products for its private label products, and many consumers now associate Aldi’s products as good value as well as high quality. The retailer also has its own skincare products that aren’t called ‘Aldi face creams’. As Mr Mortimer puts it, “If they were then no one would buy them.

Coles – owned by Wesfarmers Ltd (ASX: WES) – has also moved to introduce phantom brands.

Mr Mortimer believes the move away from price is a good move for Woolworths, differentiating itself from Aldi and Coles. It’s possible that these phantom products and other changes to Woolworths private label products are behind the retailer’s revival.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Wesfarmers. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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