Italian consumers have been slower than their counterparts in other European countries to embrace private label food and drink products and brand name goods still dominate the sector. However, there are now signs that the combination of rising food prices and stagnant economic growth may be encouraging more Italian consumers to move away from branded products, providing a boost to producers of private labels.

Italian consumers have one of the highest food consumption levels in Europe. According to BMI figures which have been derived from national surveys of household expenditure Italian consumers spent an average of EUR2,075 on food in 2007, French consumers spent EUR2,058, Spanish consumers spent EUR1,397 and German consumers spent only EUR1,166. This very high level of spending suggests that Italian consumers are prepared to sacrifice spending in other areas to ensure they buy quality ingredients and this can partly explain Italian consumer’s reluctance to embrace private label products.

Currently brand name producers even dominate the market for staple products, such as milk and pasta. For example brand name pasta producer Barilla controls around 45% of the Italian pasta market and diary producer Parmalat controls around one third of the market for UHT milk. However, there are now signs that the dominance of brand name products may be coming to an end.

In March, Parmalat revealed that its fresh milk products have struggled to compete against retailer’s cheaper, private label brands, which have been marketed aggressively at a time when consumers are feeling the pinch of rising food prices. This decline in demand for branded milk pushed down the firm’s margins and meant that the firm’s EBITDA in Italy fell by 12% in the first quarter of 2008. With higher prices likely to push even more consumers towards private label products, it is difficult to see how Parmalat can improve its margins without losing even more customers.

Co-op Italia is Italy’s largest retailer and has put its weight behind private label products. Co-op has used private label products to drive down the price of staple foods and develop its group identify. Co-op Italia now accounts for around 30% of all the private label products sold in Italy. However, the private label market is still very immature and offers enormous potential for growth. BMI predicts that, as in other EU countries, consumers will move towards private label products in stages, with staples such as milk, bread and pasta being the first to register strong growth followed by more highly processed products such as confectionery and prepared meals. Although the market for private label goods in Italy is still relatively small, when compared to other Western European countries, this immaturity also means that there are currently a plethora of growth opportunities.