Private label and consumer choice
Publicerad: 2011-05-30
Handelskraft 2011
Humans are creatures of habit. When we shop at our local supermarket we tend to buy the same set of goods every week. We may vary our choices - sometimes buying more exotic fare or special treats - but we have a tendency to repeatedly buy a common set of favourite products.
OFTEN THESE favourite products are brands that we have repeatedly bought over many years; brands that conjure positive images in our minds of familiarity, quality, and reliability in satisfying our needs. Even when faced with the incredible choice offered in today’s modern supermarket, where dozens of items are typically stocked in any given product category, our conservative nature guides us to choosing those familiar products whilst ignoring the alternatives. After all, why take the risk of trying something different?
OF COURSE, if none of us did ever take the risk of trying something different then there would be far less choice in our supermarkets and we would never see new products stocked. Indeed, it is only through curbing our conservative instincts, allowing ourselves to consider alternatives and being prepared to experiment with new products that we, as individual consumers, are able to encourage competition, innovation and choice to our collective benefit. In essence, consumers’ shopping behaviour in being prepared to shop-around and try different products is critical to ensuring that effective competition delivers low prices and abundant choice.
SO, WHAT MIGHT tempt a consumer to try something different? The answer lies in something that offers better value in price or quality terms, or something that offers an appealing new experience. Typically in the past this has been through one brand producer competing against another, in a constant battle to win our hearts and minds. In the last couple of decades, though, the major force to challenge the leading brands has been private label, i.e. goods marketed by retailers bearing their own name on the package label. For certain, private label is by no means new, and has been around for over a hundred years, dating back to the origins of the earliest chain stores, but it is a phenomenon that is now a key ingredient of the modern retail scene and a major component of consumers’ expenditure in almost all major product categories. As Figure 1 shows for a range of European countries, private label’s share of sales varies across from one country to another, ranging from around a quarter to almost half of all grocery sales, and continues to rise year by year.
PRIVATE LABEL has undoubtedly brought consumers benefits through increased choice and an added source of competition, by providing an alternative to manufacturer branded goods and typically positioned at a lower price in competing on value for money. Nevertheless, the worry exists in some minds that the rise of private label is a symbol of the growing power of retailers and that in the long term this may be detrimental to consumers if it ultimately leads to diminished choice were brands to be squeezed off the shelves of supermarkets in favour of private label goods and producers of these private label products were to be subjected to such intense buying power as to undermine their ability to earn reasonable returns on their investments and maintain quality levels.
HOWEVER, TO PUT these concerns into some context, there are very significant economic benefits offered by private label in stimulating competition, not just between product producers competing for shelf space but also amongst retailers competing for the custom of shoppers to their stores.
Where once private label goods were largely generic items or basic “me-too” copies of leading brands, over time they have become more sophisticated, often rivalling or even exceeding the quality of manufacturer branded goods. Increasingly, they take on many different forms through sub-branding, with private label often appearing in multiple quality tiers and targeting specific consumer segments, such as through “budget”, “standard”, and “premium” ranges. Moreover, private labels have been innovative in their own right, even to the extent of leading the development of whole new product categories; such as chilled ready meals in many EU countries.
AS A CONSEQUENCE of these developments, retailers’ private label products have in many instances become significant brands themselves. This has assisted the retail branding effort by the major store groups, as a means to differentiate themselves from one another (due to the exclusivity of each retailer’s private label) while strengthening their customer base and store loyalty. Retailers can now compete against each other not just on the prices of goods sold and the service quality and amenities provided, but also on their private label ranges in respect of product quality, value for money proposition, and innovation. The result for consumers is greater product choice than ever before.
YET, THE IMPACT of private label is not just felt by consumers. The emergence of private label as a key feature of modern grocery retailing has been to alter relations between retailers and producers. Where once dominant brand producers might have been able to dictate “take it or leave it” offers to retailers, private label has provided a source of bargaining leverage for retailers by giving them a credible fall-back position in their negotiations.
INDEED, THE VERY nature of supply chains has changed as a result of the success of private label. Retailers have moved on from being merely intermediaries in distributing manufacturer-branded items to consumers, to the situation where they take centre stage in the supply chain, having greater influence over the product development, production, corporate responsibility and marketing process. For small producers private label may be a possibility to get both knowledge about the market and support with efficient marketing from the retailer. In contrast, the very nature of private label in only indicating the retailer’s name serves to make private label manufacturers anonymous to consumers, leaving them to serve as agents for the retailer, producing to order as and when needed.
WILL PRIVATE LABEL eventually replace all existing brands? It is natural to question whether the seemingly relentless rise of private label will inevitably lead to manufacturer brands becoming extinct. However, it should be borne in mind that brands serve an important role for consumers in their own right. They provide a point of price comparison across stores, delivering consistent and universal quality assurances, assisted by their very fact that different retailers can stock them, as well as the trust they instil through their pedigree and reputation. Brands also serve as a useful point of comparison for retailers in respect of their price position against rival retailers as well as a useful benchmark and reference point for positioning their own private label goods.
HOW FAR CAN private label go? The answer seems to depend on the product category. In some categories, private label has all but replaced brands. Yet, in other categories brands remain dominant and private label has hardly made any impact. Overall, though, as Figure 1 shows, there does appear to be some resistance for private label in going over 50% share of sales, as witnessed in the UK where private label’s share is little different from a decade ago. Even so, this resistance is certain to be tested in the coming years as retailers across Europe seek to extend their private label offerings to build ever stronger connections with consumers through their own brand development in the battle to win the custom and loyalty of fickle shoppers.
IT IS DOUBTLESS that brand manufacturers will simply sit back and watch as their market share erode. They too will be striving to maintain if not grow their own positions through their marketing and product development effort. This can only be to the consumer’s benefit if it leads to more competition, more innovation, and more choice.
For certain, there are interesting times ahead for the grocery industry and its consumers.
By Professor Paul Dobson, Head of Norwich Business School, University of East Anglia, UK