Private Label 2013

In collaboration with
PlanetRetail.net Private Label, 2013: The global grocery trends to watch
Private Label, 2013

The global grocery trends to watch
DENISE KLUG
Associate Analyst
MATTHIAS QUECK
Research Director
About Us
Planet Retail is the leading provider of global retailing information, from news and analysis to market research and digital media. Covering more than 9,000 retail and foodservice operations across 211 markets around the world, many of the worlds leading companies turn to Planet Retail as a definitive source of business intelligence. For more information please visit planetretail.net
All images PlanetRetail.net unless otherwise stated.
Trace One and Agentrics PLM merged in January 2012 to become a global leader in collaborative solutions for the private label industry. Our mission is to drive food and non-food product innovation, support brand protection, and accelerate timeto-market for retailers, manufacturers and food service companies. The group is committed to enabling collaborative processes between retailers and manufacturers thereby optimizing the sourcing, tendering, launching and development of consumer goods, while controlling product information and ensuring product and food safety. This not only supports the protection of brands, but also maximizes profitability and competitiveness throughout the product lifecycle management process. The solutions provided by Trace One-Agentrics PLM are used by over 30 leading retailers worldwide, including 12 of the top 25, as well as 12,500 manufacturers in over 110 countries. Trace One has a global presence in 14 countries (Australia, Belgium, Brazil, China, France, Germany, Ireland, Japan, Spain, South Africa, South Korea, Sweden, the UK and the USA). For more information please visit www.traceone.com
Researched and published by Planet Retail Limited Company No: 3994702 (England & Wales) Registered Office: AirW1, 20 Air Street, London, W1B 5AN Terms of use and copyright conditions This document is copyrighted. All rights reserved and no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form without the prior permission of the publishers. We have taken every precaution to ensure that details provided in this document are accurate. The publishers are not liable for any omissions, errors or incorrect insertions, nor for any interpretations made from the document.
Contents
1. Introduction Private label growth 1
2. Rebalancing The Equation Finding the right balance between manufacturer and retailer brands4 3. When Less Is More Big opportunities for smaller pack sizes9 4. Collaborating for mutual growth Finding partners for development and distribution 5. Democratisation of Quality Taking Good-Better-Best to a new level 6. Conclusions
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December 2012
1. Introduction
Private label growth
lobally, private label penetration is highest in Europe, particularly in the saturated and consolidated Western markets. Switzerland leads the pack with a value share of 45.4% for 2011, according to PLMA/The Nielsen Company. This compares with 52.6% by volume, which underlines the generally lower prices for private label than national brands - one of their traditional and most important features. Globally, Switzerland has remained the only country where more than half of items sold are privately labelled, thanks primarily to its leading retailer Migros own brand-focused philosophy. While the UK follows closely by value, second place has now been taken by Spain with volume share standing at 49.0%. The leading market outside Western Europe is Canada, where every fourth dollar is now spent on retailers own brands. The US value share was up to 18% from 17.5% in the previous year and 15% in 2005. Here, also, the volume share is higher with 21.9%.
The global average 2011 stood at 15% for sales. Emerging markets still lag behind, but with shares growing relatively swiftly, not least due to the fact that international players expand in these markets and food prices tend to rise. Headwinds for brands Worldwide, brands are feeling the increasing headwinds coming from retailers working zealously on launching, extending and improving their house brands. Some retailers make no secret of the fact that the balance between manufacturers and themselves has often favoured the latter, allowing them to play hardball with brand manufacturers, especially when it comes to price negotiations.
Private Label: Share of Market by Value, 2011 (%)
Note: Includes selected markets only. Includes edible food and beverages, household goods and health & beauty care. Inclusion of fresh fruit & vegetables may vary. Source: PLMA Yearbook 2012/The Nielsen Company for European markets, Turkey and USA; Planet Retail estimates based on Nielsen data 2009 for other markets.
December 2012
Those who have no indispensable brand are easily replaced these days with other, cheaper brands or even private labels. When French dairy group Danone issued a profit warning this summer, the Wall Street Journal linked its problems largely to the activities of Spanish retailer Mercadona. The leading grocer in Spain had introduced 64 private label yogurt varieties in the last two years, sold at about half the price of branded products. Danone said its Spanish yogurt sales fell by more than 10% in the third quarter. At the same time, brand manufacturers are attempting to defend their position through increasing promotional activity with some partial success, bringing the seemingly unstoppable rise of private label to a temporary halt in some markets.
In Germany, the largest consumer market in Europe, promotional activity has helped supermarkets fight back against the traditionally PL-heavy discounters. Price promotions have been growing gradually over the past 10 years, accounting for 9% of total FMCG sales (without fresh food) in 2002, and rising to 19.0% in 2012 (first nine months), according to GfK ConsumerScan. Their increase was especially prevalent during the phase of commodity price hikes in 2007/2008 and the subsequent recession in 2009. Some retailers are at ease with these, usually manufacturer-subsidised, weapons of mass distraction (to quote Walmart Asdas ex-CEO Andy Bond), but more and more are questioning their sustainability.
Casino juxtaposes its own label spread with the brand, highlighting that Casinos is without palm oil.
December 2012
Casino
Those who have no indispensable brand are easily replaced these days with other, cheaper brands or even private labels.
Promotions tend to teach shoppers to become bargain hunters rather than establishing loyalty and can cement the promotion price in shoppers minds as being the regular price. (This, in turn, could fuel private label growth as consumers who feel annoyed by promotional price fluctuations, turn to own brands instead). This aside, promotions help brands build upon their already strong image, importance and popularity. But retailers know how to use the status of brands to benefit their own labels. The smartest retailers use - or abuse - the customers emotional bond to particular brands to promote their private labels. French retail giant Casino, for instance, juxtaposed Ferreros Nutella and its private label chocolate hazelnut spread. As part of the retailers promotion, it explains what the two products have in common as well as the difference: Casinos own brand does not contain any palm oil. Austrian retailer SPAR has chosen a similar approach. For every Red Bull a customer buys he receives a can of SPARs own economy brand energy drink for free. The retailer calls this campaign Austrias Hardest Quality Test. Hard for the brand, indeed but the campaign underlines the reality that many private labels only exist courtesy of the established brands on which they are modelled. Encountering unpredictable private label growth in recent years, some PL-focused retailers readiness to cherish brands has resurfaced. Rebalancing the equation between brands and private labels has become a key topic for some big players, including Walmart, Carrefour and Aldi. This will be the first trend covered in this report. Other topics we will look into are adding value to existing private label tiers, smaller pack sizes, collaboration between various retailers and manufacturers and retailers. The global private label trends are being driven by consumers and retailers alike.
December 2012
2. Rebalancing The Equation

Finding the right balance between manufacturer and retailer brands
he global ranking of the Top 20 grocery retailers shows a diverse picture as PL shares rank from 17% to 91% in 2012 with growth expected for most retailers, but with stagnant or declining shares for some prominent players.
At Walmart, the worlds leading retailers private label penetration has been stagnant of late, estimated at around 18%. It is worth mentioning that the Planet Retail estimates as displayed here only look at food sales, while Walmarts share in non-food is significantly higher.
The stagnation at Walmart is partly down to the increasing contribution of international sales, in particular from emerging markets where private label penetration naturally is lower than in developed markets (see previous chapter). On the whole, the generally lower own brand penetration in overseas markets tends to depress the private label shares of several international retailers, especially when growth at home is flattening. Another, more important, reason is Walmarts decision to put more brands back on its shelves.
Global: Top 20 Retailers Food Sales, 2012f (USD bn)
Grocery Banner Sales, (USD bn)
Note: f forecasts. Includes all grocery sales including health & beauty and fruit & vegetables. Source: Planet Retail
December 2012
On Carrefour, it is difficult to predict the development of own brand penetration as the worlds second-largest retailer is undergoing a turbulent period of restructuring and repositioning. What is clear is that several factors have had a dampening effect on its share. The most important include the divestment of its PL-heavy discount chain Dia in mid-2011 and stagnating, or even declining, sales in mature markets. At the moment, it looks as though the decline of private label will continue as Carrefours CEO Georges Plassat, appointed in May 2012, has made it clear that Carrefour needs to rationalise its own brand range especially in its European markets revising the companys previous focus. This applies particularly at the economy level where Carrefour displays more than twice as many entry price lines as its competitors. Its not a goal in itself to make 40% of turnover with own brands, the new CEO said, referring to his predecessors all-too-ambitious growth plans. Brands at Aldi Discount retailer Aldi is still out in front with a private label share of 91%. In Planet Retails opinion, however, it is just a question of one or two years before Walmart will also have become the worlds leading retailer when it comes to private label food sales, overtaking the Germanybased international discount store chain. Aldis estimated share for 2012 is slightly lower than in previous years and is expected to maintain a downward trend going forward, due to its recent decision to add leading manufacturers brands to its offerings. This decision came in the 50th year of its existence and is definitely a strategic change in the conservative retailers business philosophy. Having grown over five decades without CocaCola and Pampers, saturation in its traditional markets, like Germany and Austria, as well as stiff competition from former imitators most prominently Schwarz Groups Lidl - have seemingly made the move necessary.
Brands are thought to help revitalise sales, attract additional and new shoppers, increase the average purchase and, last but not least, make Aldi become a one-stop shopping destination. Private label means independence, has long been Aldis mantra, but the retailer is giving up a bit of this independence in order to please more shoppers. Aldi Nord and Sd have always carried a handful of manufacturer brands, but what is noteworthy about the new listings is that brands will be offered along with its established private label versions - not instead of them. It is as yet unclear how many brands will make it onto the shelves, or how the offer will vary from country to country. It is equally uncertain how the additional brands will be promoted if at all. What is clear is this: Aldi intends to make money with these additions even if they compromise its business model. This means the retailer is definitely not interested in price wars. Not only does Aldi lack experience in even simple brand promotion (such as on-pack BOGOF, secondary placements, contests etc.), but the listings conflict with its extremely strict EDLP (everyday low price) concept. Unfortunately for Aldi, it is exactly these top brands that rank among the most intensely promoted products. Aldis only choice now is to either endure competitors price campaigns, risking softening its aggressive price image in the process, or take up the gauntlet. This, in turn, would mean Aldi either uses its EDLP strategy to drag down the entire category price level for months or it countenances promoting prices. It comes hence as no surprise that Aldi Sd, the more audacious of the two brethren, has begun to cautiously venture into the territories of price promotions in Slovenia and Hungary.
December 2012
Germany: Discounters Price Development 1L PL Cola vs. Coca-Cola, 1997-2012 (EUR)
Discount PL Cola Coca-Cola
That said, Aldis decision is not a one-way street. Despite its recent listing of several P&G products in the UK, Aldi there has just launched a new private label range for professional hair care, clearly modelled on branded versions, including P&Gs Pantene Pro-V and Herbal Essences. On TV, the retailer still aggressively juxtaposes its private labels with leading brands in (award-winning) spots. Aldis brand listing may bring calm to hard-fought categories where price cuts have not significantly helped to drive private label acceptance. Obviously, there are popular brands that have been able to withstand even 50 years of Aldis private label selling such as Coca-Cola. From 1997 to 2012, Aldi lowered prices of its own brand cola, presumably with the aim of opening a clear gap in this category. Aldis product was 44% cheaper than Coca-Cola offered at a competing discounter in 1997; whereas in 2012, the Aldi brand was 67% less expensive than the original. During these 15 years, Coca-Cola managed to keep its price stable, but little more than that. In real terms, it witnessed a clear price decrease, aided surely by the rather unsuccessful attempts of Aldi to establish its private label version in the market. Brand owners who still entertain hope of a listing at Aldi stores should offer special sizes - just as Coca-Cola did, introducing 1.25 litre bottles only at discounters.
Retail Price (EUR)

Note: Prices converted to 1L for comparability reasons. Coca-Cola, 1L, at Schwarz Groups Lidl, as seen in November 1997; 1.25L Coca-Cola at Aldi Sd, November 2012; private label cola at Aldi Sd, 1L in November 1997 and 1.5L in November 2012) Source: Planet Retail
December 2012
Exclusive Brands These exclusive sizes have become increasingly important to fight direct price comparisons - and so have exclusive brand products. They enable retailers to provide a point of differentiation and help drive margin improvement with many having a premium positioning. As a result, they even have the power to replace private labels when it comes to creating a USP. In the UK, retailers across a variety of categories are differentiating themselves through exclusive brands. Argos has the boldest plans, aiming to double penetration of these brands to a third of all sales by FY 2018, while Marks & Spencer is reducing the number of everyday branded grocery products in favour of exclusive international brands. Tesco is further developing its portfolio, adding premium dairy range Yum produced and owned by Arla Foods, but sold only through Tesco. It adds to existing exclusive ranges such as MU Cheddar and Tesco-owned Venture Brands.
For a retailer, it causes less pain to (de)list one of these products than to develop a private label. In case of private labels, the retailer is responsible (and legally liable), whereas for brands, it is the manufacturer. For shoppers, there is less and less difference between premium private labels and exclusive brands. In an increasing number of cases premium own brands cannot always be recognised or clearly linked to a certain retailer. Again, one thinks of Tescos Venture Brands, the retailers only private label tier, besides the Discount Brands, not to bear a Tesco logo. Similarly, Carrefour, when launching its upmarket beauty private label line Les Cosmtiques Design Paris, has decided to mention its company name only in the wider context, saying that the product is available exclusively at Carrefour.
Exclusive international brands at Marks & Spencer in the UK.
December 2012
That said, for those that get it right in developing private label, the benefits are still enormous. Retailers will have less control over the production of exclusive manufacturer brands compared to their private label equivalents. Furthermore, they will require advertising to win consumer trust and build true brand status. Exclusive brands could potentially divert sales away from existing private labels. One retailer that has understood this principle better than most is US mass merchant Target. Target is well-known for co-operating with popular designers and listing their ranges in affordable limited editions. Furthermore, the retailers instore merchandising concept called The Shops features collections cocreated in partnership with small boutique stores. In doing so, Target is able to grow its own popularity and clearly differentiate from competitors in the US big-box channel.
The limited editions are consistently linked to exhaustive TV and internet campaigns pushing the exclusivity and resulting in queues in front of Targets stores on the arrival dates of new lines. While Targets exclusive brands are popular because of their contemporaneity, other retailers benefit from brands long-standing reputations. Migros, for instance, plays the nostalgic trump card and evokes childhood memories when bringing back Banago, a Swiss cocoa drink brand that was very popular in the 1970s and 80s but which disappeared from retail shelves 12 years ago until its exclusive relaunch in autumn 2012. On a similar theme, Spanish grocer Mercadona and Nestl joined forces to sell condensed milk under Nestls Nutricia, a brand that was popular in Spain back in the 1960s and 1970s, but which, until recently, had a limited presence in the market. Still the brand owner, Nestl has created new pack formats for sale at Mercadona outlets.
Retailers will have less control over the production of exclusive manufacturer brands compared to their private label equivalents.
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3. When Less Is More

Big opportunities for smaller pack sizes
ew pack formats will be a key trend as continuing pressure on household budgets will lead to diverging behaviours and to either larger or smaller packs. Buying bigger packs may be prudent economically in the long term, but more and more households are able to only afford to cover current needs and so save money short term by opting for smaller versions of products. Shoppers are not only suffering from diminishing available income in many markets. In numerous developed countries, the trend is leading away from larger families and towards single households. Besides this, consumer awareness regarding such topics as food wastage and calorific intake has increased. Simultaneously, the numbers of smaller stores is on the rise with convenience formats flourishing in many countries.
Brand manufacturers like Unilever have already reacted to these trends with the development of smaller pack sizes for some of their products. It is only a matter of time before private label manufacturers catch up with this evolution which is why Planet Retail predicts smaller pack sizes as a future trend for own brands. Some retailers have already begun to downsize their private labels. When SuperValus Save-A-Lot in the US launched its Today economy range, products not only became cheaper but also smaller. Its salad dressing has shrunk from 16 to 12 fl. oz. when compared to the standard own brand version. Schwarz Groups discount store chain Lidl decided it would no longer leave the lucrative checkout zone to brand manufacturers and so created smaller versions of its favourite private label confectionery to target impulse shoppers waiting in queues. One of these is a miniature pack of its Belgian chocolates containing only three pieces instead of the full-sized box of 24.
Save-A-Lots recently launched Today economy range has less content than the standard product.
December 2012
In higher-ticket categories smaller private label pack sizes increasingly make sense - especially when targeting the young and trend-aware teenagers. Often they have less spending power but they are generally willing to try new products. Some might even be described as collectors of new fragrances or shades regarding beauty items. AS Watson-affiliated Rossmann acted on this by offering a smaller version of its own brand perfume ideal for slipping in a handbag and selling for EUR1.49 (USD1.92). These small products also have the advantage of requiring less shelf space, leaving room for a wider variety of offering. The negatives, however, are that they increase complexity of display and handling and, prior to launch, require exhaustive market research to arrive at the most appropriate pack sizes.
Smaller pack sizes for perfumes will attract the target group of style-conscious teenage girls.
In higher-ticket categories smaller private label pack sizes increasingly make sense especially when targeting the young.
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4. Collaborating for mutual growth

Finding partners for development and distribution
ith private labels becoming brands in their own rights, it is only natural that retailers have become increasingly confident of selling their own products via other channels. Collaboration can create a wealth of new distribution opportunities for private labels. Creating distribution platforms
Such distribution agreements can take on many forms: Different store formats: US retailer Sears sells its Craftsman tools brand at Costco warehouse clubs, Ace Hardware and Menards stores throughout the country. For Costco, Sears has produced unique Craftsman bundles. Online: Swiss co-operative grocer Migros sells its private label products in Germany via the Amazon.de website, following the model of drugstore retailer dm. International: Spanish retailer Miquel has reached an agreement with Casinos Grupo Exito in Colombia and Al Othaim in Saudi Arabia for the distribution of its Sabor Espaol private label range. Foodservice: In October 2012, French independent grocer ITM (Intermarch) began distributing its private label mineral water through foodservice companies. In a similar vein, Tesco sells its ChokaBlok ice cream outside retail outlets in the UK, including the London and Whipsnade Zoos where ChokaBlok manufacturer R&R is also the main ice cream supplier. Vending machines: SPAR Austria has installed healthy vending machines at 13 schools, stocked with products from the SPAR Natur*pur brand, as well as from the SPAR Vital range. Co-development: US mass merchant Target and luxury department store operator Neiman Marcus brought 24 designers together to develop a limited-edition holiday collection of more than 50 gifts available exclusively at Target and Neiman Marcus, online and offline.
SPAR Austria has installed healthy vending machines at 13 schools, stocked with products from the SPAR Natur*pur brand as well as from the SPAR Vital range.
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SPAR Austria
Multi-label: Cypriot Alpha Mega does not have its own private label, but offers a selection of several other retailers brands instead. The hypermarket store chain sources Belgian Delhaize Groups private labels via the latters Greek AB Vassilopoulos operation. Alpha Mega also promotes Icelands private labels as being direct from the UK. A perfect example for professional collaboration on private label is Alliance Boots, a Western European company that, since mid-2012, has been 45% owned by US drugstore and pharmacy retailer Walgreens. In addition to its pharmaceuticals wholesale and health & beauty retailing arms, Alliance Boots is developing a Product Brands business, benefiting from its consumer goods manufacturing and private labelling expertise. We want to go global with skin care and we will use all opportunities that we can find, declared CEO Stefano Pessina. The group is actively engaged in internationalising this third business, working together with other retailers, as well as Procter & Gamble, with a particular emphasis on driving growth of its flagship No7 label. This is the UKs leading cosmetics brand and probably Boots best-established and renowned private label. It is available not only in countries in which Boots operates stores, but also in France, Spain, Portugal, Italy, Germany, Romania, as well as the USA and Canada. Alliance Boots hopes to further expand its No7 range to become a USD1 billion brand within three years, up from around USD315 million in 2011.
In Boots drugstores, No7 products have a large presence and fill many shelves. In fact, many customers are not even aware of the fact that No7 is a private label.
Cypriot Alpha Mega sources Delhaize Groups private labels via the Belgian companys AB Vassilopoulos operation in Greece.
In the USA, growth will most likely be driven by drugstore behemoth Walgreens potential acquisition of the remaining 55% of Alliance Boots. However, such a move will have implications on the current distribution strategy since Walgreens intends to sell Boots private labels in its US stores. As a consequence, it seems unlikely the existing partnership agreements with US retailers Target and Ulta will be renewed, in order to allow stakeholder Walgreens earliest possible exclusivity.
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As for Europe, Alliance Boots has set up a Boots Laboratories operation in France, designing products specifically for European markets. From here, Boots Laboratories Serum 7 anti-ageing cream, based on Boots UKs No7 Protect & Perfect anti-ageing serum, is distributed to pharmacies. Product sourcing and development On the supply side, retailers are gearing up to tighten their grip on the whole supply chain and weather the mounting storms of volatile commodity prices. To secure their food supply, retailers are looking for alliances to strengthen their global reach, be they with other retailers overseas or international buying groups. Retailers should be looking for diversification of commodity flows to decrease dependence on single countries of origin. Integrating the sourcing of ingredients and ancillary industries is another measure, while contractual farming secures the long-term flow of agricultural goods. Even vertical integration, with the establishment of their own production facilities, is becoming increasingly popular with some retailers. To fend off the retailers encroachment on manufacturers territory, private label suppliers need to liberate themselves. They need to convert from pure manufacturing entities to full service providers. To achieve this, they can use the help of specialised third parties. For example, French grocer ITM (Intermarch) and its suppliers teamed up with Trace One in spring 2012, launching a collaborative online portal to manage more than 4,500 private label products After the initial deployment of the module for product specifications, further implementation phases included product packaging development, administration of the process for tenders and finally complete management of product quality including audits, panels, complaints, etc. Our (schematised and simplified) four-layer model shows how suppliers can advance from being pure suppliers that are wholly interchangeable with every new tender in a reverse auction, to becoming an indispensable retail partner.
PRODUCTION
Pure production 100% interchangeability 0% category involvement.
Sharing product knowledge 20% category involvement.
ASSISTANCE
The ideal partnership (?) 50% category involvement.
PARTNERSHIP
No-worry strategy for retailers: One-stop shopping for retailers especially for non-core categories 70% category involvement.
CAPTAINSHIP
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Remarkably enough, this ideal is not necessarily attained simply when a balanced partnership is formed. It can even go beyond that point to a pure no-worry strategy for the retail partner where the daily work is left to the supplier. One-stop shopping for retailers is how the manufacturing arm of Swiss Migros describes this approach. The solution seeks to offer retailers the utmost convenience, providing all the required products in a category from a single source, even if they are not produced by the company. Admittedly, this requires a high level of trust. It is understood that, while the retailer does not want to surrender the power it has accrued over the years, such a strategy initially functions best in non-core categories. This may be the case, for example, in a supermarket operators health & beauty department, a category that needs considerable specialist expertise but is not necessarily the core competency of the retailer. In this idealised scenario, the retailer leaves category management to the private label supplier and only intervenes to discuss and outline major strategic decisions.
The supplier holds the category captaincy, at least for the private label part of the business. Their status is analogous to that of a leading brand supplier, but with the advantage for the retailer that it has closer control of the - usually weaker - supplier. The latter executes the retailers strategy minus the conflicting interests that can occur in dealings with brand manufacturers. A private label supplier, by its very nature, must comply fully with its customers desires and has a direct dependence on how its retail client performs. Brands, by contrast, often have to consider additional aspects perhaps not directly benefiting a retailer, such as brand equity, price positioning and promotional activity and competition monitoring. Under this kind of arrangement, a retailer could even consider running a multi-vendor strategy, i.e. having different category captains (private label and brands) in various geographic regions and learning from benchmarking and best practice. This, however, is a future scenario for most retailers, and its ultimate practicability still needs to be tested in reality. Christian Oppitz, Head of Marketing & Sales at German private manufacturer Gropper, supplier of dairy products as well as fresh juices and smoothies to numerous international retail clients, including Schwarz Groups Lidl, Aldi, Rewe Group and SPAR (Austria). Planet Retail: What changes have you been noticing in the current retail environment? Christian Oppitz: The innovation cycle for private label is permanently shortening. Markets get granular, divide into smaller sections, everything is changing very fast. You have to be able to master this complexity. Nowadays, you can no longer just put a new strawberry yogurt on a retailers shelf, lean back and say: thats it. We do have to continuously analyse the market, emerging trends and our competitors, find parallels and innovations on an international scope.
Christian Oppitz, Head of Marketing & Sales at German private label manufacturer Gropper.
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Gropper
We do have to continuously analyse the market, emerging trends and our competitors, find parallels and innovations on an international scope.
How do you think collaboration with retail clients could look like? Oppitz: We could surely offer our services as a category captain. However, many retailers, at least here in Germany, are not yet ready for category management implemented by a private label manufacturer. Some are very sceptical anyway and still prefer to have the opportunity to quickly swap suppliers if necessary. In the UK and Switzerland, in contrast, there already exist tight relationships between suppliers and retailers. There is a huge potential for further and tighter collaborations. Do you think there is a way you can get there? Oppitz: We need an open dialogue, trust and mutual understanding to succeed. We have already done some projects in that direction with support from experts and service providers. There are an increasing amount of retailers we address with an entire concept for a new private label, including its pricing and positioning. Usually, we have already tested different designs via market research to ensure the products success. In some retail relationships, we are the more proactive part. Sometimes we just call the retailers chosen marketing agency to create a layout that suits our idea, so that we can later present our own idea to the retailer, in the retailers style. From your point of view, what are the most pressing product-related issues? Oppitz: Clean labelling is an immediate issue, especially in the light of the growing focus of the NGOs on this matter. Theres potential in professional private label marketing and advertising, just like brands do it. The rising importance of product origin and regionality which strengthens our position here but makes exports harder. Finally, rising transportation costs, as well as increasingly volatile commodity prices.
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5. Democratisation of Quality
Taking Good-Better-Best to a new level
nstead of continually focusing on the lowest possible prices for their economy lines, retailers have begun to increase value for money to differentiate and outdo competitors. One after another, UK grocers have revamped their existing, or introduced new, economy lines. Walmarts Asda was among the first to upgrade its value line. At the end of 2011, it emblazoned the packaging of its Smart Price range with traffic light labelling and roundels to highlight that the products contained no artificial flavours or colourings.
Tesco has relaunched its economy-priced range creating a new brand called Everyday Value.
In January 2012, Morrisons replaced its Morrisons Value line with M Savers in an attempt to create a brand with the best quality possible at an affordable price. The UKs largest grocery retailer, Tesco, has followed suit with an economy private label relaunch in April, replacing its Tesco Value with the more aesthetically appealing Everyday Value. The latter contains no MSG, hydrogenated fats, artificial flavours or colours or genetically modified ingredients. Tesco says the revamp followed customer research and was designed to satisfy the expectations arising from that. The packaging has become more user-friendly, so that juice containers, for example, are now equipped with a reclosable lid. This move has had an impact on the priceaggressive competition. Discount store chain Aldi Sd placed the roll-out of its newly created economy line Everyday Essentials on hold in the wake of Tescos relaunch. Aldis line was reportedly underperforming and regarded as outdated compared to Tescos more attractive range. The trend towards improved quality economy lines also affected Marks & Spencer, a variety retailer with a grocery offering generally regarded as premium. A couple of years after fellow highend competitor Waitrose introduced its Essentials line, it decided to promote its own value range named Simply M&S, stressing that the products were of the usual high standard as regards quality and sourcing - but at lower prices.
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There is a risk of self-cannibalisation if retailers focus too much on their value lines as shoppers may trade down from more profitable tiers.
If we look further afield, we can also find examples of the current trend for higher-quality value lines. Delhaize America, for example, launched a line called My Essentials in the US. The products are free from trans fats with low sugar and sodium levels and feature nutritional labelling on the front of the packaging. Meanwhile, Ahold USA revamped its all-banner economy line Guaranteed Value. The old-fashioned blue and yellow design was replaced with a more modern look in orange and white. Drugstore and pharmacy giant Walgreens also launched a new untitled economy line, adding to the Nice! standard own brand from 2011 and the Delish premium private label it assumed from Duane Reade in 2010. In doing so, Walgreens has created a full threetiered product offering without showcasing its company name. The Walgreens W label disappeared from food and household products however, its name remains on health & wellness items, clearly the category the drugstore chain sees as its core competency. CVS has been following a similar strategy, strengthening its expert position and reserving the use of its banner name for items associated with its key expertise. Walgreens direct competitor has relaunched its Earth Essentials sustainable line and continues to withhold the CVS brand name from non-drugstore categories.
CVS recently relaunched its Earth Essentials line: the new (left) and the old design (right).
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Relaunch of standard lines and new added values There is a risk of self-cannibalisation if retailers focus too much on their value lines as shoppers may trade down from more profitable tiers. In France, Carrefour Discount, the retailers value line has been cannibalising sales of its standard ranges. As a result, Carrefour is now working on reducing its number of economy products. Carrefours value lines in France comprise more than twice as many products as most competitors similar offerings. Originally, Carrefour introduced these items in an attempt to improve its poor price perception. However, they have had a negative impact on its business, according to CEO Georges Plassat. This might be the reason why other retailers supermarket operators in particular are focusing on continued development of their standard tiers. Tesco in the UK has only just begun redesigning its mid-price tier.
Germanys Rewe Group is also currently revamping its eponymous standard line. Rewe Beste Wahl (Best Choice) is gradually replacing the Rewe brand launched in its German supermarkets in 2007. The revamp offers the retailer an opportunity to finally become a proactive developer of innovative products, as Rewes previous standard line was widely perceived as a me-too range. Almost concurrently, Rewe introduced an added value line called Rewe frei von (free from) earlier this year, comprising products free from gluten or lactose a common label in Switzerland or the UK, but new to most other markets. One of the characteristics of added value lines is that they offer almost endless potential, limited only by the retailers daring and creativity and, of course, by consumer acceptance. Launching lines that cater to special needs can bestow on retailers a clear USP, enhance a companys image as being caring and understanding and provide lucrative revenues, albeit in a niche. Australian Coles Group has introduced a new healthy eating range named Simply Less which includes more than 90 products, from breakfast to desserts. US retailer Kroger rolled out an own brand containing less additives and more organic ingredients. Krogers line is divided into two sub-lines: The Simple Truth range featuring items free of 101 different ingredients Kroger says customers do not want in food - and Simple Truth Organic which is certified by the US Department of Agriculture. Another category seeing recent new launches is convenience. While previously it was enough to be simply ready to eat, recent additions to ranges cater to the specific needs of shoppers. Australian Woolworths offers Yummy Meals, convenience products especially for children with the aim of making life easier for working parents. Sainsburys is targeting families with its new line, boldly called Family. The microwavable menus are suitable for four persons.
Sainsburys targets entire families with its new convenience private label.
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Waitrose in the UK has focused on new flavours, launching a New World range of sandwiches, snacks and beverages as add-ons to its food-to-go range. The line features foods from countries such as Jamaica, Turkey, Vietnam and Morocco. Similarly, Tescos Fresh & Easy in the USA introduced a convenience range called Kitchen to go. The ready meal range is compartmentalised by - as Fresh & Easy calls them - four types of restaurants: Italian, Asian, Mexican and American. For each, the retailer offers meal bowls, appetisers, sides and entres. In general, combining different features has become a major trend such as with ethnic convenience food or ready-to-eat meals for children - a development that will offer many more fruitful combinations to come in the own brand business. Quiet in the premium sector The tier that has seen the fewest upheavals has obviously been the premium sector. This is hardly surprising, as the economic situation requires retailers to focus on what really matters which means ensuring their economy lines are futureproofed rather than creating aspirational musthaves for luxury-starved consumers. Canadian grocer Loblaw is one of the very few exceptions, unveiling a range of highend products under the name Black Label but only as part of its extensive Presidents Choice offering. Meanwhile, US retailer Kroger has introduced a premium line called Truly Awesome. Although this may sound like a big step for this particular retailer, Truly Awesome has turned out to only consist of a handful of SKUs - so far - comprising some yogurts, homestyle chocolate chip cookies, macaroni and cheese dinners and a broccoli and cheese sauce. Many retailers have recently improved the quality of their lines, or launched new ranges according to higher standards for that respective tier. Others have decided to adopt a less cost-intensive method simply by focusing on features their products always had but which may have never played a major role .
As more and more consumers now have their say via social media, more and more retailers (and manufacturers) are using customer endorsements for brand promotion, making much of their products being developed with the help of shopper feedback. Is this really anything new? In the past, was there ever a successful brand that never listened to what consumers said? Likewise, with the rising importance of regionality and national or local sourcing, there are plenty of new opportunities to upgrade the simplest product. Switzerland is famous for its cheese and chocolate. Italy for pizza and pasta. But Ireland is not necessarily renowned for its toothpaste. However, this has not hindered discounter Aldi from proudly launching the only Irish-made own brand toothpaste sold in Ireland - appropriately marketed under a Gaelic name, Parla.
The only Irish-made private label toothpaste sold in Ireland: discount retailer Aldis Parla.
December 2012
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Aldi Sd
6. Conclusions
T
here is no predefined limit for ideal private label penetration. This depends on category idiosyncrasies, consumer acceptance, format positioning, price and quality issues, as well as profitability considerations. The continuing pressure on consumer spending power has forced a fight between retailers on entry-price private labels. But this time, it is not about being the cheapest, but about being the best value for money. Exclusive brands provide manufacturers with an opportunity to launch in new markets while retailers benefit from the manufacturers expertise. Exclusive brands could potentially divert sales away from existing private labels. Retailers will have less control over the production of exclusive manufacturer brands compared to private label equivalents. They will require advertising to gain consumer trust and build true brand status. The continuing pressure on household budgets will lead to diverging behaviour: either larger or smaller packs. Buying bigger packs may be economically judicious long term, but growing numbers of households can only afford to cover their immediate needs. Suppliers should carefully calculate whether higher margins for smaller products will outweigh the losses in volume and sales. Content reductions should be communicated in an open, obvious and easily understandable way to preclude any accusations of cheating. The trend towards small-box residential store formats will lead to reduced average shelf space. Smaller packs will accelerate the necessity of shelf-ready packaging. With saturation increasing, retailers have to find new distribution channels for their private label products, such as non-competing retailers and foodservice companies. Partnership at eye-level with retailers may be the goal for many suppliers. But collaboration can go beyond that to a no-worry strategy for retailers, reflecting the actual balance of power.
This time, it is not about being the cheapest, but about being the best value for money.
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United Kingdom: AirW1 20 Air Street London W1B 5AN UK T: +44 (0)20 7715 6000 F: +44 (0)20 7715 6001
Germany: Dreieichstrasse 59, D-60594 Frankfurt am Main Germany
USA: 1450 American Lane Suite 1400 Schaumburg IL 60173 USA T: + (1) 847 656 5378 F: + (1) 847 656 5201
China: 10-1-202 88 Tongxing Road Qingdao 266034 China T: +86 (0)532 8598 1272 F: +86 (0)532 8598 9372
Japan: c/o INSIGHT INC. Atami Plaza 1401 Kasuga-cho 16-45, Atami-shi Shizuoka 413-0005 Japan T: +81 (0) 3 3775 4158 F: +81 (0) 3 3775 4162
T: +49 (0) 69 96 21 75-6 F: +49 (0) 69 96 21 75-70
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PlanetRetail.net Private Label, 2013: The global grocery trends to watch