A brief history of private label Private label products have been around almost as long as retailers themselves, but it was in the 1970s that they began to make a noticeable impact. Sam Walton, the founder of Wal-Mart, introduced a pet food called Ol' Roy, named after his dog. The product now outsells the big national brands but not all private label brands can make such an impressive claim.
In the UK at least, they began life as a cheaper alternative to brands, a role many private label products still fulfil today. Progress has been rapid and varied in the last couple of decades, with a spate of imitation or ‘copycat’ products grabbing the headlines in the 1990s. One of the best documented forays into this realm was Sainsbury’s Classic Cola.
Launched in the mid-1990s, this cut price alternative initially stole huge market share from market leader Coca-Cola and although it still performs creditably, was never likely to outsell the market leader in the long term. Retailers, it seemed, soon realised that trying to beat the manufacturers at their own game was futile and many of these products were soon phased out.
Where they realised there might be an opportunity was in creating new products and ranges in markets as yet dominated by big name brands. Retailers already had the lion’s share of sales in categories such as chilled ready meals, but they realised that there were other ways in which to develop the market.
Getting the balance right
The relationship between retailers and manufacturers is essential but also difficult to balance. The retailers want to stock profitable brands, often household names from leading suppliers but at the same time they want to build customer loyalty, be it through money-saving or high quality private label products. However, the retailer cannot afford to focus on their own brands at the expense of the big name brands for fear of driving away customers.
Nowadays, private label can largely be divided into three segments: value, standard and premium. All fulfil an important role but significantly it is the premium sector which is growing fastest and adding the most value to the market.
As manufacturers launched more and more premium products, both in terms of price and quality, so retailers began to develop their own ranges, matching and sometimes outstripping the premium nature of the branded products. By targeting markets where branded products had a small or in some cases on non-existent presence, the retailer was maximising the chance of success. Not only would this reduce the dominance of the branded supplier but it could also increase profits in traditionally less profitable areas of the business.
Launching retailer branded products, whilst easier to obtain shelf space to begin with, is not without its risks. Any high profile launch which fails to perform as expected or worse, causes complaints in terms of quality, is liable to reflect badly on the entire retail chain, whereas a problem with a branded product may only affect a single part of manufacturer’s product portfolio.
The success of ranges such as Tesco Finest, projected to be worth £600m in 2004, Sainsbury’s Taste The Difference and Asda’s George clothing, a £1bn a year range, show that it can be done.
Where once imitation of the big name brands was the norm, retailers are now beginning to copy each other’s ranges. Since the success of Sainsbury’s Blue Parrot Café food range for children, Tesco and Asda (both of which are currently ahead of Sainsbury’s in the race for retailer share) have launched their own range for kids. The advantage of being first to market will favour Sainsbury’s in this instance but as with all ranges, the challenge and the key to success will be in the differentiation of the offering.
Non-food lines and expansions in this area are likely to increase, particularly in light of the success of George at Asda, and the general trend towards non-food in the UK’s leading supermarkets. However, as we shall see later, there remain a number of barriers to retailers entering certain markets for technical and research and development reasons. Asda’s attempts to steal share from Gillette following the launch of the world’s first triple-bladed razor with a product of their own, ended largely unsuccessfully.
Another advantage of retailer ranges is the ability to span categories and thus be more customer-centric. For example, Sainsbury’s FreeFrom range covers more than 60 different foods, something that is a lot more difficult for a manufacturer, which on the whole often specialises in only one or two markets.
The importance of pricing
Pricing has always played an important role in private label, but the role has changed and more than likely will continue to do so. Without the history and heritage of the branded manufacturers, retailers simply aren’t able to charge as much as for their private label products. In addition, the quality of the products often does not match that of branded goods and consumers would soon vote with their wallets if they felt the product was overpriced.
Premium private label ranges such as Taste the Difference and Tesco Finest have shown that consumers will pay more for the retailer’s own products if they fell they’re worth the extra cost. Subsequently, branded manufacturers could find themselves in a situation they may once have thought highly unlikely – with their premium brand cheaper than a private label product.
However, actively seeking to undercut private label prices may not be the way forward, as Kimberly-Clark found out a few years ago. Seeing that Sainsbury’s own Supersoft toilet tissue was making significant ground on their own Andrex product, Kimberly-Clark cut their price. Even if they were only looking for a short-term share gain, the ploy backfired as consumers continued to buy Supersoft.
This suggests a number of factors were at play, firstly, and perhaps most importantly that price is not the only factor which affects consumer buying patterns. This is linked to the second point which is that the relationship between price and quality can play a huge role in securing market share. In this case it is clear that consumer trusted the retailer’s product more than the branded one, despite the history of the Andrex brand and the fact that it was cheaper.
The outcome was that eventually, Kimberly-Clark was forced to increase the price of Andrex to inject some value back into their flagging brand. Understandably, the retailer was not impressed and this was quite a risky strategy on the manufacturer’s part, given that only the retailer can assure that the brand will get listed on its shelves.
The key to manufacturer brands and retailers’ own lines co-existing successfully, is the balance between the two ranges. Whether the products are positioned as value or premium, priced high or low, consumers must feel they have the breadth of choice to meet their needs. While brands remain crucial within FMCG, it is noticeable that the private label offering is becoming increasingly important and the retailers themselves are quickly establishing their positions as brands in their own right.