Why Private Brand is the Future of Retail

The growing conversation/debate in Australia over the growth and power of Private Brands continues with this article from The Sydney Morning Herald. Journalist Leon Gettler examines the phenomena and poses the favorite dilemma of National Brand managers everywhere, “The private-label strategy could alienate consumers who prefer certain brands and don’t want store brands pushed at them, leaving them with less choice.” Choice is certainly the siren call of the delisted brand, yet in a day and age where consumers have as many as five brands to pick from in virtually identical sandwich bags, I have to wonder how much choice we really need.

Or perhaps we need great brands that sell great products to engaged customers no matter who owns the brand.

Why house brands and category leaders are the future of retail

THE growth of private ”store” labels is driving the price wars that started when Coles slashed the price of its house-brand milk by up to 33 per cent in January.

With Coles using its private label as the spearhead of its strategy, the rest of the sector is following. Welcome to the future of retail.

The growth of store brands is a global phenomenon. Retail profit margins on them are fatter – about 2 percentage points higher – than the margin on national brands. Retailers also love the control it gives them over how products are promoted in stores.

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Consumer magazine Choice says the discounting of milk will have an impact on choice in the long term, pointing out in its submission to a Senate inquiry that it is anti-competitive and unsustainable. ”The potential impacts of the growth in major supermarket generic brands, and associated issues around future prices and food security, are poorly understood,” Choice said.

Maybe, but it will accelerate. The question is whether this lack of understanding will annoy consumers and, in the long term, hurt retailers. Value for money is only the first element of the competition trifecta. Care for the customer and more choice are also important.

According to two reports, store brands will increase market share massively in the next few years, reflecting a shift in consumer patterns. The post-recession consumer now looks for value.

Certainly there has been a drift towards store brands. Research released by Nielsen earlier this year found that house brands such as Woolworths Select, the Coles brand and multiple Aldi brands represented a 24.5 per cent share of supermarket sales in the September quarter, up from 23.2 per cent in the last quarter of 2009. On average, buyers were spending just under $210 on store brands, up $9.06 on the 2009 September-quarter figure.

A Rabobank report, Private Label vs. Brands: An inseparable combination, says that the global market share of store brands could double to 50 per cent by 2025, impressive growth in just 14 years.

The report attributes some of that to the recession leaving its mark on consumer spending patterns, even after the recovery.

The shift to store brands will have an impact on branded products. Small and medium brands will be delisted to make way for the private labels. Rabobank says the ”A” brands, or category leaders, will not be affected because mainstream private-label retail prices are often directly linked to the prices of leading brands, which stand as reference points for price and quality for each product category. Leading brands shape private-label profit margins. But non-category leaders will be squeezed out. The only way they can avoid that is by adopting new strategies such as, for example, specializing in producing private-label goods for retailers. If you can’t beat them, join them.

Rabobank says the trend is inevitable. Brands that are not category leaders will need new strategies to survive.

Still, big retailers are taking a risk with this strategy. There is a danger of overdoing it. Can retailers create something that matches the image of brands that have had years of connecting with consumers?

Also, private-label brands do not appeal to all buyers. Nielsen research shows they are unpopular with young childless adults, who account for at least 10 per cent of the market. That might give traditional brands a niche.

The private-label strategy could alienate consumers who prefer certain brands and don’t want store brands pushed at them, leaving them with less choice.

And in a competitive sector where margins are thinner than Everest air, no one can afford mis-steps. Retailers might have to work harder to find the perfect ratio and tipping point for store brands. After all, there is only so much floor space in any given store.

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Christopher Durham
Christopher Durham is the president of My Private Brand and the co-founder of The Vertex Awards. He is a strategist, author, consultant and retailer who built brands at Delhaize-owned Food Lion, and lead strategy and brand development for Lowe’s Home Improvement. He has consulted with retailers around the world on their private brand portfolios including: Family Dollar, Petco, Staples, Office Depot, Best Buy, Metro (Canada), TLW (Taiwan) and Hola (Taiwan). Durham has published five definitive books on private brands, including his first book, Fifty2: The My Private Brand Project. In 2017, he will debut his newest book, Vanguard: Vintage Originals, a visual tour of innovation and disruption in private brand going back to the mid-1800’s. Dynamic in his presentation while down to earth and frank in his opinions, he has presented at numerous conferences, including FUSE, The Dieline Conference, Packaging that Sells, Omnishopper and PLMA’a annual trade show in Chicago. Durham lives in Charlotte, NC with his wife, Laraine, and two daughters, Olivia and Sarah.