The following is the first in a series of guest posts from the latest issue of Global Retail Brands. Throughout the week we will feature one article a day from the new publication – please take a few minutes and click through to the site – read the entire article and see what the rest of the world is up to.
Never Compromise Quality
By Koen de Jong, Managing Director at International Private Label Consult (IPLC)
Recently a friend of mine asked: ‘what could jeopardize further growth of private label’? It did not take me long to think of an answer and I responded simply: ‘Quality’.
Private label has come a long way, and both retailers and manufacturers have invested massively to get where we are now. It took many years and relentless efforts of all involved to build consumer acceptance and to create shopper trust in the products. Both quality of the product and attractiveness of the packaging have played a pivotal role in this achievement.
However, there is some reason for concern and this has to do with the balance of power in the retail industry. Annually, a small number of buyers face a large number of manufacturers fighting to keep their private label contract, which may be vitally important to them.
In a competitive market manufacturers are not expected to sell below cost price. But a manufacturer faced with a powerful retailer may not have another option then to supply at marginal cost or sometimes even at a loss. This may have an effect on the quality of the products supplied. Value engineering the formulation or packaging of the product may be the only option for the manufacturer to uphold profitability. Depending on the product and to the extend the consumer will notice the loss of quality, the risk of quality erosion looms.