The Hindu Business Line : Fall of the big label bookmark

There is bad news for brands: They are under attack. Their potential nemesis is not so much the competing brand from across the borders, but the horde of private labels stacking up on supermarket shelves.

Retailer private labels, aka own labels, store brands, or distributor-owned brands, have been growing rapidly, write Nirmalya Kumar and Jan-Benedict E.M. Steenkamp in ‘Private Label Strategy’ ( www.tatamcgrawhill.com).

They add grimly that “the future looks bleak for manufacturer brands.” The share of private label sales has been soaring ‘at the twelve largest retailers in the world’ such as Wal-Mart, Carrefour, Metro, and Tesco. Brands have almost got pushed over the precipice at Aldi, a retailer with $43-billion sales, and ranking tenth in the top dozen tally; private labels there account for a whopping 95 per cent.

Well, there used to be a time when private labels meant “white packages with the words ‘toilet paper’, ‘beans’, or ‘laundry detergent’ embossed in plain black typeface on them, found somewhere at the bottom of store shelves.” Times are changing, the authors note.

“Among the fastest-growing categories for private label sales are lipstick, facial moisturisers, and baby food,” and store brands are present in “over 95 per cent of consumer packaged goods categories.” Global private label sales are close to $1 trillion, and counting!

The golden age of brands was when retailers were small; so, the manufacturer called the shots, and rode ‘a wave of quality products, innovation, and mass advertising.’ They became ‘branded bulldozers, forcing retailers to accept their products with the associated price and promotion policies.’ Retailers had the ‘take it or leave it’ choice. But now the tables have turned. Many organised retailers have grown so big in size that they have the negotiating power with the manufacturers. Things don’t stop with bargaining prices.

Many areas of conflict open up between the retailers and manufactures – be it in the allocation of shelf space or the introduction of look-alikes. For instance, in the UK, J. Sainsbury introduced Classic Cola, imitating “the signs and colours of Classic Coke and captured 17 per cent of the British cola market within six months of its introduction.” Another example is about how, in the US, “Gap went from being Levi Strauss’s largest customer to being its biggest competitor,” after dropping Levi’s to focus on private labels exclusively.

Unmistakably, the private label revolution, the world over, has yielded many benefits to the consumer, in terms of quality, choice and price. Yet, it may be too early to declare the brands dead. Manufacturers may still fight private labels “by launching innovative products and constantly improving quality.” Also, the big brand players would look at acquisitions and forays into emerging markets as methods to achieve top-line growth, as the authors foresee. They, however, caution retailers about the limitations of private labels; such as, that “too much emphasis on private labels at mainstream retailers, where consumers expect to see choice, can turn shoppers away.”

A reassuring thought for manufacturers is that brands are alive and kicking, though the gap between them and the retailers’ own offerings has narrowed over time.

A book that bells the ‘big label’ cat.

http://BookPeek.blogspot.com

D. Murali