PRIVATE LABEL

Private label products are typically those manufactured or provided by one company for offer under another company's brand. Private label goods are available in a wide range of industries from food to cosmetics to car care. They are often positioned as lower cost alternatives to regional, national or international brands, although recently private label brands have been positioned as "premium" brands to compete with existing “A-brands”.

Major supermarkets, hypermarkets, drug stores and discounters today offer almost any product under the retailer's brand. Private label covers full lines of (pet) foods, health and beauty, over-the-counter drugs, cosmetics, household and laundry products, DIY, lawn and garden, paints, hardware and auto aftercare. The same tendency is seen in a business-to-business environment for a rapidly increasing number of products.

For the end-user, private label represents the choice and opportunity to regularly purchase quality products at savings compared to manufacturer brands, without waiting for promotional pricing. Private label items consist of the same or better ingredients than the manufacturer’s brands and because the vendor’s name or symbol is on the package, the end-user is assured that the product meets the vendor’s quality standards and specifications.

For the private label owner advantages are very significant and numerous.

Private label offers you:
   Full control over the brand and its positioning
   Increased freedom in pricing strategy
   More flexibility and shorter time-to-market for innovative products
   Reduced producer domination in the marketplace
   Improved control over stock levels
   Increased client dependence & customer loyalty
   Reduced supplier dependence
   Increased sales possibilities
   Opportunity to differentiate and provide variety
   Positive image building
   Marketing efforts are to one’s own benefit only, not to that of competitors.

Taking into account these significant advantages one should seriously consider starting up or expanding one’s own private label.

In the first decade of the 21st century private labels continue to grow at an increasingly high pace. Data for the following paragraphs have been taken from “Private label strategy” by Kumar and Steenkamp, published by Harvard Business School Press (2007).

Private label is booming. A striking example is Germany, Europe’s largest economy and the third largest economy in the world. Private label share over the last three decades increased from 12 percent to a stunning 34 percent!

In the first decade of the 21st century private labels continue to grow at an increasingly high pace. Table 1 shows that overall private label share as a percentage of the total consumer packaged goods industry is anticipated to grow by more than 50%, from 14 percent to 22 percent.

Table 1: Consumer packaged goods private label share
Source: Adapted from M+M Planet Retail, 2004, http://www.planetretail.net

The already-developed private label markets of Australasia (greater than 50 percent growth), North America (35 percent plus and Western Europe (increase of 50 percent) will continue to show strong growth as retailers consolidate their gains. This growth in private label share in these markets is often at the expense of manufacturer brands.

The less-developed private label markets in table 1, Japan and the emerging economies, are anticipated to grow even faster in terms of private label share, albeit from a low base line. Consumer attitudes are already remarkably positive in these regions. Since emerging countries are experiencing higher economic growth, it implies that overall growth in private label sales may be in the double digits. Moreover, this trend is not likely to stop in 2010. In the subsequent decade, as global retailers aggressively expand internationally, emerging economies will become the key battlegrounds between private labels and manufacturer brands.

The information in the following paragraphs is based on “The relentless advance of private label: strategies to compete”, published by The Boston Consulting Group (2007).

Virtually every household in Europe and North America purchases private label products. In the most developed markets for private label products – the United Kingdom for example – private label now accounts for more than 40% percent of total grocery sales. Private label penetration in other countries is climbing to similar levels as retailers gain scale and sophistication.

Retailers are expanding their own brands and will continue to do so for two good reasons: they have the capabilities and they have the incentives (see above under advantages).

Private label offers economic advantages over manufacturer brands that large retailers, wholesalers, importers or distributors can exploit to provide more value to customers. Private label products typically require less than 2 percent of sales to be spent on marketing, whereas manufacturer brands spend 10 to 40 percent of sales. Lower costs allow for lower prices on products of similar quality.

Large private label owners are also able to access a well-developed manufacturing supply base for private labels products – one that is increasingly competitive with brand manufacturers in scale, technology, innovation and overhead.

Furthermore private label owners use their (store) networks and real-time sales data to test and adapt innovations from their private label suppliers faster than branded manufacturers can.

The conditions that encourage private label growth are intensifying on a number of fronts. First, the ability of retailers to market private label brands is rapidly improving as they learn about market segmentation and branding from their more sophisticated competitors. Second, as suppliers of private label products consolidate – either through acquisitions or under ownership by private equity houses – they are gaining their own momentum in terms of increased scale and capabilities. And third, as national retail markets continue to consolidate and the competition among them intensifies, retailers have an even greater incentive to develop their own private label.

All this points to a challenging future for manufacturer brands. Private label penetration in less developed “retailer-own-brand” markets will reach levels seen today in the most developed markets. Likewise, market share in less penetrated categories will grow to levels seen in today’s more penetrated ones. Private label will continue to encroach on higher-price segments and extend into more and more channels.

With our 20 years of expertise we will be more than pleased to assist you in setting up your automotive private label.