In doing research on the subject of private label products versus well-known brand names or government owned enterprises, there are some strikingly intriguing points that I think any manager, business owner or future entrepreneur should know about.These points differ based on the regions that they specifically refer to – as markets obviously differ from country to country and region to region. For instance, Innovative retailers in North America have shown the rest of the trade how to develop a private-label line that delivers quality superior to that of national brands. Consider Loblaws’ President’s Choice line of 1,500 items, which includes the leading chocolate-chip cookie sold in Canada. As a result of careful, worldwide procurement, Loblaws can squeeze the national brands between its top-of-the-line President’s Choice label and the regular Loblaws private-label line. And President’s Choice has even expanded beyond Loblaws’ store boundaries: Fifteen U.S. supermarket chains now sell President’s Choice products as a premium private-label line.
In European supermarkets, higher private-label sales result in higher average pretax profits. U.S. supermarkets average only 15% of sales from private labels; they average 2% pretax profits from all sales. By contrast, European grocery stores such as Sainsbury’s, with 54% of its sales coming from private labels, and Tesco, with 41%, average 7% pretax profits.
Of course, the reasons for the strength of private labels in Europe are partly structural. First, regulated television markets mean that cumulative advertising for name brands has never approached U.S. levels. Second, national chains dominate grocery retailing in most west European countries, so retailers’ power in relation to manufacturers’ is greater than it is in the United States. In the United States, the largest single operator commands only 6% of national supermarket sales, and the top five account for a total of 21%. In the United Kingdom, by contrast, the top five chains account for 62% of national supermarket sales.
But growing numbers of U.S. retailers such as the Kroger Company believe that strong private-label programs can successfully differentiate their stores and cement shoppers’ loyalty, thereby strengthening their positions with regard to brand-name manufacturers and increasing profitability. What’s more, cash-rich European retailers like Ahold (a Dutch supermarket chain) and Sainsbury’s have begun to acquire U.S. supermarket chains and may attempt to replicate their private-label programs in the United States.
In writing about a subject that is as vastly challenging to describe as it is to understand – it’s always essential for me to utilise the names of actual real-world brands to help give you a better understanding of the nature of the marketplace and how things can change so quickly. Being able to break into the market means trying to redefine what consumers want or identifying a gradual shift in wants or needs before they actually happen, thus enabling your private label product to be the one that sticks out at the end of the day. Finding a suitable retailer can be the key element in whether your private label product survives the harsh marketplace or not.