Posted on : 2024-01-19 03:17:23
Article : Good evening Friday Management TASK 277-Private labels are posing a formidable threat to brands. Would brands lag behind to accept the domination!!!
Private labels were once thought of as the “cheap” alternative to big-name brands, however the pandemic combined with inflation helped usher in a new era for private labels across both multichannel and pure play retailers posing a formidable threat to brands. Today, a solid digital shelf strategy needs to include tactics to address the threat of private label brands stealing share from the shelf.
In 2020 when panic buying saw leading brands become unavailable, shoppers switched to private labels, and many of them never switched back. In the US for example 20% of consumers were buying more private label products during Covid-19 and 40% of people who switched brands said they’d continue buying the new brand. Retailers saw the trend and seized the opportunity evolving their private label strategy to not only offer value but also choice, features and benefits. Private labels today are taking a customer-focused, data-driven approach with products that deliver on quality and innovation as well as value. In the UK alone, private labels now account for over 50% of grocery sales, and 35% of FMCG sales. Meanwhile, almost seven in 10 German consumers think that the range of private labels has improved, with over half citing improvement in private label packaging.
Inflation and high prices are having a major impact on consumer buying habits, with consumers looking for low-cost alternatives in-store. In France, for example, 45% of consumers attach much less importance to the brand when making their purchases. It is in this context that private labels are gaining in popularity, offering consumers a good value for money. Once seen as cheap alternatives, private labels have evolved considerably in recent years, offering a wide range of products in many categories. The current situation has strengthened the position of private labels on the shelves, so much so that in Europe, private labels account for 35% of total FMCG sales, amounting to €230 billion in value. APAC countries are following the same trend in selling and buying private label products.
Over the years, retailers have implemented a number of different strategies, including whether or not to promote the retailer logo, development of private labels across all product categories, and differences in manufacturing strategy, with some retailers having their own production lines and others outsourcing to industrial suppliers. Although the private label business is upping its business arena, the branded market is not lagging behind as many of the consumers are returning to branded product purchases either online or off line. But still the threat to brands from private labels are manifold. A reliable private-label manufacturer will ensure product quality and keep production costs under control. A savvy private-label seller will build brand equity among consumers, advertise, and set up a profitable pricing model.
Demand is growing for private label products among mid- to high-earners. According to a research report the number of European shoppers loyal to private labels is almost the same as those loyal to brand name labels, particularly among mid-earners and high-earners. This is in part because private labels have tapped into shopper trends, such as the growth in vegan and plant-based foods. So, if one is competing in a category that is price elastic, where demand is influenced by cost of the product, they are more likely to be impacted by private label substitutes. Amazon is ramping up private labels, particularly with its push into grocery, both online and with physical stores.
In this sector though the business is small but growing trend for super quick delivery. This is particularly true for high-demand categories like bakery, dairy, chilled, ready meals, and alcohol. Quick delivery players are finding that they can get an uplift on their margins by sidestepping brand distributors and creating their own private labels. Private labellers get to design and sell their own products that are distinct from established brands, store brands, or other private-label brands. As a private-label entrepreneur, they can pursue novel product ideas without regard to what the rest of the market is doing.
With this prelude on private label products/brands in the market, their activities, opportunities and their existence- we would discuss on few private label brands in detail in our Good morning Monday Management solution article which would be posted on Monday 22nd Jan 2024.Meanwhile pls post your suggestive comments and private label brand stories for more available information as well as knowledge gainer for the peers and young budding managers.
Log on to www.wingsofmanagement.com to know more about our Management consultancy’s versatile capabilities, clients and to read our previous weekly posts and our projects.