The Future of Private Label

The Future of Private Label
Euromonitor International : Strategy Briefing

February 2005
Strategy Briefings
World
List of Contents and Tables

1. Introduction and Background ............................................................................................................................ 1
1.1 Definitions ........................................................................................................................................................... 1
2. Executive Summary............................................................................................................................................. 2
2.1 the Changing Definition of Private Label............................................................................................................ 2
2.2 Impact of Economic and Retail Environment ...................................................................................................... 3
Penetration of Supermarkets/Hypermarkets 2003.............................................................. 3
Chart 1
Chart 2
Penetration of Discounters 2003 ........................................................................................ 5
2.3 the Private Label Market..................................................................................................................................... 5
Chart 3
Share of Private Label in Core Retail Sectors 2003 ........................................................... 6
2.4 Leading Private Label Markets ........................................................................................................................... 7
Chart 4
Breakdown of Private Label Sales by Country 2004 ......................................................... 8
2.5 Retailer Strategies ............................................................................................................................................... 8
2.6 Marketing Strategies ........................................................................................................................................... 9
2.7 Sourcing Strategies.............................................................................................................................................. 9
2.8 Producer Strategies ........................................................................................................................................... 10
2.9 Outlook.............................................................................................................................................................. 10
3. Retail Sales Trends ............................................................................................................................................ 10
3.1 Total Retail Sales............................................................................................................................................... 10
Table 1
Total Retail Sales and Growth by Market 1999/2003 ...................................................... 11
3.2 Supermarket Penetration................................................................................................................................... 12
Table 2
Penetration of Supermarkets/Hypermarkets by Market 1999/2003.................................. 13
3.3 Growth of Discounters ...................................................................................................................................... 14
Table 3
Penetration of Discounters by Market 1999/2003............................................................ 14
4. Leading Retailers............................................................................................................................................... 15
4.1 Overview of Retailers ........................................................................................................................................ 15
Summary 1
Selected Retailers in Order of Total Size 2004 ................................................................ 15
4.2 Retailer Concentration ...................................................................................................................................... 19
Summary 2
Major Mergers, Acquisitions and Disposals in the Retail Sector 2000-2004 ................... 20
5. the Private Label Market.................................................................................................................................. 20
5.1 Global Trends.................................................................................................................................................... 20
Chart 5
Private Label Value Breakdown by Region ..................................................................... 21
Table 4
Global Private Label Share in Selected Categories 2001-2004........................................ 22
5.2 National Market Trends .................................................................................................................................... 23
Chart 6
Leading Private Label Markets by Value 2004................................................................ 24
Chart 7
Fastest Growing Private Label Markets by Value 2004................................................... 26
Chart 8
Share of Private Label in Developed Markets by Value 2004 ......................................... 28
Chart 9
Share of Private Label in Emerging Markets by Value 2004........................................... 30
5.3 Sectoral Trends.................................................................................................................................................. 30
Table 5
Private Label Share of Packaged Food by Country 2001-2003........................................ 32
Table 6
Private Label Share of Pet Food by Country 2001-2003.................................................. 33
Table 7
Private Label Share of Selected Soft Drinks by Country and by Sector 2002.................. 34
Table 8
Private Label Share of Selected Alcoholic Drinks by Country and by Sector
2003 ................................................................................................................................. 36
Table 9
Private Label Share of Selected Cosmetics and Toiletries by Country and by
Sector 2003 ...................................................................................................................... 38
Table 10
Private Label Share of Disposable Paper Products by Country 2001-2003 ..................... 40
Euromonitor International
Page
Strategy Briefings
World
Table 11
Table 12
Table 13
Private Label Share of Selected Household Care Products by Country and by

Sector 2003 ...................................................................................................................... 42
Private Label Share of Selected OTC Products by Country and by Sector
2003 ................................................................................................................................. 44
Private Label Share of Large Kitchen Appliances by Country 2001-2003 ...................... 46
6. Private Label Retailers and Suppliers ............................................................................................................. 47

6.1 Overview............................................................................................................................................................ 47
Summary 3
Advantages and Disadvantages of Private Label 2004 .................................................... 48
6.2 Brand Strategies ................................................................................................................................................ 51
Summary 4
Selected Retailers and their Brands 2004......................................................................... 52
Co-branding Initiatives 2004 ........................................................................................... 55
Summary 5
6.3 Packaging Strategies ......................................................................................................................................... 56
6.4 Retailers Pricing Strategies ............................................................................................................................. 57
Chart 10
Price Differential Between Manufacturer Brands and Private Labels by
Market 2003..................................................................................................................... 58
6.5 Retailers Product Strategies............................................................................................................................. 59
6.6 Advertising and Promotion of Private Labels.................................................................................................... 67
6.7 Sourcing of Private Labels ................................................................................................................................ 69
6.8 Suppliers and Their Strategies........................................................................................................................... 72
Summary 6
Major Private Label Suppliers 2004................................................................................. 74
7. Outlook............................................................................................................................................................... 77
7.1 External Demand Factors ................................................................................................................................. 77
Table 14
Forecast Penetration of Supermarkets/Hypermarkets by Market 2003/2008 ................... 78
Table 15
Forecast Penetration of Discounters by Market 2003/2008 ............................................. 79
7.2 Private Label Demand....................................................................................................................................... 80
Chart 11
Forecast Penetration of Private Label by Sector .............................................................. 81
7.3 Challenges and Opportunities ........................................................................................................................... 82
Summary 7
Opportunities and Threats for Private Label Retailers ..................................................... 84
Page
ii
Strategy Briefings
World
THE FUTURE OF PRIVATE LABEL

1. INTRODUCTION AND BACKGROUND
1.1 Definitions
Private label definition
Private labels (also sometimes referred to as own labels, in-house brands, dealer owned brands, store brands,
corporate brands) are defined as product lines that are owned, controlled, merchandised and sold by a specific
retailer in its own stores or via direct selling methods.
Private labels in developed markets have come a long way from their original image as the poor relation of
national brands, and their definition has developed significantly over time. Private label brands were originally
seen as generic product offerings that competed with their national brand counterparts mainly on price. This is
still largely the case today in emerging markets, and in some sectors of developed markets. However, many of
todays private labels have become synonymous with quality and innovation, rather than simply being seen as
copy-cat products. Nowadays, private labels are carefully managed and marketed in order to contribute to the
retailers overall image and improve its competitive edge and growth prospects.
As private labels were traditionally seen as being of inferior quality to branded products, they often suffered
from a lack of trust and confidence on the part of consumers. They also lacked innovation: since retailers carried
out little research of their own into consumer needs and preferences, they tended to emulate the products of
national brand manufacturers, selling their products on the back of the advertising, packaging etc carried out by
major national and multinational companies.
From the beginning, private labels were advantageous to retailers, not only because they offered a chance to
widen their product ranges and draw customers to the store, but also because they produced higher margins and
therefore greater profitability than branded products, and involved little or no marketing effort. Therefore,
retailers began to introduce private label products into more and more categories. However, the proliferation of
me too products had the effect of commodifying certain categories. It often forced brand manufacturers to
lower their prices in order to compete with private labels, thereby reducing margins all round and dampening
innovative activity.
Nowadays, private label retailers are working together more with major manufacturers to develop categories
rather than simply trying to undermine branded products. Category management has become an increasingly
important part of merchandising activity in developed markets, and private label has a significant role to play in
its development, in terms of creating a higher degree of interest and excitement within a particular sector.
As retailers have begun to treat their private labels as brands in their own right, they have expanded into nontraditional areas that have in the past been dominated by national brand manufacturers. Private labels are also
now subject to the same developments as those seen among branded products. Retailers are focusing
increasingly on aspects such as packaging, advertising, positioning, segmentation, cross-branding and
promotions in order to achieve closer parity with branded products, and to dispel their image as poor relations.
Indeed, as branded products are now omnipresent, retailers are being forced to use private labels as their major
point of differentiation from competitors; in other words, private labels are now designed to fit the overall image
the retailer wants to convey, be it one of value, quality, diversity, etc, as a way of drawing consumers into its
stores.
Data
Some of the figures in Section 3 (specifically, those relating to global private label sales and shares by country)
are derived from published studies by ACNielsen, which collects data across 36 countries and covers 80
categories. These include categories within the areas of food, drink, OTC healthcare, cosmetics and toiletries,
pet food, household cleaning products and disposable paper products only. As such, they exclude private label
clothing, housewares, electrical goods and other non-food items.
Page
Strategy Briefings
World
ACNielsen collects its data from supermarkets, hypermarkets, some drugstores and pharmacies and mass
merchandisers, with the exception of Wal-Mart. As the latter is a major force in the US market, Euromonitor has
made estimates for Wal-Marts private label sales where necessary. The data do not include sales from such
channels as department stores and mail order companies.
Most data in this report are, however, derived from Euromonitors own databases and global reports which
provide information on private label shares. These include areas such as packaged foods, OTC healthcare, the
various cosmetics and toiletries categories, disposable paper products, pet food, alcoholic drinks and soft drinks.
Types of private label retailer
Private label products are available through several different types of retailer, which Euromonitor identifies as
follows:
Grocery multiples
Chains (mainly supermarkets/hypermarkets) which offer a mix of private label and branded products, eg
Tesco and Carrefour;
Chains (mainly discounters) which offer almost exclusively private label products, eg Aldi and Lidl;
Franchisers/buying groups (mainly convenience stores) which offer a mix of private label and branded
products, eg Spar and Intermarch.
Mixed merchandisers
Chains which offer a mix of private label and branded products, including mixed retailers such as Wal-Mart
and Target, and department stores such as Sears Roebuck and Quelle-Karstadt;
Chains which offer almost exclusively private label products, eg Marks & Spencer.
Non-food specialists
Chains that offer some private label lines alongside branded products, such as the DIY chains Leroy Merlin
and Home Depot, and some electronics chains.
Chains that sell only private label, eg furniture retailer Ikea, and clothing retailers The Gap and H&M.
Mail order companies
Companies that sell a mix of private label and branded products, eg La Redoute and Quelle.
Companies that sell exclusively private label products, eg Avon and Yves Rocher;
2. EXECUTIVE SUMMARY
2.1 the Changing Definition of Private Label
Todays private labels are a far cry from the generic, copy-cat products that were originally developed to
compete with national brands on the basis of price alone.
In developed markets, private labels have become synonymous with quality and innovation, and are
carefully managed and marketed in order to contribute to the retailers competitive edge, profits and growth
prospects.
Private label retailers are now working together more with manufacturers to develop categories in terms of
creating interest and excitement, rather than simply trying to undermine branded products.
Retailers now apply the same marketing techniques to private labels as those used by major brand
manufacturers, in order to convey a desired image and draw customers into stores.
Private label products have penetrated almost all types of retail outlet, to varying degrees. For example,
while they account for virtually the entire product mix of hard discounters, clothing retailers and furniture
Page
Strategy Briefings
World
retailers, they may form only a small percentage of the total offer in some supermarkets, department stores
and certain types of specialist stores.
Most retailers in fact offer a mix of private label and branded products, which tends to represent between
20-40% of their sales.
2.2 Impact of Economic and Retail Environment
Private label growth is no longer necessarily linked to economic performance, as modern day consumers
tend to seek bargains and value-for-money without sacrificing quality, regardless of their level of income.
Moreover, private label are perceived in some developing markets as being superior to national products as
they are found mainly in foreign chains, which have a reputation for quality.
Nevertheless, it is also the case that hard discounters which have virtually exclusive private label policies
- have thrived in countries that have experienced economic downturn (such as Germany), as consumers
have sought better value for money.
More relevant than economic growth is the level of penetration and consolidation achieved by large grocery
retailers. Due to their significant economies of scale, private label is often used as a competitive tool in
countries where retailing has reached a sophisticated level.
Hence, private label development is very advanced in countries such as France and Switzerland, which have
the highest penetration of supermarkets and hypermarkets, at 37% and 32% respectively, and also a high
level of concentration among major retailers.
Similarly, the markets which are seeing increasing penetration by foreign retailers, such as those of Eastern
Europe, tend to be those in which private label sales are growing the fastest.
The US has a relatively low penetration of supermarkets, due to the importance of mixed merchandisers
such as Wal-Mart and Target. Furthermore, the US supermarket trade is still fairly fragmented, which has
hindered private label development.
Chart 1
Penetration of Supermarkets/Hypermarkets 2003
Page
Strategy Briefings
Source:
Note:
World
Top 25 countries only, according to supermarket/hypermarket penetration
The expansion of discounters has a significant impact on the development of private labels in many
markets, as these retailers tend to offer private label on an exclusive basis.
Discounters are traditionally very strong in Northern Europe. The largest chains, such as Aldi and Lidl
(Schwarz Group) are of German origin, while others, such as Netto, are Scandinavian.
The discounter concept has not been successful in all markets, however. In the UK for example, the retail
market is highly sophisticated and consumers are used to a high level of service from supermarkets.
Furthermore, the European discounter model is virtually nonexistent in the US, due to the prevalence there
of mixed merchandiser discounters such as Wal-Mart and K-Mart, and in Australia, where most
supermarkets already have a strong policy of discounting.
Page
Strategy Briefings
Chart 2
Source:
Note:
World
Penetration of Discounters 2003
Top 25 countries only, according to supermarket/hypermarket penetration
2.3 the Private Label Market
The private label market for grocery products was valued by Euromonitor at more than US$106 billion
globally in 2004, having grown by around 6% in current terms in that year.
Page
Strategy Briefings
World
Most of the worlds private label sales are concentrated in Europe and North America, with respective
shares of 59% and 37%. Throughout most of Latin America and Asia-Pacific, private label is still in its
infancy, though it is growing strongly in many cases.
The global market for private label has been driven not only by grocery retailer development and
consolidation, but also by trends towards more expensive, value added private label products.
Despite its expansion into almost all product areas, private label penetration is still highest among
commodities such as disposable paper products and some packaged foods. Its share tends to be much lower
in areas where brand image is very important, such as spirits and beers, and those that are highly technical,
such as consumer electronics.
In some subsectors, such as carbonated drinks, baby foods and confectionery their dominance by major
global brands (eg, Coca-Cola, Nestl and Mars) make it very difficult for private label products to gain a
significant share.
Furthermore, a large proportion of confectionery and soft drinks sales are impulse sales which take place
outside supermarkets and hypermarkets. Due to the convenience factor, consumers are more prepared to
pay a premium for branded products in these categories.
In the case of baby food, consumers are discerning due to safety concerns, and tend to prefer branded
manufacturers such as Nestl or Numico. However, this is changing as confidence in the standard of
retailers products grows.
On the other hand, ready meals provide retailers with an excellent opportunity to offer value added products
and generate high margins, and these have reached particularly high shares in the UK and Switzerland, at
71% and 69% respectively.
Products associated with luxury and prestige, such as cosmetics, fragrances and jewellery, have traditional
also been difficult for retailers to penetrate, as have copyrighted products such as books and CDs. Again,
this is changing as retailers are introducing innovative marketing strategies, premium products and cobranding initiatives.
Chart 3
Share of Private Label in Core Retail Sectors 2003
Page
Strategy Briefings
Source:
Note:
World
% volume in all soft and alcoholic drinks sectors, and appliances
2.4 Leading Private Label Markets
In absolute terms, the US is the worlds largest private label market with a value of some US$31.1 billion,
despite being less developed than some European markets in terms of the share of sales accounted for by
private labels.
Three other major developed markets for private label, in terms of absolute value, are Germany, the UK and
France, as these countries have particularly well developed and sophisticated retail markets that lend
themselves well to private label.
While being a small market in absolute terms, by share of retail sales Switzerland is by far the worlds most
developed market for private label, with a penetration rate of 39% in 2004. This is due to the power of the
two leading retailers, Migros and Coop.
Other small markets with a high percentage of private label products are Belgium and the Netherlands.
Retailers in the Netherlands have recently stepped up their private label activity considerably, in response to
fierce price wars among the major chains.
By contrast, private label penetration is below-average in Scandinavia, as well as in smaller markets such
as Austria, Ireland, Portugal and Greece, where small chains do not have the means to invest heavily in
private label production.
The strong Italian tradition of culinary quality and a perception that private label products are low budget
rather than flavoursome has hindered development in that market.
Page
Strategy Briefings
World
In Japan, too, private label development was hindered in the past both by the fragmented nature of the
supermarket trade, and by the fact that Japan is a very brand conscious society. This has changed as
consumers have become more price sensitive.
In developing countries the share of private label is generally less then 5%, and the market consists mainly
of low value and copycat brands. Nevertheless, as foreign chains increasingly infiltrate many of these
markets, they are expected to hold the strongest growth potential in the future.
Chart 4
Source:
Breakdown of Private Label Sales by Country 2004
2.5 Retailer Strategies
Many retailers are currently increasing the proportion of private label products on offer within their stores,
partly as a way to seek differentiation through means other than price discounting, convenience and service.
The pressure from discounters, which are expanding worldwide, is also forcing existing supermarkets to
compete by expanding their private label offer.
Most retailers use their own name as an umbrella brand, along with various sub-brands to represent
different categories or positionings. This is the case of Tesco in the UK, for example, whose ranges include
Value, Finest, Healthy Living and Organic.
Sometimes retailers choose to use their own name across all goods, with very little use of sub-brands. This
is the case of Spar, whose eponymous brand is used across all products and all countries, with the exception
of some regional brands.
The single brand strategy is much more common in the clothing retailing industry, where retailers often
attempt to build up one global or national brand associated with their image, such as The Gap of the US,
H&M of Sweden or Marks & Spencer of the UK.
Other retailers prefer to use fantasy brand names, with packaging that does not feature their own name at
all, or only in the small print. This is common practice in Italy, for example, where private labels still suffer
from a negative image in the eyes of consumers.
Page
Strategy Briefings
World
Some retailers operate a two-tiered brand strategy, whereby they have a value range and an upmarket range
of private labels. This is the case of Wal-Mart, with Great Value/Sams Choice, and Loblaws of Canada,
with No Name/Presidents Choice.
In an attempt to bring their private label products more upmarket and add value, retailers in some of
developed private label markets have developed relationships with owners of brands, celebrities, or the
owners of cartoon character licenses in co-branding initiatives.
Packaging has become an increasingly important marketing tool for private label retailers. Wal-Mart has
been particularly successful in creating private labels that are perceived by consumes as being brands in
their own right, such as its Ol Roy range of pet foods.
Retailers efforts to upgrade private labels to compete more closely with branded products and improve the
image of their stores have meant that, in general, the price differential has narrowed in recent years.
The price differential between branded and private label products varied greatly according to product
category, being over 40% for toiletries and OTC healthcare, and less than 20% for cosmetics and chilled
foods.
There has been a clear shift in the private label industry towards developing premium products, which has
served to raise margins for retailers, and elevate the image of private label products, and indeed the store
itself, for the consumer.
As consumers have begun to pay more attention to healthy lifestyles, retailers have taken advantage of these
trends to introduce their own ranges of healthy, natural, organic, fair trade, low-carb and free from foods.
Grocery retailers that have reached an optimum level of private label supply in the traditional areas of food,
drink and household goods have looked to non-traditional categories for expansion, including clothing,
furnishings and jewellery.
Some retailers are also experimenting with offering private label services within their stores. These include
financial services, pharmacies, opticians and photo departments.
2.6 Marketing Strategies
Grocery retailers tend not to use above-the-line advertising techniques for individual private label brands or
lines, as such campaigns are not justified by the sales of individual items. This is their main disadvantage
compared to brand manufacturers.
Nevertheless, the large retailers often run corporate TV advertising campaigns, which indirectly benefit
their private labels. This is the case of Sainsburys in the UK, which is endorsed by celebrity chef Jamie
Oliver.
The use of loyalty cards by retailers has become an increasingly common marketing tool in developed
markets, and can be used to promote sales of private label products.
The location of products in the store, and where sale prices are located on the shelves are also essential
factors in the marketing of private labels. On shelves, private label products are often placed in prominent
positions.
Leaflets, or circulars, distributed in Sunday papers or consumer magazines, through direct marketing or instore, are also a popular and cost-effective way for retailers to advertise their private label products.
Celebrity endorsement of private label brands has become popular in the area of clothing, and is intended to
raise the perception of grocery retailers brands from their rather downmarket image of the past to that of
premium fashionwear.
2.7 Sourcing Strategies
With regard to the sourcing of private label products, retailers may have their own manufacturing plants, or
they may source from third party suppliers. Many operate a mixed strategy, owning some production
facilities for basic products, and using external suppliers for other.
The general trend among retailers is to contract private label products out to third parties, as this allows
them the flexibility to terminate agreements with suppliers that do not confirm to requirements, while still
allowing them a certain level of control.
Page
Strategy Briefings
World
Some retailers join buying groups that deal with sourcing of private label products on their behalf, which is
especially effective for smaller retailers.
n general, the supplier base for private label products is shifting from high cost countries such as France,
Italy and the Netherlands to countries with lower labour and material costs, such as those of Eastern Europe
and Asia.
Increasingly, multinationals such as Nestl, Philip Morris and Groupe Danone are entering the private label
arena. This demonstrates the changing perception of private labels and the shift in power to the advantage
of retailers over manufacturers.
2.8 Producer Strategies
Private label suppliers are consolidating, enabling them to achieve better economies of scale in raw material
supplies, marketing costs etc, and allowing them to expand into related product areas.
Most private label producers strategies centre on providing high quality, innovative products, combined
with a high level of customer service, in order to attract and retain the custom of leading retailers.
Many companies now offer dedicated customer relations, logistics, sales and marketing services, including
market and trend analysis to enable retailers to gain a better understanding of their position within the
marketplace, and of customer needs.
The development of new products and technologies is highly important to private label suppliers, as
retailers are increasingly demanding more innovative products in order to maintain a competitive edge over
other retailers private labels and branded products.
2.9 Outlook
The major factor affecting growth of private label around the world will be the increased penetration and
consolidation of supermarkets and discounters, especially in emerging countries such as those of Eastern
Europe.
The worlds largest non-food chains, which are also highly active in the private label market, are also
expanding rapidly into new markets. These include clothing retailers, electrical stores, DIY stores and
furniture stores.
The market is expected to grow by a further 6% in 2005, fuelled by the continuing strength of the global
economy and efforts by retailers to increase their private label offer and to raise the value of private label
products through innovation and sophistication.
Retailers are also likely to focus on introducing value ranges at the other end of the scale, in order to
compete with discounters and attract budget-conscious consumers.
3. RETAIL SALES TRENDS

3.1 Total Retail Sales
Private label growth and the economy
Studies have shown that, contrary to popular belief, growth in the private label market is not particularly linked
to underperformance of the economy. This may have been the case several years ago, when private labels were
seen as the poor relations of branded products and were priced much lower than their counterparts. In these
times consumers may have turned to private label products when seeking to reduce their weekly expenditure
during times of economic hardship. It is also the case that in some markets, such as Germany, discounters have
thrived as consumers have sought better value for money in a depressed economy. As discounters tend to sell
mainly and sometimes exclusively private labels, this has boosted private label value in these markets at the
expense of branded products.
However, a study by US research company Hoyt & Co showed that the growth of private label accelerated
during the strong economy of the 1990s. It also showed that private label penetration increased most for
households considered comfortable/affluent, and was strong in professional/white collar households and
Page
10
Strategy Briefings
World
homes without children. Indeed, with the increasing sophistication of private labels in most developed markets,
the small price differential between these and branded products has meant that their growth has been linked with
economic prosperity rather than recession.
US and Japan outweigh other retail markets
The US is by far the worlds leading retail market, with sales worth US$2,205 billion in 2003. Furthermore,
retail sales in the US grew by almost 17% over the review period, although this represented a slowdown
compared to the boom period experienced during the 1990s. Consumer spending was affected after 2000 by
negative factors such as the tech-stock meltdown, the events of 11 September 2001 and the ensuing wars in
Afghanistan and Iraq, and soaring energy costs. Nevertheless, low inflation rates and the boom in the
availability of credit helped to support retail sales growth. Indeed, throughout the review period consumer credit
balances in the US grew at much faster rates than did consumer incomes or GDP, indicating that a significant
portion of retail spending gains were underwritten by increased debt loads.
Japan is the worlds second largest retail market, although the private label there is relatively underdeveloped.
Sales in Japan fell by nearly 13% between 1999 and 2003, to US$1,102 billion, largely as a result of declining
consumer confidence as Japans recession continued. As unemployment rose, trends towards increased housing
densities raised the costs of basic services, and consumers looked to reduce their retail spending accordingly.
Retail sales value in Japan was further curtailed by price deflation, and consumers became increasingly price
conscious. While many outlets were forced to close, other retailers and manufacturers responded by engaging in
price discounting.
Europes largest retail market is Germany, with sales of almost US$570 billion in 2003, although this market
has also suffered from economic weakness, and sales grew by only 7% over the review period. Retail sales in
the UK, France, Italy and Spain were far more buoyant, with sales in the latter increasing by 35% in the five
years to 2003. Growth in Spain was driven by the countrys growing population and increased prosperity: over
the review period real (net) disposable income in Spain increased by 14.9%.
China and Russia see strong growth
China enjoyed rapid growth in retail sales between 1999 and 2003, bringing it almost on a par with Germany,
with sales of US$542 billion. Although the Chinese retail industry was greatly impacted by SARS in the first
half of 2003, total retail sales still maintained strong growth in that year, as the Chinese government instituted
emergency policies to support the retail industry, such as the elimination or reduction of taxation.
The countries of Eastern Europe also demonstrated strong growth in retail sales over the review period. Russia,
in particular, saw sales rise by 63% to US$139 billion, making it the worlds 12th largest retail market in 2003.
This was the result of the stabilisation of economic development in Russia, and also the strengthening of the
presence of large international retailers, which was indicative of a real increase in income among the Russian
population. The main trend is the move to organised retailing by local and international operators. Indeed,
retailing in Russia still has great potential, with more than 50% of sales still accounted for by unorganised
retailing (street markets, street stands and halls).
Table 1
Total Retail Sales and Growth by Market 1999/2003
US$ million
US
Japan
Germany
China
UK
France
Italy
Spain
India
Canada
Mexico
1999
2003
% growth
1999/2003
1,891,204
1,262,433
531,734
378,268
381,727
362,018
277,331
137,639
139,323
128,828
118,957
2,205,076
1,102,361
569,504
541,776
478,254
442,534
318,417
185,354
173,302
169,045
155,342
16.6
-12.7
7.1
43.2
25.3
22.2
14.8
34.7
24.4
31.2
30.6
Page
11
Strategy Briefings
Russia
South Korea
Australia
Netherlands
Brazil
Turkey
Switzerland
Belgium
Poland
Sweden
Taiwan
Austria
Indonesia
South Africa
Greece
Saudi Arabia
Thailand
Norway
Philippines
Denmark
Finland
Portugal
Colombia
Czech Republic
Venezuela
Ireland
New Zealand
Hungary
Israel
Hong Kong
Morocco
Egypt
Chile
Argentina
Vietnam
Malaysia
Romania
Slovakia
Singapore
Source:
World
85,540
93,370
91,058
73,336
86,793
59,984
58,817
50,568
39,468
48,279
48,807
45,639
31,508
41,501
25,808
33,538
22,526
27,157
30,405
28,912
25,075
26,724
28,529
18,968
35,016
15,551
15,613
13,314
18,010
21,319
15,830
24,240
18,391
44,683
11,788
11,000
10,444
7,364
10,561
139,358
122,020
116,472
96,853
74,428
68,430
68,381
60,379
59,798
57,208
53,966
53,556
48,036
47,476
38,946
38,585
36,529
35,144
34,937
34,513
31,446
31,102
27,736
27,357
27,176
23,214
22,154
21,294
20,538
19,818
19,604
18,339
16,551
16,460
15,559
12,653
11,964
10,565
9,758
62.9
30.7
27.9
32.1
-14.2
14.1
16.3
19.4
51.5
18.5
10.6
17.3
52.5
14.4
50.9
15.0
62.2
29.4
14.9
19.4
25.4
16.4
-2.8
44.2
-22.4
49.3
41.9
59.9
14.0
-7.0
23.8
-24.3
-10.0
-63.2
32.0
15.0
14.6
43.5
-7.6
3.2 Supermarket Penetration

Consolidation fuels growth of private label
Private label development is strongly linked to the growth and consolidation of hypermarkets and supermarkets,
as the economies of scale of these large groups make them most suited to the development and distribution of
private label products. Hence, the markets which are seeing increasing penetration by foreign retailers tend to be
those in which private label sales are growing the fastest. Strategies by retailers to grow their private label
businesses has even been the reason behind some acquisitions and mergers in the supermarket sector in recent
years.
It is perhaps surprising to note, however, that the penetration of supermarkets and hypermarkets is highest in the
Latin America markets, where private label has so far made little progress. While supermarkets/hypermarkets
accounted for over 40% of retail sales in Mexico and Colombia in 2003, and over 30% of retail sales in Chile,
Brazil and Argentina, private label penetration is only at 2% or less in these markets. This is in part due to the
fact that most supermarkets in the region are still small or independently owned, and do not have the means to
develop their own private labels. Nevertheless, large chains are growing throughout Latin America, and this
suggests that there is plenty of potential in these markets for the further development of private labels.
Retailer concentration breeds high private label activity
Page
12
Strategy Briefings
World
Apart from the Latin American markets, France and Switzerland show the highest penetration of supermarkets
and hypermarkets, at 37% and 32%, respectively. Notably, these are two of the markets where retailer
concentration is at its highest. The Swiss retail market is heavily dominated by two retailers (Migros and Coop),
and also has the highest level of private label penetration. The French market is also dominated by large retail
chains, which pioneered the hypermarket concept and were also among the forerunners of private labels
notably Carrefour with its Produits Libres.
The US has a relatively low penetration of supermarkets, with only 20% of retail sales derived from this channel
in 2003. This is partly due to the importance of mixed merchandisers such as Wal-Mart and Target, which also
offer a wide selection of groceries. Indeed, these can be considered as the US equivalents of the European
hypermarket concept, as they sell everything under one roof, while supermarkets rarely sell much other than
food. Furthermore, the US supermarket trade is still fairly fragmented, which has hindered private label
development.
Emerging markets hold strong growth potential
The lowest penetration rates of supermarkets are found in several emerging markets in the Middle East and
Asia-Pacific. Retailing in these markets is largely unorganised, and consists of small local outlets and market
stalls. For example, in India, supermarkets accounted for just 0.3% of retail sales in 2003. In this market,
traditional retailers benefit from low operating costs and overheads, proximity to customers, long opening hours,
and additional services to customers (such as home delivery). Nevertheless, supermarket sales are expanding
rapidly in India. Greater numbers of higher income Indian consumers prefer to shop at supermarkets due to their
convenience, higher standards of hygiene and the attractive ambience. This could open up significant
opportunities for private label operators in the future.
Table 2
Penetration of Supermarkets/Hypermarkets by Market 1999/2003
% value sales
Mexico
Colombia
France
Chile
Switzerland
Brazil
Argentina
Hungary
South Africa
Denmark
UK
Finland
Japan
Malaysia
Sweden
China
Spain
Portugal
Netherlands
Australia
Israel
Venezuela
US
Germany
Czech Republic
Italy
Poland
Ireland
Belgium
Norway
Greece
1999
2003
% point
growth 1999/
2003
44.3
37.3
36.7
28.6
29.0
30.8
40.5
24.8
27.8
27.8
28.8
27.2
28.5
18.2
23.3
23.0
22.4
18.0
23.1
24.2
15.7
18.8
20.5
19.7
11.7
18.5
12.3
17.3
15.3
20.3
13.6
44.2
40.4
37.1
34.8
32.3
32.3
31.6
29.3
27.5
26.3
26.1
25.6
25.3
25.0
24.5
24.0
23.2
21.9
20.7
20.5
20.4
20.2
20.1
19.5
19.5
19.3
19.3
18.3
17.7
17.4
16.9
0.0
3.1
0.4
6.2
3.3
1.4
-8.9
4.5
-0.3
-1.5
-2.7
-1.7
-3.3
6.8
1.2
1.0
0.7
3.8
-2.5
-3.7
4.7
1.5
-0.4
-0.2
7.8
0.8
7.0
1.0
2.4
-2.8
3.4
Page
13
Strategy Briefings
World
13.4
17.1
20.6
3.9
12.0
11.8
11.0
8.2
4.1
4.6
4.7
1.9
25.4
5.6
4.3
4.0
0.1
0.2
Singapore
Canada
Austria
Slovakia
Hong Kong
Taiwan
Thailand
Turkey
Saudi Arabia
Morocco
Philippines
Russia
New Zealand
South Korea
Egypt
Indonesia
India
Vietnam
Source:
16.5
16.5
16.4
16.0
13.5
12.2
12.1
11.1
8.6
6.1
6.1
5.4
5.0
4.8
4.8
3.7
0.3
0.2
3.1
-0.6
-4.2
12.0
1.5
0.4
1.1
3.0
4.5
1.4
1.3
3.5
-20.4
-0.8
0.5
-0.3
0.2
0.0
3.3 Growth of Discounters

The expansion of discounters has had a significant impact on the private label market, as many of these retailers
have based their concept on selling either exclusively or mainly private label products. Discounters are
expanding strongly in many markets, which is leading to the growth of private label share in these markets.
Discounters are traditionally very strong in Northern Europe. The largest chains, such as Aldi and Lidl (Schwarz
Group) are of German origin, while others, such as Netto, are Scandinavian. In 2003, Norway had the highest
penetration of discounters, at almost 21%, a share which grew very sharply over the review period from less
than 13% in 1999. In Germany too, fuelled by the economic recession, discounters gained share from almost 9%
in 1999 to nearly 12% in 2003. Aldi pioneered the hard discounter concept in Germany in the 1940s, and has
since expanded all over the world. The simplicity and efficiency of its concept appeals to price-conscious
consumers, and Aldi has gained a reputation for high quality private label products.
Discounters are developing rapidly in Eastern Europe, as both Aldi and Lidl have pushed to expand outside their
domestic market. In both Poland and Russia, discounters increased their market share by over four percentage
points between 1999 and 2003. Discounters emerged as an important channel in these markets from 1999.
Whilst Polands leading discounter operator, Jeronimo Martins, has closed several of its Biedronka outlets
recently in an attempt to cut costs, the Lidl chain has made rapid inroads into Poland. In 2004, there were 77
Lidl stores in Poland twice as many as in 2002. In Russia, foreign discounters have so far made little impact
on the market, with the leading discounter chains, Pyaterochka, Diksi and Kopeika, being local.
The discounter concept has not been successful in all markets, however. In the UK, for example, the retail
market is highly sophisticated and consumers are used to a high level of service from supermarkets. Although
discounters such as Aldi, Netto and Lidl have penetrated this market, they have reached nowhere near the levels
achieved in other parts of Europe, and their stores tend to be frequented by less affluent consumers or those
looking for value for money.
Furthermore, the European discounter model is virtually non-existent in the US, due to the prevalence there of
mixed merchandiser discounters such as Wal-Mart and Kmart, and in Australia, where most supermarkets
already have a strong policy of discounting.
Table 3
Penetration of Discounters by Market 1999/2003
% value sales
1999
2003
% point
growth 1999/
2003
Page
14
Strategy Briefings
World
12.8
8.6
10.5
9.4
7.6
6.7
3.5
0.4
3.2
3.6
1.8
2.2
0.9
2.2
1.7
2.1
2.8
2.1
1.0
1.7
1.0
0.2
0.0
0.7
0.3
0.1
Norway
Germany
Denmark
Belgium
Hungary
Austria
Poland
Russia
Czech Republic
Portugal
Sweden
Netherlands
Argentina
Switzerland
Slovakia
Israel
Italy
France
Egypt
UK
Greece
Ireland
Finland
Turkey
Saudi Arabia
Australia
Source:
20.8
11.8
10.8
10.6
9.8
9.4
7.5
4.6
4.3
4.3
3.9
3.7
3.1
3.0
2.8
2.6
2.6
2.1
1.9
1.6
1.5
1.4
1.1
1.0
0.5
0.0
8.0
3.2
0.3
1.2
2.2
2.8
4.0
4.2
1.2
0.7
2.1
1.5
2.2
0.8
1.1
0.5
-0.2
0.0
1.0
-0.1
0.5
1.2
1.1
0.3
0.2
0.0
4. LEADING RETAILERS
4.1 Overview of Retailers
The following table lists some of the worlds largest retailing groups which operate in the private label market.
However, the total size of the retailer does not necessarily relate to its strength in private label. Leading US
retailer Wal-Mart is by far the worlds largest retail group, with total sales of US$244.5 billion in 2003, but only
around 20% of its sales are currently derived from its private labels. Indeed, Wal-Mart still claims to be a
national brand company first, with its private label provided to service the customer as an alternative, although
some of its private labels are very important to the retailer.
On the other hand, specialists such as Ikea and The Gap carry exclusively private labels. Most retailers, in fact,
offer a mix of private label and branded products, which tends to represent between 20% and 40% of their sales.
Summary 1
Selected Retailers in Order of Total Size 2004
Retailer
Country of
origin
Sector
involvement
2003 sales
(US$ billion)
Principal fascia
Private label
share
Wal-Mart
US
Large mixed
retailers
244.5
Wal-Mart,
Sams Club,
Asda
20%
Carrefour SA
France
Hypermarkets,
supermarkets,
discounters,
convenience
stores, cash
and carry
76.3
Carrefour,
Champion, Dia,
Ed, 8 Huit,
March Plus,
Promocash,
Proxi, Shopi
N/a
Metro AG
Germany
Cash and carry,

hypermarkets,
supermarkets,
DIY stores,
department
57.3
Metro, Makro,
Extra, Real,
Media-Saturn,
Praktiker,
Kaufhof
N/a
Page
15
Strategy Briefings
World
stores
Target Corp
US
Large mixed
retailers,
department
stores
43.9
Target,
Mervyns,
Marshall Fields
N/a
Tesco
UK
Convenience
stores,
supermarkets,
hypermarkets,
discounters
43.8
Tesco Extra,
Tesco
Superstore,
Tesco Metro,
Tesco Express,
Crazy Prices,
Savia
N/a
Royal Ahold AV
Nether-lands
Supermarkets
43.8
Stop & Shop,

Giant-Landover,
Giant-Carlisle,
BI-LO, Albert
Heijn,
Schuitema,
Etos, Gall &
Gall, Albert,
Bompreo,
Disco, Tops
30%
ITM Group
France
Hypermarkets,
Supermarkets,
Discounters,
Convenience
stores, DIY
stores, Car
servicing,
Clothing stores
42.7
Intermarch,
Ecomarch,
Netto, Esapce
Temps, Les
Relais des
Mousquetaires,
Bricomarch,
Logimarch,
Stationmarch,
Vtimarch
33%
Sears, Roebuck
& Co
US
Department
stores, clothing
stores, DIY
stores
41.1
Sears, Sears
Hardware,
Orchard Supply
Hardware, The
Great Indoors,
Lands End
N/a
Walgreen
Company
US
Pharmacies/dru
gstores
32.5
Walgreens,
Walgreens
RxPress,
Walgreens
Pharmacy,
Walgreens
Health
Initiatives
11%
Auchan
France
Hypermarkets,
supermarkets,
convenience
stores,
discounters,
DIY centres,
sports good
outlets,
electrical stores,
department
stores and
variety stores
30.7
Acima,
Alcampo, Atac,
Auchan,
Bricocenter,
Elea, Jumbo, La
Rinascente,
Leroy Merlin,
Po de Acar,
RT, Sabeco,
SMA, Upim
20% (food),
80% (non-food)
Schwarz Group
Germany
Discounters,
hypermarkets,
cash and carry
30.7
Lidl, Kaufland
N/a
Page
16
Strategy Briefings
World
Aldi Group
Germany
Discounters
30.6 2
Aldi
90%
J Sainsbury
UK
Supermarkets,
convenience
stores
30.3
Sainsburys
40%
Spar
Netherlands
Convenience
stores,
supermarkets,
hypermarkets
24.2 2
Spar, Eurospar,
Interspar, Spar
Express
N/a%
Casino
GuichardPerrachon
France
Hypermarkets,
supermarkets,
discounters,
convenience
stores, variety
stores, cash
and carry
20.8
Gant, Libertad,
Extra, Exito,
Optimo, Big C,
Casino, Disco,
Devoto, Po de
Acar, Ley,
Cada, Franprix,
Leader Price,
Barateiro,
Smart & Final,
United Grocers,
Monoprix, Petit
Casino, Vival,
Eco Services,
Cora,
Score/Jumbo,
Cash & Carry,
Eletro, Konmar,
Super de Boer,
Edah
N/a
Daiei
Incorporated
Japan
Supermarkets,
hypermarkets,
department
stores,
discounters,
convenience
stores, clothing
and footwear,
electronics,
toiletries and
entertainment
goods
18.8
Athine, Big A,
Bonte,
Cordoba,
Crabtree &
Evelyn, Daiei,
D-Mart,
Gourmet City,
Half & Top,
Kous, Lawson,
Lobelia,
March,
Maruetsu,
Media Valley,
Palex,
Printemps,
Robelt, Topos,
Vandle, Warner
Bros Studio
Store, Zenon
13%
Delhaize
Belgium
Supermarkets,
discount stores,
drugstores, pet
food stores,
electrical stores
18.8 2
AD Delhaize,
Alfa Beta,
Delhaize Le
Lion, Delhaize
City, Delvita, Di,
Food Lion,
Hannaford,
Kash n Karry,
Mega Image,
Proxy, Sama,
Shop n Go,
Shop n Save,
Super Indo,
Tom & Co,
Food Lion
Thailand
17% (Food
Lion), 30%
(Delhaize
Belgium)
Page
17
Strategy Briefings
World
Loblaw
Companies
Limited
Canada
Supermarkets,
convenience
stores, general
merchandise
17.9
Loblaws,
Provigo,
Fortinos, Zehrs,
Your
Independent
Grocer, Atlantic
Superstore
22%
Karstadt-Quelle
Germany
Department
stores, mail
order, specialist
retail stores
17.3
Karstadt, Hertie,
Wertheim,
KaDeWe,
SinnLeffers,
Quelle,
Shauland,
WOM, Golf
Haus,
Wehmeyer,
Runners Point,
Rat und Tat
N/a
Coles Myer Ltd
Australia
Supermarkets,
liquor stores,
department
stores, office
supplies,
furniture and
household
appliances
16.9
Kmart,
Officeworks,
Target, Myer
Grace Bros,
Megamart,
Coles, Bi-Lo,
Liquorland,
e.colesmyer
8% (Coles),
17% (Bi-Lo)
The Gap
US
Clothing stores
15.5
Gap, GapKids,
BabyGap,
GapBody, Gap
Maternity,
Banana
Republic, Old
Navy
100%
Marks &
Spencer
UK
Large mixed
retailers
13.5
Marks &
Spencer, Kings
100%
PinaultPrintempsRedoute
France
Department
stores,
Furniture and
furnishings and
household
appliances
stores, leisure
goods stores,
mail order
13.4 1
Conforama,
Fnac,
Printemps, La
Redoute,
Cyrillus,
Somewhere,
Vertbaudet,
Gucci, Yves
Saint Laurent,
Bottega Veneta,
Sergio Rossi,
Boucheron,
Balenciaga,
Stella
McCartney,
Alexander
McQueen,
Orcanta
30% (Printemps)
Ikea Group
Sweden
Furniture stores
12.6
Ikea
100%
7-Eleven Inc
US
Convenience
stores
11.4
7-Eleven
N/a
Boots Group
Plc
UK
Pharmacies/dru
gstores
8.8 1
Boots The
Chemist
35%
Source:
Notes:
Euromonitor
1 Includes activities outside of retailing and wholesaling
2 Sales in 2002
Page
18
Strategy Briefings
World
Private label shares are largely estimates
4.2 Retailer Concentration

One of the most prominent trends in the retail sector worldwide is consolidation, with many mergers,
acquisitions and divestments taking place in recent years. This causes problems with regard to private labels,
due to the increasing number of fascia and retailer types being brought under single ownership, and has caused
several major retailers to re-think their private label strategies.
One of the most significant mergers to take place in recent years was that of the French Carrefour group with
Promods in 2000, as this made Carrefour the leading European retailer and allowed it to reach the critical size
necessary to compete in global markets with other competitors, notably Wal-Mart. Carrefours merger with
Promods led to a significant reorganisation of the whole group and its brand portfolio, as it moved from a
single-format hypermarket retailer to a multi-format retail group of hypermarkets, supermarkets, convenience
stores, discount stores, and cash and carry stores. Moreover, European anti-trust legislation forced the group to
sell several outlets in France, as well as in Spain, where Promods was present under its Continente fascia
brand. Carrefour subsequently gathered all its hypermarkets under the Carrefour fascia and its supermarkets
under that of Champion. In France, this evolution within some outlets led to a decline in market share, with
some customers being disturbed by the loss of their usual products and brands and the subsequent lack of
information on the new products sold in their hypermarket.
More recently, the most important development in the UK was the sale of the major supermarket chain Safeway.
The 480-strong Safeway chain was eventually taken over by Morrisons, a transaction approved in March 2004
by the UKs Competition Commission, on the condition that the new group divest some Safeway stores. This
came after a five month investigation, during which the competition watchdog blocked Morrisons larger rivals,
Asda, Tesco and J Sainsbury, from buying the chain, stating that any such deal would operate against the public
interest. The acquisition will allow Morrisons to become a national player, but will lead to a completely new
positioning for Safeway, traditionally an upmarket leader, given that Morrisons operates on a pile-it-high and
sell-it-cheap policy. The other major UK grocery retailers have focused on buying up small supermarkets and
convenience stores in order to increase their shares in neighbourhood districts. This is the case of Tesco, for
example, which acquired Adminstore, a chain of 45 outlets in the London area; and J Sainsbury, which acquired
Bells Stores, a chain of 54 convenience stores in the Northeast of England.
The most important event in the US retailing world in 2004 was the announced merger of Kmart and Sears
Roebuck, two of the countrys largest retailers, in November, in a US$11 billion deal that will create the
countrys third largest retailer, Sears Holdings. Kmart was rescued from bankruptcy by pioneering investor
Edward Lampert in 2002, who also took a stake in Sears Roebuck. As the latter began to expand beyond the
shopping mall concept, in the face of competition from out-of-town mass merchandisers, it seemed natural to
Lampert to consider merging the two. The combined group will have sales of US$55 billion a year and operate
2,350 main stores and more than 1,000 speciality stores. Most Kmart and Sears stores are to continue trading
under their own names, but a few Kmart stores especially those outside shopping malls will switch to the
Sears banner. These will be added to the 50 Kmart stores that Sears bought earlier in 2004, which have already
been converted. This could herald the start of other such mergers, as US retailers attempt to fend off the
competition from Wal-Mart and Target.
Target itself sold off both Marshall Fields, its own department store chain, and Mervyns, a middle-market
store chain, earlier in 2004, in order to concentrate on open-plan, warehouse-style stores. In an opposite move,
another major department store operator, JCPenney, sold off its Eckerd Drug chain in order to concentrate on its
core department store business. Separate blocks of Eckerd were sold to another drugstore chain, CVS, and Jean
Coutu of Canada. With the acquisition of 1,260 Eckerd outlets, CVS has become the USs leading drug retailer
in terms of outlets, with more than 5,400, although total sales are still behind those for Walgreens.
Traditionally, Japans retailing industry has not been characterised by mergers and acquisitions, with many
retailers, including leading retail conglomerate Ito Yokado, opposing such moves for conservative cultural
reasons. However, in recent years this has begun to change, with the threat posed by foreign retailers
encouraging large Japanese retailers to expand their networks, and the financial difficulties being faced by many
retail operators making directors more receptive to the idea of merging with other companies. A high profile
merger occurred between struggling department store operators Seibu and Sogo in June 2003. The new
company formed by the merger, Millennium Retailing Inc, is expected to become the second largest department
store retailer in terms of sales in Japan in the near future.
Page
19
Strategy Briefings
Summary 2
World
Major Mergers, Acquisitions and Disposals in the Retail Sector 2000-2004
Retailer
Country of origin
Action
Year
Wm Morrison
Supermarkets Plc
UK
Acquisition of Safeway,
UKs fourth largest
grocery chain
2004
JCPenney
US
Divestment of drugstore
chain Eckerd Drug
2004
Sears Roebuck
US
Agreement to merge with

Kmart
2004
Target
US
Disposal of department
store chain Marshall
Fields, and Mervyns
2004
Royal Vendex KBB
Netherlands
Acquisition of French DIY

chain Leroy Merlin
2003
Seibu
Japan
Merger with fellow

department store Sogo
2003
CVC Capital Partners
US
Acquisition of European
retail groups Han Anders
Group; Kijkshop; Perry
Sport; Siebel Group;
Scapion; Prnatal/Royal
Vendex KBB
2002
Carrefour SA
France
Acquisition of part of
Belgian GIB group after
its liquidation
2001
Carrefour SA
France
Acquisition of Promods
group
2000
Source:
Euromonitor
5. THE PRIVATE LABEL MARKET

5.1 Global Trends
Global private label market size
The private label market for groceries alone (including food, drink, OTC healthcare, cosmetics and toiletries, pet
food, household cleaning products and disposable paper products) is estimated by Euromonitor to have been
worth more than US$106 billion globally in 2004. If private label clothing were included, this value would be
much higher. Overall, private label accounted for some 16% of total global retail sales in the sectors covered.
Most of the worlds private label sales are concentrated in Europe and North America, with the former
accounting for as much as 59% of sales in the above-mentioned categories in 2004. Although North America
has the largest total retail market, private labels are less developed in this region compared to Europe, due to the
fragmented nature of supermarket retailing there. Thus, North America accounted for only around 37% of global
private label sales in 2004. Throughout most of Latin America and Asia-Pacific, private label is still in its
infancy, although it is growing strongly in many cases. The share accounted for by regions outside Europe and
North America is estimated to have grown from 3% 2003 to 4% in 2004.
Overall, the global private label market has been buoyant in recent years, with estimated growth of 5% in 2003
and 6% in 2004. Perhaps the single most important factor affecting growth of private label has been the
development and consolidation of chained grocery retailers, both in developed and emerging markets, but
particularly in the latter. International multiples, such as Carrefour, Tesco and Wal-Mart, which all operate
extensive private label programmes, have expanded both within their core markets and into emerging markets,
which has generally increased the range of private labels on offer. Similarly, discounters such as Aldi and Lidl,
Page
20
Strategy Briefings
World
which have very strong private label policies, are rapidly penetrating new markets around the world. This has
not only added to the pool of private label products on offer, but has also forced local retailers to increase their
offer of private label products in order to remain competitive. As discounters continue to expand, this trend is
expected to continue in the future.
The value of the global private label market has also been boosted by trends towards more expensive, valueadded private label products. These include premium ranges, products designed to appeal to specific market
segments, and organic and low-fat lines.
Chart 5
Private Label Value Breakdown by Region
% value
Source:
Global private label shares by sector

Although private label products have penetrated most market sectors and have become increasingly
sophisticated, it is still the case that their share is highest among commodities. For example, private label
reaches double-digit shares in both disposable paper products and packaged food (as a whole), whilst its share is
lowest in areas where brand image is very important, such as spirits and beer, and those that are highly
technical, such as consumer electronics.
In some subsectors, such as carbonated drinks, baby food and confectionery, it is still very difficult for private
label products to gain a significant share. This is due to these areas dominance by major global players that
have a very strong heritage, such as Coca-Cola, Nestl and Mars. The strong brand images and high quality of
Coca-Cola and Pepsi-Cola, for example, mean that even if retailers such as Sainsburys of the UK claim to have
achieved a very similar taste to these brands, they will never be able to penetrate the subsector to a great extent.
Similarly, with regard to baby food, parents are highly demanding of quality, and it seems that only longstanding suppliers such as Nestl are able to inspire complete trust.
Page
21
Strategy Briefings
World
Certain categories have not been well suited to private label in the past. This is the case of products associated
with luxury and prestige, such as fragrances and jewellery, as well as copyrighted products such as books and
CDs. Nevertheless, in some cases, retailers have managed successfully to launch private label products in these
sectors. For example, Wal-Mart and Target in the US have popular jewellery departments, and Wal-Mart
recently extended this model to its UK subsidiary, Asda, which is launching jewellery under its George label. In
the case of media products, UK retailer Marks & Spencer sells both books and CDs under its St Michael brand.
Private label retailers have also had difficulty in penetrating the cosmetics and toiletries sector as a whole,
accounting for only 2.5% of value sales in 2004. However, they are gradually making inroads into some
subsectors, due to innovative marketing strategies, the introduction of premium products and co-branding
initiatives.
Table 4
Global Private Label Share in Selected Categories 2001-2004
% value
2001
2002
2003
2004
Retail disposable paper products
13.3
13.9
14.6
15.2
Packaged food
Ready meals
Chilled processed food
Dairy products
Frozen processed food
Spreads
Canned/preserved food
Pasta
Dried processed food
Oils and fats
Sauces, dressings and
condiments
Ice cream
Soup
Sweet and savoury snacks
Bakery products
Confectionery
Baby food
11.6
20.7
18.2
18.6
16.8
15.2
13.8
13.7
11.2
10.5
8.0
12.0
21.6
19.1
18.8
17.2
15.9
14.6
14.6
11.6
10.8
8.5
12.2
22.6
19.9
18.3
17.9
16.2
15.5
15.4
11.6
11.1
9.0
12.5
23.6
20.8
18.3
18.4
16.8
16.3
16.3
11.9
11.4
9.5
8.1
7.4
7.7
7.4
3.2
1.2
8.1
7.8
7.8
7.6
3.3
1.4
8.2
8.1
8.3
7.8
3.4
1.4
8.2
8.4
8.5
8.1
3.6
1.6
Pet food
11.2
11.2
11.4
11.4
Spirits 1
1.4
1.4
1.5
1.5
Beer 1
1.7
1.7
1.3
1.3
8.1
15.2
10.5
12.2
5.4
5.0
1.2
1.4
8.1
15.1
10.5
9.3
5.4
5.1
1.3
0.9
8.1
15.0
10.5
9.2
5.4
5.1
1.4
0.8
8.1
14.9
10.5
6.4
5.4
5.2
1.5
0.4
6.6
6.2
8.6
6.6
6.2
8.5
6.6
6.2
8.4
6.6
6.2
8.3
5.5
14.7
9.1
6.9
5.8
5.6
4.6
5.9
16.0
9.5
7.2
6.0
5.6
5.0
6.3
16.6
10.3
7.5
6.5
5.7
5.4
6.6
17.7
10.8
7.8
6.8
5.7
5.8
Soft drinks 1
Fruit/vegetable juice
Bottled water
Concentrates
Carbonates
RTD tea
Functional drinks
RTD coffee
Hot drinks
Coffee
Tea
Household care
Chlorine bleach
Dishwashing products
Toilet care products
Surface care
Air fresheners
Laundry care
Page
22
Strategy Briefings
World
Polishes
Insecticides
3.0
1.6
3.2
1.7
3.4
1.8
3.6
1.9
Cosmetics and toiletries

Sun care
Bath and shower products
Baby care
Oral hygiene
Mens grooming products
Deodorants
Skin care
Hair care
Colour cosmetics
Fragrances
2.2
4.8
4.0
3.7
4.0
3.0
2.0
2.0
2.0
0.8
0.4
2.3
5.1
4.3
3.9
3.9
3.1
2.2
2.1
2.1
0.9
0.4
2.4
5.2
4.7
4.0
3.9
3.1
2.3
2.2
2.1
1.0
0.4
2.5
5.4
5.0
4.2
3.8
3.2
2.5
2.3
2.2
1.1
0.4
OTC healthcare
Wound treatments
Smoking cessation aids
Analgesics
Cough, cold and allergy
(hay fever) remedies
Digestive remedies
Medicated skin care
Vitamins and dietary
supplements
Childspecific
Eye care
6.1
11.5
14.8
8.4
6.2
13.2
15.5
8.1
6.2
13.9
13.3
8.0
6.2
15.3
13.0
7.8
5.8
6.7
5.8
5.1
5.7
6.5
6.0
5.2
5.5
7.2
5.8
5.2
5.4
7.3
5.9
5.3
4.3
3.1
4.3
3.0
4.2
2.0
4.2
1.6
Large kitchen appliances 1

Consumer electronics 1
6.1
0.5
6.2
0.5
6.1
0.6
6.1
0.6
Source:
Note:
1 = shares by volume
5.2 National Market Trends

Leading private label markets
The big four
Although the US private label market is less developed than some European markets in terms of share of total
sales, in absolute terms it is by far the worlds largest private label market, with sales through grocery and mass
merchandise retailers valued at around US$31.1 billion in 2004. The market for private label products in the US
has been somewhat limited in the past by the lack of consolidation in the US grocery retailing industry, and the
strength of international branded products in this market. Nevertheless, as retailers such as Wal-Mart and Target
continue to expand throughout the national territory, this is contributing to slow but sure growth in private label.
Indeed, although private label sales (excluding those of Wal-Mart) were estimated by ACNielsen to have
declined by around 1% in 2003, Wal-Marts private label sales reportedly continued to grow strongly in that
year, by around 12%. These trends are likely to have continued into 2004, given Wal-Marts strong expansion.
As Wal-Marts private label sales are estimated to be worth over US$5.0 billion, this is estimated to have had
the effect of contributing to an overall rise in US private label sales of almost 1%.
The other two major developed markets for private label, in terms of absolute value, are Germany and the UK.
Germany is estimated to have edged ahead of the UK in 2004, to reach sales of US$15.2 billion, while sales in
the UK amounted to an estimated US$13.9 billion in that year. Private label sales in Germany have grown
strongly, due both to the depressed economic conditions in this market, which have led consumers to seek better
value products, and the pressure exerted by discounters such as Aldi. This has forced supermarket operators to
expand their private label ranges in order to remain competitive. In times of economic downturn, German
consumers have sought high quality private labels at low prices, such as those offered by Aldi and Lidl. All the
major supermarket retailers now offer extensive private label lines, including Rewe (with more than 170 private
labels spanning over 1,200 products), Tengelmann (with around 1,100 private label products) and Edeka.
Page
23
Strategy Briefings
World
Private label is a strong feature in the UK, due to its highly developed and concentrated supermarket network.
As UK consumers tend to be very loyal to their preferred retailer brand, the competitive focus is at the store
level, and this is where it has been imperative for retailers to create a persuasive consumer connection. In order
to accomplish this objective, UK retailers have had to elevate themselves above the competition by offering
comprehensive product ranges, especially in categories where national brand manufacturers offerings do not
suffice. This has included the development of a large number of premium private label products, which has
added value to the UK market. Retailers have made a conscious attempt to exploit a new generation of
consumers with high levels of disposable income, who make more sophisticated and politically aware shopping
decisions, and have also launched product lines designed to appeal to hard-working consumers with busy
lifestyles. Example of this are Tescos Finest range of premium products, worth over 500 million annually, and
Sainsburys Taste the Difference and dietary-led FreeFrom ranges. Private label products play an important role
in UK drugstore and chemist retailing. Boots The Chemist, in particular, is strongly reliant on its private label
brands, which account for as much as 40% of its sales annually.
The fourth major private label market is France, with sales amounting to some US$9.1 billion in 2004. French
retailers were among the pioneers of private label products in the 1980s in particular Carrefour, which
introduced its first generics in 1976 and now has over 2,000 private label food products. The development of
private label in France was spurred by the introduction of the Galland law, which redefined the threshold for
selling branded products at a loss, and consequently encouraged multiple operators to concentrate on private
label merchandise as a way of increasing margins. Intermarch, with its investment in manufacturing, has the
highest ratio of private labels, which account for one third of its turnover.
Spain catching up
Behind these top four markets, only Spain achieved private label sales of more than US$4.0 billion in 2004,
having witnessed growth of around 10% in that year to reach US$4.1 billion. Private label growth in Spain has
been fuelled by strong progress in retail sales in general, due to relatively buoyant economic conditions.
Furthermore, as competition between Spains large grocery retail chains has increased, retailers have looked to
private label as a way of remaining competitive. In the same way as the UK, Spanish private labels have become
increasingly segmented and sophisticated. Eroski and CC Carrefour have been particularly active in adding
premium lines and diversifying into new product sectors. The growth of hypermarkets in Spain over the review
period also provided opportunities for greater penetration of private labels, in both the food and non-food
segments.
The only other market to have recorded private label sales of more than US$3.0 billion in 2004 was Canada.
Like France, its private label sales grew moderately in 2004, by an estimated 5%. Canadas strong private label
market is largely due to its high level of retailer concentration. The Loblaw Company, by far the countrys
leading retailer, has a very strong private label policy. Not only did it pioneer private label in the Canadian
market, it is also renowned for taking this concept to new heights with the introduction of its bargain No Name
and premium Presidents Choice brands. Presidents Choice has achieved such high consumer recognition that it
has virtually become a brand in itself, albeit one that has exclusive distribution in Canada, and is even being
exported.
Chart 6
Leading Private Label Markets by Value 2004
US$ million
Page
24
Strategy Briefings
Source:
Note:
World
ACNielsen, Euromonitor International

Based on sales of food and drink, pet food, disposable paper products, household cleaning products, OTC
healthcare, cosmetics and toiletries; includes sales through supermarkets, hypermarkets, mass merchandisers;
as well as drugstores and convenience stores where available
Fastest growth markets

Philippines leads growth but from tiny base
By far the most dynamic market for private labels in 2004 was the Philippines, where sales are estimated to have
doubled in that year. However, the Philippines is an example of a private label market that is still very much in
its infancy, with sales reaching an estimated level of just US$300 million in 2004. Private label is gaining
popularity among low income households, as these products are still mainly of lower quality and price than
branded products. One of the largest private label brands in the Philippines is SM Bonus from the SM
Supermarket chain, with 15 outlets.
Poland is another market in which private label is growing very strongly, with sales estimated to have increased
by some 90% in value in 2004. Again, this was from a relatively small base, with sales reaching only US$475
million. The main reason for this growth is the expansion of foreign retail chains in Poland, and especially
discounters. The first retailer to introduce private labels in Poland was Makro Cash and Carry (owned by
Germanys Metro AG) in 1997. Most of the multinational operators of hypermarkets, supermarkets and cash and
carry outlets have their own private label products. The largest private label retailer is Gant Polska, with its
Leader Price discounter label. There are already some 120 Leader Price outlets in Poland, which sell exclusively
private labels, and Leader Price branded products are also sold in Gant hypermarkets in Poland. Polish retailers
started to introduce private label products in 2002. Polomarket, which operates more than 100 medium-sized
stores in central and northern Poland, was the most active of these, and currently has about 200 private label
products.
Other strong growth markets for private label include the Czech Republic, Thailand, Argentina and Hungary,
which are all estimated to have recorded private label sales increases of over 40% in 2004. The Czech Republic
and Hungary witnessed similar developments to Poland, with growth spurred by the expansion of international
Page
25
Strategy Briefings
World
grocery retailers and growing purchasing power in these markets. Private label sales stood at US$114 million in
the Czech Republic and US$250 million in Hungary in 2004.
Private label in Thailand and Argentina is still in its early stages of development, with growth in Argentina
spurred by the strong economic recovery in 2004. South Africa also achieved significant growth in private label
sales, of 25%, and is estimated to have overtaken Canada in absolute terms in that year, with sales of almost
US$3.9 billion.
Two highly developed countries also featured in the list of fastest growing private label markets in 2004, these
being Japan and Sweden, with increases of 25% and 20%, respectively. Indeed, while Sweden was a forerunner
of non-food private label products, through retailers such as IKEA (furniture) and H&M (clothing), it has lagged
behind most markets in terms of private label grocery sales, and is only now beginning to catch up.
Japan lags behind
Private label development was hindered in the past in Japan both by the fragmented nature of the supermarket
trade, and also due to the fact that Japan is a very brand conscious society. However, this has gradually changed,
as the deteriorating economy has made consumers more price sensitive and thus more open to lower priced
private label brands. Despite the fact that price discounting on branded products in Japan has narrowed the gap
in price between private label brands and other brands, retailers have, on the whole, become more inclined to
market their private label brands and allocate greater and more prominent shelf space to them as they seek to
enhance their profit margins.
Chart 7
Fastest Growing Private Label Markets by Value 2004
% growth
Source:
Note:

Page
26
Strategy Briefings
World
Private label share in developed markets

Switzerland has highest private label penetration
In terms of share of retail sales, Switzerland is by far the worlds most developed market for private label,
although in absolute terms it is a very small market. Private label is believed to have accounted for as much as
39% of value sales in the sectors under review in 2004. This is due to the exceptional power of Switzerlands
two largest retailers, Migros and Coop, which operate very strong private label policies. As much as 90% of
Migros product mix and 54% of that of Coop Switzerland consists of private label, with most products
manufactured in the retailers own factories. For example, the manufacturer Mibelle is a 100% subsidiary of
Migros, and is the main supplier of cosmetics and toiletries.
The mutually exclusive policies of Coop and Migros severely restrict access to consumers, effectively cutting
out between 25% and 30% of the market for any manufacturer of branded goods. The strong position of retailers
also means that only the largest brands, or those occupying a specialised niche, will be able to secure long-term
space on the shelves, while minor brands are threatened with de-listing.
The UK and Germany rank second and third in the world with regard to the private label share of total sales, as
well as being third and second, respectively, in absolute terms. Their shares in 2004 were estimated at 31% and
29% by value, respectively. However, the UK market is believed to have reached maturity, and its share
remained static in 2004, following a slight decline in share in 2003. This is due largely to efforts by
manufacturers to compete by lowering prices and introducing special offers. According to ACNielsen, private
label sales in the UK grew by less than 1% in 2003, while sales of manufacturer brands rose by 6%.
Benelux sees growing share
Two markets that are relatively small in absolute value terms but have a high percentage of private label
products are Belgium and the Netherlands. According to the Private Label Manufacturers Association (PLMA),
both markets witnessed a rise in the share of private label products in 2003, which is thought to have continued
into 2004. This was largely due to the weak economic environment, since private labels in both markets are seen
as cheaper alternatives to branded products, and Dutch and Belgian consumers tend not to attach the same
importance to brands as consumers in other European countries.
Major retailers in the Netherlands have recently stepped up their private label activities considerably, in
response to the fierce price war that has been raging in the country since October 2003. Albert Heijn (owned by
the Ahold group) announced in September 2004 that it would further reduce the prices of around 1,000 own
brand products by 10-60 cents, and Super De Boer (owned by Laurus NV) was expected to follow suit. The
measures are also in response to the competitive threat posed by German discounters, which are expanding
rapidly in the Netherlands. In Belgium, the PLMA reported that private label gains were particularly strong in
the disposable paper products category, and that retailer and wholesaler brands now represent more than half of
the products sold in the frozen, paper products and pet food categories.
The only other countries to record a private label share above that of the global average were Spain, France and
Canada, all of which have fairly mature and well developed private label markets. The US has an average
private label share of 16%, which is reflected in its comparatively low rate of supermarket consolidation.
However, private label is growing in this market. According to research company Hoyt, store brands were
present in 280 of the 289 consumer packaged goods categories in 2004. They have 100% household penetration,
and the average shopper now buys private label products about 70 times per year.
Shares lower in smaller countries, and Italy
Among the remaining major economies, private label penetration is below average in all the Scandinavian
markets, as well as in Italy, Australia and New Zealand, and smaller markets such as Austria, Ireland, Portugal
and Greece. The latter markets are still mainly dominated by small, local chains, which do not have the means to
invest heavily in private label production and distribution. The Greek market is particularly underdeveloped,
with private label accounting for only 4% of retail sales in the areas surveyed. Nevertheless, private labels are
growing in Greece due to the increasing penetration of discounters such as Lidl and Dia. The latter already
operates 264 outlets in Greece, and offers more than 650 private label items.
Page
27
Strategy Briefings
World
The reasons why Italy lags behind its major European counterparts in terms of private label incidence are
unclear, but may be related to the strong Italian tradition of culinary quality and a perception that private label
products are low budget rather than flavoursome. However, it is likely that as the private label concept becomes
more widely accepted in Italy, the concept of offering the best value for money will increase in attractiveness.
Chart 8
Share of Private Label in Developed Markets by Value 2004
% total retail sales
Source:
Note:

Private label share in emerging markets

More advanced in Eastern Europe
In regions such as Asia-Pacific, Latin America and Africa and the Middle East, as well as Eastern Europe, the
share of private label is well below the global average. Indeed, in most cases, penetration reached less then 5%
in 2004. As private label is still embryonic in most of these countries, it consists mainly of low value and
copycat brands, and ranges are limited. Nevertheless, as foreign chains increasingly infiltrate many of these
markets, they have strong growth potential for the future.
Eastern Europe is in a more advanced stage of development than either Latin America or Africa and the Middle
East, with private label penetration having already reached an estimated 11% in Hungary and 7% in Russia by
2004. This is due to the relative proximity of the large European supermarket and discount retailers to these
Page
28
Strategy Briefings
World
markets. Major retailers such as Metro, Ahold, Carrefour, Lidl and Tesco have expanded eastwards in the face
of maturing markets in Western Europe, and brought with them their established private labels.
In Hungary, private label products are effectively filling the gap between branded and no-name products,
while carrying the latter types attractive prices. Hence, private label products have great potential for further
expansion. With German discount multiple Lidl entering the Hungarian market in 2004, the share of private
label products is estimated to have risen further, as the company offers a very strong assortment of such
products, and only plans a secondary role for traditional branded products.
The appearance of private labels on the Russian market began in supermarkets such as Ramstor and Sedmoi
Kontinent. Unlike the case in several other emerging markets, products promoted under private labels are not
essential commodities, with alcohol, fruit juices, mineral water, meat delicacies and snacks, oils and fats, frozen
convenience food, textiles, and sauces typically retailing under private label brands. Furthermore, private label
products are well regarded in the market as they are associated with high quality Western retailers. Prices are
only slightly lower than for branded goods, but the margins on private labels in Russia remain high. So far, the
main purpose for introducing private labels in Russia has not been to offer cheaper alternatives to brands, but to
increase margins.
Private label is slightly less well developed in the Czech Republic than in Hungary and Russia, with the private
label share standing at an estimated 6% in 2004. The most popular private label products sold through Czech
food retailers are beverages and long-life food. Unlike in Western countries, there is less interest in private label
drugstore products in the Czech Republic, although private label detergents, liquid soaps and paper disposable
products are popular, due to their lower prices. A recent survey revealed that 43% of Czech consumers buy
retailers private label goods, while 28% buy such products frequently. More than half of consumers visiting
supermarkets, hypermarkets and discount stores stated that they buy private label grocery goods.
Growth in Latin America linked with economic recession
In Latin America, private label has benefited from economic recession in recent years, which has forced
consumers to seek better value for money. Argentina is one such market that is developing rapidly, even though
the private label share stood at only 3% in 2004. Private label sales of the top five retailers (combined) are now
greater in Argentina than sales of the largest 20 branded manufacturers, and quality improvements are being
made as retailers seek to compete more effectively with top brands. While private label products are still on
average 30% cheaper than first-tier products, this gap has been reduced, not only due to price reductions by the
big consumer packaged goods companies, but also due to the higher mark-up on private labels by retailers.
In other parts of Eastern Europe, such as Romania and Bulgaria, private label activity is still very much in its
infancy, as these are perceived as new brands which are not advertised and are thus unknown to most
consumers. Low availability has hindered the growth of private labels in these markets, though they are
expected to develop in the future.
Asia-Pacific trails behind
Although private label is developing rapidly in parts of Asia-Pacific, it still has a negligible share in countries
such as South Korea, China, India and the Philippines. Again, this is due to the fact that retail consolidation is
still at a very low level. In India, for example, department stores and supermarket chains still constitute only a
very minor part of retail sales. As such outlets have very little bargaining power with companies selling branded
products, private label is nevertheless an interesting option for the larger retailing companies that do exist.
Indian retailer Trent relies almost entirely on private labels in its Westside department stores. This is partly
because Trent started its retail business by taking over the Indian retail operations of Littlewoods of the UK in
1998, which operated a department store in Bangalore selling its own private label. Trents management initially
considered selling branded products (to the extent of half of its business), but when it discovered that the margin
on private labels was much higher than that on branded products, it dropped this plan and retained its private
label policy.
Hong Kong is possibly the most advanced of the developing Asia-Pacific markets, with a private label share of
4% in 2003. Carrefour is one Western retailer that has successfully managed to penetrate Asia-Pacific markets,
such as Taiwan. With the exception of some private label food products and household products, most Carrefour
private labels in 2003 were marketed at a lower price than corresponding brands in Taiwan, with its best
performing brands being food and household items, and household cleaning products.
Page
29
Strategy Briefings
World
Although South Africa has one of the most advanced private label markets in the Africa and the Middle East
region, the incidence of private label in this market is still low by European or American standards, at around
8% in 2004. In South Africa, private label products are still generally seen as being of inferior quality to the
major brands, and, despite the low income status of many South African consumers, they still prefer to buy
branded products that they know and trust. Indeed, studies have shown that consumers would rather ration
themselves to smaller unit sizes of brand names at acceptable prices than switch to cheaper private label
products. However, these trends vary according to product. For example, generic teas are popular, and provide
strong competition for brand names such as Five Roses, Joko and Glen, as most consumers are unable to tell the
different teas apart, despite their real quality differences. However, in the coffee sector there are tangible
differences between branded and non-branded products in South Africa. Non-branded products are often
chicory-coffee blends that can easily be distinguished from real coffee brands such as Nescaf, which are
preferred.
Chart 9
Share of Private Label in Emerging Markets by Value 2004
% total retail sales
Source:
Note:

5.3 Sectoral Trends

Packaged food
Confectionery held back by importance of impulse shopping and strong branding
Private label shares within packaged food vary greatly between sectors, ranging from a global share of almost
23% for ready meals to just 1.4% for baby food. As previously mentioned, the sectors hardest to penetrate for
retailers are those that are dominated by very strong brands that benefit from a long heritage and are supported
Page
30
Strategy Briefings
World
by substantial advertising campaigns. This is the case of confectionery, for example, where companies such as
Hershey, Mars, Nestl, Jacobs Suchard and Cadburys provide formidable competition to retailers.
Another reason for the relatively low share of private label sales in confectionery is that a large proportion of
sales of these products are impulse sales which take place outside supermarkets and hypermarkets. In addition,
confectionery is largely regarded as a treat, rather than a necessity, and consumers are consequently more
prepared to pay a premium for branded products, especially for gifts. As a result, the market is dominated by
advertising aiming to guide and focus impulse decisions. Innovations, limited editions and brand extensions
including flavour and texture developments, such as Snickers Cruncher (Mars) or KitKat Orange (Nestl), are
constantly being launched to sustain consumer interest. It is difficult for retailers to maintain the same degree of
innovation as multinational manufacturers, tending instead to opt for copy-cat products of successful brands and
formats. Therefore, private label penetration tends to be highest in sugar confectionery, such as pastilles, gums,
jellies and chews. Private label has made little impact in gum, since gum production in general requires
sophisticated technology, and many gum manufacturers are unwilling to dilute the power of their brands by
producing private labels for retailers.
Consumers wary of private label baby food
In the case of baby food, consumers are very discerning due to safety concerns, and thus tend to stick with
branded manufacturers such as Nestl, Heinz, Groupe Danone and Numico. However, the share of private label
baby food is increasing gradually, reflecting growing confidence in the standard of retailers products in this
sector.
In 2004, Numico, the Dutch baby food producer (sold internationally under the Nutricia brand) was reported to
be under increasing pressure across Europe as supermarkets extended their private labels into this category.
Although Numico claims that retailers will not be able to compete effectively in the sector, since many of its
products come with health claims based on patented processes and technology, there is nevertheless evidence
that leading chains in Germany, France and the UK are stepping up their offer of cheaper baby food products,
and that these are finding good consumer acceptance.
Sales of private label milk formula have been further aided by new product developments such as liquid
concentrate and ready-to-drink versions. This has been spurred by developments from leading private label
manufacturers such as PBM Products Inc in the US (which produces Wal-Marts Parents Choice formula milk,
among others).
Retailers matching branded cereals
Breakfast cereal is another area that has traditionally been difficult for retailers to penetrate, due to the
dominance of category specialists Kellogg and Nestl. However, this is changing as retailers are launching
differentiated products that match the major brands in terms of quality of taste, and are supported by strong
advertising and promotions. In the US, supermarkets stepped up their promotion of store brand cereals in the
second half of 2004. For example, Shaws promoted its Honey & Nut Toasted Oats with free blow-on stickers,
while Ingels offered a blow-on sticker for Magic Stars to promote its New Marshmallow Colors and Shapes
brand. In response to concerns about the nutritional content of breakfast cereals, the Big Y chain broadened its
Nutribasics line from adult healthy cereals to cover all the sugar coated childrens cereals like Frosted Fruit
Circles. Elsewhere, Stop & Shop launched an instant oatmeal especially for women, Oatmeal for Women.
Ready meals offer good margins
Ready meals and chilled products provide retailers with an excellent opportunity to offer value-added products
and generate high margins. Private label shares of ready meals have reached particularly high levels in the UK
and Switzerland, at 71% and 69%, respectively. This is largely due to the progress made by both Sainsbury and
Tesco with their high quality ready meal brands. These include a wide range of ethnic meals that are of
takeaway standard, as well as low-calorie meals, for example under the Sainsburys Be Good To Yourself and
Tesco Healthy Living brands; and premium meals, for example under the Sainsburys Taste The Difference and
Tesco Finest brands. Private label ready meals are also popular in Japan, with Daieis Savings range the most
popular private label brand of frozen ready meals.
Elsewhere within the packaged food industry, private labels share tends to be highest for commodity products,
which do not require a high level of sophistication or quality and are relatively easy for retailers to produce
Page
31
Strategy Briefings
World
under their own brands. These include dairy products, such as milk, cheese and butter, where the global private
label share reached almost 20% in 2003; canned food (just under 16%), pasta (15%) and oils and fats (11%).
Table 5
Private Label Share of Packaged Food by Country 2001-2003
% value
Switzerland
UK
Netherlands
Belgium
Germany
France
Austria
US
Spain
Denmark
Canada
Ireland
Australia
New Zealand
Japan
Portugal
Sweden
Saudi Arabia
Colombia
South Africa
Italy
Hong Kong
Czech Republic
Hungary
Greece
Argentina
Finland
Norway
Singapore
Taiwan
Slovakia
India
Poland
Malaysia
Israel
Mexico
Chile
Brazil
Indonesia
Thailand
Turkey
Bulgaria
China
Philippines
Source:
2001
2002
2003
42.6
37.4
31.0
26.9
23.8
17.5
16.1
15.5
12.6
12.5
12.6
10.2
10.8
9.3
9.0
8.4
7.7
7.7
5.8
7.6
5.6
5.8
3.9
4.3
4.3
3.4
4.2
4.7
3.7
1.3
3.0
3.1
1.5
2.3
1.7
1.6
1.5
1.7
1.3
0.4
0.7
0.0
0.2
0.1
43.0
37.5
30.8
27.4
25.1
17.9
17.0
15.4
13.3
12.1
12.9
10.5
10.7
10.0
9.4
8.9
8.1
8.1
6.8
7.7
5.8
5.8
4.9
4.7
4.7
4.6
4.5
4.8
4.1
3.7
3.1
3.3
2.2
2.3
2.1
1.9
1.6
1.7
1.4
0.7
0.7
0.2
0.3
0.2
43.8
37.5
30.6
27.8
25.5
18.0
17.4
15.3
14.2
12.4
12.3
10.7
10.6
9.9
9.5
8.9
8.4
8.4
7.4
7.4
6.1
5.8
5.4
5.3
4.9
4.8
4.7
4.6
4.3
4.0
3.3
2.9
2.8
2.3
2.3
1.8
1.7
1.6
1.4
0.8
0.7
0.5
0.5
0.3
Pet food
The private label market for pet food is well developed and still growing, albeit gradually, given that pet food in
general is a mature and flat market. Although this sector is characterised by strong brands (such as those of
Nestl, Mars and Procter & Gamble), consumers are generally not as discerning when it comes to food for their
dogs and cats as they are with their own food or that of their children (although there is evidence that they are
becoming more so). Globally, the share of private label within the pet food market amounted to around 11% in
2003, although the share reached 36% in Germany, and over 20% in Austria, Hungary, Belgium, Switzerland
and Portugal.
Page
32
Strategy Briefings
World
Benefiting from one stop shopping

The growth of private label pet food is linked to trends towards one stop shopping, with consumers frequenting
specialist pet shops less often and purchasing their pet food with the weekly shop. This gives retailers the
opportunity to sell their private labels in an area that offers good margins. Private label pet food is now found
even in developing countries, where multiple grocers are investing increasingly, such as Thailand and India.
Multiple grocers aim to generate profits by selling both their own private label brands and branded products. On
one hand, the presence of private label tends to decrease retail value sales, as private label is cheaper than
branded products. On the other hand, retail volume sales may be much larger from private label sales than from
branded products. The objective for multiple grocers is therefore to find the right balance between value (ie
profits) and volume sales (ie economies of scale).
Trend towards premium products
Private label trends in pet food are following those of the market as a whole, ie towards premium and superpremium products. This stems from the fact that pet owners are increasingly treating their companion as a
member of the family, and as such are prepared to spend more on their nourishment. In order to benefit from the
market trend and also generate higher profits, multiple grocers, in the UK for example, have been focusing on
premium private label products, while still stocking standard private label and branded products.
In the US, Wal-Mart is an example of a company that has built a strong pet food brand in its own right. Indeed,
Wal-Marts OlRoy is the best selling dog food in the US, and many consumers are unaware that it is a private
label at all. Wal-Mart has achieved this both through aggressive pricing and attractive packaging, but also
through circumstances, as conditions were right for it to create a strong brand. Wal-Marts economies of scale
allow it to buy in bulk cheaply, and there is no dominant national brand for pet food in the US. Consumers are
willing to experiment to find a product that their pet will readily eat. Hence, customers that find one of the least
expensive brands on the shelf that is of acceptable quality will soon become loyal to that brand.
Table 6
Private Label Share of Pet Food by Country 2001-2003
% value
Germany
Austria
Hungary
Belgium
Switzerland
Portugal
Denmark
Spain
Greece
UK
Ireland
Canada
France
Norway
US
Italy
Sweden
Australia
Finland
Netherlands
South Africa
Czech Republic
Mexico
Argentina
Poland
Taiwan
New Zealand
2001
2002
2003
31.9
26.4
14.9
24.9
24.2
19.2
15.7
13.4
5.6
17.0
11.8
13.4
12.0
8.5
10.6
12.0
7.4
10.8
8.3
7.8
7.8
3.4
13.7
2.1
3.2
2.2
3.8
34.2
28.3
20.4
25.0
24.2
22.1
16.5
13.9
10.2
14.6
12.9
13.9
12.2
9.6
10.6
10.8
9.0
10.8
8.5
7.3
8.8
4.3
7.9
4.9
3.7
2.6
3.8
36.0
31.4
27.5
25.1
24.3
22.2
16.4
14.9
14.3
13.7
13.1
12.9
12.2
10.7
10.7
10.2
10.0
9.6
8.8
6.5
5.3
5.0
4.6
4.3
4.2
3.4
3.2
Page
33
Strategy Briefings
World
1.6
2.6
2.7
2.4
2.2
2.2
1.7
1.8
1.1
Thailand
Colombia
India
Japan
Asia-Pacific
Singapore
Hong Kong
Brazil
Chile
Source:
Note:
2.3
2.8
3.2
2.3
2.1
2.0
1.7
1.6
0.8
3.0
2.5
2.4
2.4
2.2
2.0
1.7
1.4
0.9
Includes dog and cat food only
Soft drinks
As with packaged food, the private label penetration of soft drinks varies from sector to sector. Its share tends to
be highest in sectors that are fragmented and not heavily branded, such as fruit juices and bottled water, and
lowest in the smaller sectors that are dominated by specialist companies, such as ready-to-drink tea and coffee,
and functional drinks.
Dominance of Coca-Cola hinders private label colas
In the carbonates sector, while private labels have gained a sizeable share of lemonade and other non-cola
carbonates in many markets, they have made few inroads into the colas sector, due to the worldwide dominance
of Coca-Cola and Pepsi. Nevertheless, in the US, significant gains in private label soft drinks have been made
by convenience store retailers. This was partly due to a decision by Cott Corp of Canada, the worlds largest
private label soft drinks producer, to tap into convenience stores for future growth.
Opportunities in fruit juices
Private label fruit juices have performed well in Western Europe, where consumers tend to be less brand
conscious with regard to these products. Additionally, the improved quality of private label fruit juice has
encouraged the consumption of such products for breakfast. Their share is particularly high in Belgium and
Germany, at 64% and 45%, respectively, in 2002. In the UK, the two top brands of fruit/vegetable juice continue
to be private labels, namely Tesco and Sainsbury. Their strength derives principally from 100% fruit juice
products, which private label dominates.
Private label bottled water has its highest share in the UK, at 41%, while the highest share of private label
concentrates is found in France, at 49%. Germany has by far the highest penetration of both private label
functional drinks and RTD tea, at 32% and 55%, respectively.
Table 7
Private Label Share of Selected Soft Drinks by Country and by Sector 2002
% volume
Belgium
Switzerland
UK
Germany
Czech Republic
Austria
Denmark
Canada
France
Netherlands
US
Spain
Portugal
Italy
Sweden
Carbonat
es
Bottled
water
Fruit
juice
Concentrates
Function
al drinks
RTD tea
21.7
14.7
28.4
19.8
21.7
22.4
22.6
15.5
13.2
13.1
6.6
10.9
11.0
8.8
6.1
34.0
35.8
41.1
18.9
19.1
13.0
10.2
24.9
12.2
6.0
36.8
12.4
13.5
7.2
8.3
64.2
42.2
45.0
53.3
18.9
25.7
17.5
15.1
35.7
20.1
16.7
35.8
18.3
22.1
11.4
8.3
12.8
15.0
29.3
5.0
18.0
49.0
23.8
15.3
4.1
6.8
18.0
4.4
10.4
2.4
31.9
7.0
1.0
1.1
4.2
0.9
1.4
0.6
35.7
49.9
15.0
54.5
5.0
24.4
5.0
30.1
18.2
8.1
4.4
9.5
17.2
Page
34
Strategy Briefings
Poland
South Africa
Australia
Finland
Hungary
Norway
New Zealand
Slovakia
Hong Kong
Israel
Chile
Japan
Mexico
Ireland
Taiwan
Greece
Colombia
Singapore
Argentina
Malaysia
India
Turkey
Brazil
Indonesia
Thailand
World
4.7
8.0
5.2
7.6
5.5
5.2
6.8
3.4
8.1
3.0
3.2
0.6
0.7
1.9
1.0
0.5
0.6
1.8
0.6
10.9
4.6
7.7
3.2
5.0
3.4
1.7
3.6
5.9
3.6
2.0
11.9
3.5
1.0
6.6
0.8
4.9
2.8
1.1
5.4
2.0
0.6
0.8
1.0
6.5
6.1
8.7
5.1
7.1
7.6
2.6
5.9
0.9
2.8
0.1
2.9
1.8
4.0
1.8
4.3
3.2
1.9
1.9
1.6
1.4
0.3
2.3
8.0
4.0
7.5
15.0
4.0
1.2
4.0
2.0
2.0
1.0
5.0
4.0
2.5
0.6
4.1
4.5
0.7
0.1
2.0
0.2
3.5
6.0
1.0
0.8
1.7
1.0
0.1
Total
market
Belgium
Switzerland
UK
Germany
Czech Republic
Austria
Denmark
Canada
France
Netherlands
US
Spain
Portugal
Italy
Sweden
Poland
South Africa
Australia
Finland
Hungary
Norway
New Zealand
Slovakia
Hong Kong
Israel
Chile
Japan
Mexico
Ireland
Taiwan
Greece
Colombia
Singapore
Argentina
Malaysia
India
Turkey
31.8
31.8
31.5
27.4
19.9
18.9
18.8
16.7
15.3
13.6
13.6
13.5
13.1
8.6
8.2
7.5
6.9
6.2
5.9
5.8
5.6
5.4
3.6
3.5
3.1
2.8
2.3
2.2
1.8
1.6
1.5
1.0
1.0
0.9
0.9
0.8
0.6
Page
35
Strategy Briefings
World
0.6
0.6
0.4
Brazil
Indonesia
Thailand
Source:
Note:
denotes negligible share or share not available
Alcoholic drinks
Private label has so far made very little impact in the area of alcoholic drinks on a global scale, as these are
markets very much tied up with brand image and quality. Furthermore, in contrast to branded products, there is
not the opportunity for private label beers, spirits or wines to be sold outside of the retail environment in
licensed premises. Consumers tend to stick with a preferred type of beer or spirit when drinking away from
home, and therefore usually seek out that same product in supermarkets. Therefore, they are unlikely to switch
to a private label equivalent. In 2003, only 1.5% of the global spirits market and 1.3% of the beer market
consisted of private label.
Private label spirits strong in Germany
However, there are certain markets where private label spirits have gained a sizeable share of the market, such
as Germany, the UK, France and, to a lesser extent, Belgium. In Germany, private label accounted for almost
20% of spirits sales in 2003. This is due to the high price sensitivity of German consumers, as well as the quality
and innovation associated with some of the countrys private label brands. Private label holds a particularly
strong share in Germany in local specialities such as Korn and Doppelkorn, and also in vodka and white rum.
However, it is less significant in drinks dominated by a few big companies, and in new, fashionable beverages,
such as beer-based FABs and tequila, as private labels have yet to imitate their innovation on a large scale.
In the UK, private label has a strong position in whisky, gin and vodka. Branded gin and vodka carry a large
premium in comparison to private label. A 1-litre bottle of Tesco Dry London Gin sells for 9.98, compared to
Gordons Special Dry London Gin at 13.49. However, a greater number of discounts on branded products has
meant that private labels share has fallen in recent years, as consumers have traded up to these more premium
products at lower retail prices.
Denmark and Spain lead in private label beers
In the case of beer, Denmark and Spain had the highest penetration of private labels, at 17% and 10%,
respectively, in 2003. However, in Denmark, private label's share of beer is declining year-on-year as brewers
have increased their focus on their branded products. Many private label beer purchases are carried out by
Swedish and Norwegian cross-border consumers, due to low prices. In France, private labels account for a
particularly high share of cider/perry sales, at 39% in 2003. This is because cider is generally of very low
alcohol content in France, and is seen as a commodity with no strong branding.
In the US, although private label beer is still negligible, some retailers have recently made efforts to build up
their own brands. For example, The Kroger Co introduced its Cerveza Caguama import beer label, which is
distinguished from national brands by its unique packaging: a cardboard box with a flip-up lid that doubles as a
cooler when ice is inserted. Also, convenience store chain 7-Eleven rolled out its own line of imported beer in
June, Santiago Cerveza de Oro. Both private label beers are competing with premium import beers, such as
Corona.
In most markets, private label remains almost negligible in the FABs sector, where brands are particularly
important as a result of the image-focused nature of the target consumer group. Private labels have nevertheless
gained a significant share of FAB sales in both Germany and France.
Table 8
Private Label Share of Selected Alcoholic Drinks by Country and by Sector 2003
% volume
Germany
UK
Beer
Cider/perry
FABs
Spirits
8.8
1.6
4.7
21.3
4.0
19.7
17.1
Page
36
Strategy Briefings
France
Belgium
Austria
Spain
Netherlands
Hungary
Greece
Slovakia
Ireland
Brazil
Switzerland
New Zealand
Italy
Denmark
Poland
Japan
Chile
Colombia
Norway
Portugal
Sweden
Czech Republic
Argentina
Mexico
Israel
Source:
Notes:
World
5.5
8.7
5.4
10.2
4.8
1.9
0.5
0.1
0.3
3.6
0.9
5.4
16.9
2.9
0.1
1.3
3.6
0.3
38.6
13.2
13.4
0.8
0.6
5.3
4.0
13.8
7.0
5.4
6.9
15.4
14.3
5.0
5.5
4.7
4.0
0.5
0.2
0.2
0.4
0.3
0.3
15.0
9.8
5.9
5.9
5.3
3.7
3.6
3.6
2.8
2.0
1.8
1.8
1.5
1.3
1.3
0.6
0.3
0.1
FAB = Flavoured alcoholic beverage
Cosmetics and toiletries

It has traditionally been difficult for retailers to penetrate the cosmetics and toiletries market, due to its
dominance by high profile manufacturers such as Procter & Gamble and LOral, and the sophistication and
technological progress of some of the categories within this market. Hence, private label shares tend to be
highest in the more basic sectors, such as sun care products and bath and shower products (at 5% in each in
2003), and lowest in those associated with image and prestige, such as colour cosmetics (1%) and fragrances
(0.4%).
However, private labels are making strong inroads into the area of cosmetics and toiletries, and their increasing
importance was a significant factor in intensifying pricing competition in major developed markets during 2003.
Major retailers significantly increased the range and sophistication of their private label offer over the review
period, as they were increasingly attracted by the margins offered by non-food products.
As a result of economic uncertainty in major markets with developed retail systems, such as the US and
Germany, and growing consumer faith in the quality of private label products, such products steadily increased
their share of global cosmetics and toiletries sales over the 2001-2003 period. This had a particularly significant
dampening effect in sectors subject to a high level of commodification, such as bath and shower products.
Private label share highest among drugstore chains
Drugstore chains tend to be the most active in private label retailing of cosmetics and toiletries. These include
Eckerd in the US (with its Mira and Naturally Mira brands); Shoppers Drug Mart in Canada (which is currently
switching its several tiers of brands to the Life brand); and Boots The Chemist of the UK. Several Boots brands,
including No 7 and Botanics, are considered as brands in their own right, and are even distributed overseas.
They are currently being trialled in US retailers Target and CVS.
In some cases, retailers have launched premium brands which compete at the top end of the market. This is the
case with CVS in the US, which imports a premium product from Finland and sells it under its premium
Lumene label. Similarly, another US drugstore chain, Rite Aid, offers the new UK import brand Umberto
Giannini for hair care, Salon Plus for nail care, 411 Hair Info for shampoos, and the food-scented Pure Spring,
and teen-orientated Spa Swami bath and shower product lines.
Page
37
Strategy Briefings
World
A need for greater sophistication

In sectors such as colour cosmetics, it is no longer viable for private label retailers to make economy products.
In order to compete in this area they must offer upmarket brands with high quality formulations. Another
notable trend in private label cosmetics and toiletries is that of solution-oriented or performance-related products
that attempt to respond to consumer skin care problems. This includes anti-ageing products, which are drawing
consumers that find the major brands too expensive. Nevertheless, retailers must create their own brand identity
for these products rather than just competing on price, in order to maintain their margins and achieve an image
of quality.
With private label penetration at a relatively low level throughout the cosmetics and toiletries industry, there is
believed to be plenty of potential for growth in this area. This is especially the case with mens toiletries, which
is a growth area in many markets. It remains very difficult for retailers to penetrate the razors segment due to the
strength of such international manufacturers as Schick and Gillette. However, private label shaving creams are
growing as these are more of a commodity item.
Table 9
Private Label Share of Selected Cosmetics and Toiletries by Country and by Sector 2003
% value
Switzerland
Austria
Denmark
Germany
UK
Belgium
Netherlands
Sweden
Singapore
Hungary
France
Canada
Spain
Portugal
US
South Africa
Italy
Norway
Japan
Slovakia
Australia
Ireland
Thailand
Greece
Chile
Turkey
Asia-Pacific
Hong Kong
Finland
Mexico
Colombia
India
New Zealand
Malaysia
Philippines
Poland
Venezuela
Argentina
Brazil
Taiwan
Indonesia
Czech Republic
Baby care
Bath
and shower
Cosmetics
Hair care
Oral
hygiene
Skin care
29.3
12.9
18.3
19.3
6.1
9.3
9.9
5.5
3.6
4.7
7.9
2.7
1.0
2.5
6.9
7.4
5.2
1.8
9.0
0.5
0.7
0.6
1.5
1.7
1.6
4.0
1.0
0.8
0.7
3.2
2.5
0.6
0.6
0.2
3.8
26.3
24.2
17.0
16.2
11.0
15.9
13.6
7.8
14.2
5.8
8.3
8.8
3.9
4.3
3.7
1.5
8.7
3.7
4.8
3.3
1.7
3.4
2.1
2.7
3.0
1.4
2.1
5.5
1.3
3.5
2.1
0.8
3.5
1.5
1.8
1.0
2.7
0.2
1.4
0.2
3.9
1.3
6.2
4.8
4.6
4.0
2.8
1.2
3.5
5.7
1.7
0.6
0.9
1.0
1.7
3.2
1.0
1.9
0.8
1.1
0.1
0.6
2.0
3.1
17.8
10.2
8.0
7.3
4.1
4.0
2.5
3.1
1.9
2.6
3.8
4.1
3.8
2.9
1.0
2.5
1.6
2.1
2.0
1.9
1.6
0.9
1.4
1.6
0.7
1.7
1.2
1.4
1.1
0.4
1.7
1.6
0.5
0.7
0.2
1.4
0.8
0.3
0.2
0.6
0.1
4.7
24.1
7.8
1.4
11.0
15.5
5.5
6.0
5.0
1.4
4.5
4.6
1.2
7.3
1.3
5.8
5.4
2.9
2.2
2.0
1.0
0.7
1.2
0.8
2.3
0.3
0.9
3.2
1.4
0.2
0.2
1.7
2.5
12.3
9.3
17.9
10.2
6.9
5.5
4.5
3.2
1.9
3.1
2.8
1.3
2.6
0.9
1.7
3.3
0.2
1.4
1.6
0.5
5.1
2.0
1.4
1.3
0.8
0.2
0.6
0.5
0.3
0.2
0.5
0.2
1.0
Page
38
Strategy Briefings
World
Total
market
Switzerland
Austria
Denmark
Germany
UK
Belgium
Netherlands
Sweden
Singapore
Hungary
France
Canada
Spain
Portugal
US
South Africa
Italy
Norway
Japan
Slovakia
Australia
Ireland
Thailand
Greece
Chile
Turkey
Asia-Pacific
Hong Kong
Finland
Mexico
Colombia
India
New Zealand
Malaysia
Philippines
Poland
Venezuela
Argentina
Brazil
Taiwan
Indonesia
Czech Republic
Source:
Note:
13.3
10.0
8.5
7.9
6.7
4.5
4.3
4.2
3.5
3.3
3.2
3.1
2.8
2.2
2.2
2.1
2.0
1.9
1.7
1.6
1.6
1.5
1.4
1.3
1.3
1.2
1.0
1.0
0.9
0.8
0.7
0.7
0.7
0.6
0.6
0.4
0.4
0.3
0.3
0.3
0.1
Disposable paper products

Private label share high due to commodity status
Disposable paper products has traditionally been a very important area for private label, as these products are
largely seen as commodities, with no particular desire on the part of many consumers for quality and brand
image. Products such as toilet tissue and paper towels are relatively easy for retailers to source and distribute,
and generate good margins, while nappies (diapers) is an area in which consumers are always seeking to lower
costs as these are an important expense for new parents.
Furthermore, private label disposable paper products remain popular among consumers that are unconvinced
that the higher unit prices associated with branded goods are justified in terms of higher performance or
convenience. As with breakfast cereals, the well-known fact that private label products are in most cases
manufactured by the same companies as brands has led to a degree of scepticism amongst some consumers.
Page
39
Strategy Briefings
World
In 2003, private labels accounted for almost 15% of disposable paper products sales by value, compared with
just 13% in 2001. Their share reached 44% in Germany, and over 30% in Belgium, the UK and France. In
Germany, private label products were strongest in kitchen towels, toilet paper, cotton wool and tissues in 2003,
with over 50% value shares in each.
Finding ways to add value
In order to distinguish themselves from branded paper products manufacturers, most of which focus on
providing premium quality products, retailers often look to other ways to add value, such as ecology. For
example, in the US, the chains Publix, Loblaw and Trader Joes have recently focused on providing
environmentally friendly paper products, while the Kroger chain introduced Select-a-Sheet perforations that
allow users to pick the size of paper towel they want, for its Nice n Strong brand. Other retailers still focus on
the price aspect, with CVS pre-printing its Big Roll of paper towels at 99 cents, and Pathmark pre-printing its
1,000-sheet rolls of one-ply bathroom tissue for just 49 cents under its Smartprice brand.
In the nappies sector, retailers are finding that they must be as innovative as the leading brands in order to
survive, as consumers tend to be choosy about quality while also seeking good value. As many of the leading
brand manufacturers also supply private labels, it is possible for retailers to achieve this. For example,
Walgreens recently began to use Disappearing Stars on its Training Pants, with printed stars on the pants that
disappear when wet. Furthermore, Kroger and Safeway are among the retailers using Spanish notations under
the English on packaging, in order to appeal not only the growing Latino population, but also Latino nannies.
Licensing is also common in the nappies segment. Walgreens, for example, has the Land Before Time licence.
The feminine hygiene market is more difficult for retailers to make an impact in, as the leading national brand
manufacturers, such as Procter & Gamble, are highly innovative, and aggressive in their pricing promotions.
Furthermore, women tend to be wary of low cost brands when buying tampons, due to fears of problems such as
toxic shock syndrome, and the market is pretty much dominated by Tampax, Playtex and other major brands. In
most developed markets it has become futile for private label retailers of feminine hygiene products to try and
compete with major brands on price, and they are having to become more innovative in order to carve a share of
this sector. For example, US manufacturer Premier Care Industries is currently developing Flushaway panty
liners, a completely biodegradable product with no national brand equivalent, which will be sold to retailers to
market as private labels.
Table 10
Private Label Share of Disposable Paper Products by Country 2001-2003
% value
Germany
Belgium
UK
France
Netherlands
Austria
South Africa
Spain
Switzerland
Ireland
Italy
Sweden
New Zealand
Portugal
US
Denmark
Hungary
Greece
Canada
Singapore
Norway
Brazil
Chile
Finland
2001
2002
2003
39.8
35.2
34.7
33.2
30.0
26.5
27.7
27.0
26.4
21.6
20.5
14.6
18.7
18.8
16.0
15.1
9.3
10.2
9.0
8.5
9.0
7.2
5.0
5.8
43.0
35.9
34.2
33.6
29.0
27.2
28.4
27.5
26.0
23.1
21.2
18.0
18.5
17.0
16.3
15.8
11.4
10.4
9.9
9.6
8.7
7.3
5.6
5.9
44.3
36.4
35.4
34.2
28.9
28.6
28.2
27.8
26.6
22.7
21.8
20.9
16.9
16.4
16.2
16.1
13.9
10.9
10.2
9.6
8.8
8.6
8.0
7.5
Page
40
Strategy Briefings
Thailand
Argentina
Japan
South Korea
Czech Republic
Australia
Poland
Mexico
Hong Kong
Slovakia
Colombia
Israel
Turkey
Indonesia
Malaysia
Philippines
Taiwan
Bulgaria
India
Saudi Arabia
Source:
World
5.5
4.1
5.7
6.4
2.3
5.1
2.4
2.8
2.8
2.0
1.1
1.5
1.7
1.7
1.6
1.9
1.3
0.1
0.1
7.3
5.7
6.0
5.4
3.4
4.9
2.8
3.0
2.7
2.1
2.0
1.9
1.8
1.9
1.8
1.3
1.2
0.2
0.2
7.4
6.1
6.0
5.0
4.9
4.8
3.3
3.1
2.4
2.3
2.2
2.1
1.9
1.8
1.8
1.2
1.2
0.8
0.2
0.2
Household care
Discounting by branded players poses threat to private label
Household care products are well suited to the private label market as many of these products are seen as basic
commodities. Nevertheless, the market is dominated by multinationals such as Procter & Gamble, Lever
Faberg and Reckitt Benckiser, and these companies have the means to carry out very strong promotional
campaigns and offer good discounts on their products, which makes it difficult for private labels to compete on
price.
The share of private label within household care varies substantially according to market sector. For example,
for bleach and dishwashing products, private labels global shares are as high as 17% and 10% respectively,
while in polishes and insecticides private labels account for only 3% and 2% of value sales, respectively.
Once again it is the Western European markets of Switzerland, Austria, the UK and Germany where private
label household care sales are most developed. In the UK, a rise in prices of branded laundry detergents over the
review period benefited the private label industry. The price difference between branded and private label
widened enough for consumers to trade down, except in the premium area of liquid tablets, where branded
products performed best. Private label also gained in fabric softeners for similar reasons, with private label
products seeing heavy price discounts. Meanwhile, in laundry aids, private label benefited from retailers
rationalisation of these niche products, often reducing the choice to the dominant brand and a private label
alternative.
This trend towards brand rationalisation gave marginal help to private label in surface care, but this was far
outweighed by the pressure put on private label products by the promotional power and, in particular, the
innovations of branded manufacturers, most notably in wipes. Increased innovation by branded manufacturers
also decreased the share of private label in air fresheners, with the launch of premium products such as Glades
Circulair.
Private label share low in US
Surprisingly, the share accounted for by private label in the US household care market is very low, at 4%
(although private labels account for as much as 30% of chlorine bleach sales in that market) and is in decline.
This is due to factors such as the relatively low cost of branded products; the prevalence of value brands; and the
wide range of value-added features of branded goods. In the air fresheners sector, for example, prices of branded
products, such as Glade sprays, average only US$1.50 per unit, which is very difficult for retailers to undercut.
Similarly, a number of the more popular multipurpose cleaners sell for around US$3.00, while most toilet
liquids and powders carry prices between US$2.50 and US$3.00. Furthermore, the US laundry care sector is
Page
41
Strategy Briefings
World
dominated by popular value brands such as Purex, Arm & Hammer and Xtra, all of which occupy market
positions similar to those of private label products, albeit with a few more value-added features. Therefore, there
is little demand for private labels in that area.
For consumers wishing to pay extra for added value features, private label cannot compete effectively with the
leading branded manufacturers. Indeed, companies like Procter & Gamble and Reckitt Benckiser expend
considerable resources in attempting to create new products with technically advanced, unique benefits that are
difficult for private label manufacturers to replicate.
Table 11
Private Label Share of Selected Household Care Products by Country and by Sector
2003
% value
Switzerland
Austria
UK
Germany
Belgium
Denmark
Spain
Sweden
Canada
Finland
Netherlands
France
Italy
Portugal
Colombia
Hong Kong
Czech Republic
Australia
Israel
Greece
Argentina
Singapore
US
South Africa
Norway
New Zealand
Turkey
Hungary
Brazil
Mexico
Poland
Ireland
Japan
Chile
Malaysia
Taiwan
Thailand
Slovakia
India
Philippines
Saudi Arabia
Bulgaria
Indonesia
Air
fresheners
Chlorine
bleach
Laundry
care
Polishes
Surface
care
Toilet
care
9.2
17.3
10.0
10.9
3.1
13.4
23.0
11.2
2.9
5.8
11.0
4.4
7.8
1.6
4.0
2.3
5.4
1.2
2.4
2.5
0.8
0.7
0.7
5.3
0.2
0.5
1.3
2.6
1.9
2.3
28.9
20.4
58.5
36.1
20.0
26.5
31.5
10.0
35.6
15.0
22.0
16.9
25.5
12.5
15.2
12.0
10.0
5.0
10.8
14.4
7.0
30.2
29.0
4.0
24.0
4.2
11.0
4.8
4.0
2.5
2.2
9.2
3.5
2.0
7.0
0.5
27.3
24.7
16.3
18.5
18.2
15.3
13.0
15.7
15.0
12.7
10.7
7.4
4.8
4.6
4.5
6.5
7.2
3.8
5.2
3.0
2.9
5.3
3.2
4.8
5.9
2.1
3.4
2.1
2.4
2.8
2.4
2.0
3.0
1.0
2.2
2.5
1.5
0.5
1.1
0.5
0.2
0.6
30.7
7.6
11.3
2.6
16.0
6.6
7.4
2.2
2.3
14.0
5.0
0.1
16.4
11.6
2.8
3.7
1.4
4.1
0.1
1.2
3.1
0.8
2.9
0.3
2.2
2.3
1.7
2.8
0.6
7.5
3.1
2.5
10.0
0.8
1.4
0.9
0.9
0.2
4.6
29.5
20.0
18.8
17.4
16.4
14.1
14.3
7.2
6.0
8.8
11.9
12.0
3.9
8.4
8.0
5.3
6.6
4.3
9.1
5.8
6.8
5.1
4.2
1.4
1.4
5.8
2.9
4.0
5.1
4.1
5.4
2.5
3.9
2.5
2.5
1.6
3.6
0.4
2.4
2.4
2.4
2.0
24.8
20.5
18.9
17.7
15.4
10.6
17.3
1.6
10.1
4.7
4.5
12.5
8.8
11.0
4.7
3.9
3.8
0.5
4.2
3.8
2.1
5.2
0.0
4.1
1.5
3.5
4.7
0.8
3.8
2.8
2.2
1.6
4.5
2.6
2.1
3.2
2.9
Total
market
Switzerland
28.6
Page
42
Strategy Briefings
Austria
UK
Germany
Belgium
Denmark
Spain
Sweden
Canada
Finland
Netherlands
France
Italy
Portugal
Colombia
Hong Kong
Czech Republic
Australia
Israel
Greece
Argentina
Singapore
US
South Africa
Norway
New Zealand
Turkey
Hungary
Brazil
Mexico
Poland
Ireland
Japan
Chile
Malaysia
Taiwan
Thailand
Slovakia
India
Philippines
Saudi Arabia
Bulgaria
Indonesia
Source:
Note:
World
20.9
20.6
17.8
16.0
15.2
14.7
12.1
11.9
10.5
10.5
9.6
7.0
6.9
6.0
6.0
5.9
5.0
5.0
4.7
4.7
4.5
4.3
4.2
4.1
4.1
3.2
3.1
3.0
3.0
2.9
2.8
2.7
2.2
2.0
2.0
2.0
0.9
0.9
0.9
0.7
0.4
0.2
OTC healthcare
OTC healthcare has been a difficult area for private labels to penetrate in many markets, due to the issue of
consumer trust. Indeed, consumers must generally learn to have confidence in private label products through
trial and positive experiences, although trust is also created through in-store marketing and through leveraging
the retailers brand name, which may carry a significant level of goodwill. This is reflected in certain advertising
campaigns. For example, in Walgreen drugstores, the slogan Walgreens: the brand America trusts makes this
link explicit.
In the US price is key factor
The global share of private label OTC products reached just over 6% in 2003, and stood at over 10% in the
Netherlands, Canada, the US and the UK. Private label OTC products benefited in 2003 in a number of markets,
such as the US, from sluggish economic growth as private label products proved attractive due to their lower
price positioning relative to branded items. In the US, private label OTC products can offer consumers savings
of 25-40% when compared to competing national brands, and it is on this basis that private labels finds their
competitive strength.
Page
43
Strategy Briefings
World
In 2003, there was a clear disparity between the high level of private label OTC penetration in North American
and Western European major markets, and the low level or negligible penetration achieved in other regions. In
Canada and the US, private labels share of OTC healthcare sales increased to almost 16% and 15%,
respectively, in 2003, driven by consumer demand for lower priced products due to economic uncertainty.
However, in a considerable number of markets private label plays little or no part at all in OTC healthcare. Most
prominent among these markets in 2003 were China, Brazil, Mexico, Taiwan, Turkey, Russia and India.
UK market suffers from discounting by brands
The continued rise of discounters such as Wal-Mart, as well as grocery store chains such as Kroger and
Albertsons in the US, contributed significantly to the growth of private label supply in 2003. In the UK,
however, despite the strength of the leading private label drugs retailers Boots, private labels share of OTC
healthcare declined for a second consecutive year, from almost 13% in 2001 to 11% in 2003. This decline
occurred following the end of Retail Price Maintenance and subsequent reductions in the prices of branded
goods.
Private label products achieved their highest shares in the most commodified OTC healthcare sectors in 2003:
wound treatments and smoking cessation aids, with shares of 14% and 13%, respectively. The private label
share of smoking cessation aids declined from 2001, due to the growing strength of leading brands such as
GlaxoSmithKlines NiQuitin and Novartiss Nicotinell, supported by increased advertising and distribution of
such brands in both developed and developing markets.
Difficulties in penetrating more specialised categories
More specialised areas, such as child-specific OTC products and eye care, have been more difficult for retailers
to penetrate. In the eye care sector, the recent entry of higher priced products through US grocery outlets
contributed to a decline in private label sales. These higher priced products include preservative-free eye
lubricants and artificial tears, products designed to treat computer vision syndrome, and antihistamine eye drops
to treat allergy-related eye redness and irritation.
In the digestive remedies sector, the share of private label rose slightly over the review period, to reach just over
7%. This was due largely to increased demand for cheaper products in the North American market, where
private label digestive remedies increased their share from 15% in 2002 to almost 18% in 2003.
The switching of drugs from prescription-only to OTC status is a strong incentive for retailers to launch their
own generic versions of branded products that were previously restricted to the Rx sector. Loratadine has
progressed well as a private label in the US. In addition to the standard 10mg dose, store brands also sell it
combined with 240mg of pseudoephedrine sulphate. For example, the Shaws chain sells a 10-count for
US$9.99. If cholesterol-lowering drugs (statins) are switched to OTC status in the US, as recently occurred in
the UK, this could also open up opportunities for retailers to launch private label versions of these products,
once Lipitors patent protection has expired.
Table 12
Private Label Share of Selected OTC Products by Country and by Sector 2003
% value
Netherlands
Canada
US
UK
Singapore
Chile
Denmark
Australia
Germany
Switzerland
Italy
Israel
Belgium
Cough/
cold
Digestiv
e remedies
Eye care
Analgesics
Wound
care
Vitamins
/ minerals
31.6
19.6
20.1
15.9
5.3
3.4
6.2
3.4
1.9
0.7
10.0
8.0
16.2
7.0
1.4
2.4
0.7
2.0
1.6
0.3
1.2
1.7
7.8
12.5
17.9
10.0
1.9
0.8
2.0
1.0
1.9
2.2
7.5
4.5
9.4
6.5
11.7
1.2
15.7
13.0
23.3
28.0
13.0
26.7
5.0
5.0
7.3
4.3
29.0
14.1
18.0
27.0
10.8
21.1
18.2
12.1
10.9
5.2
5.8
2.5
3.7
3.4
1.8
Page
44
Strategy Briefings
World
1.5
1.9
0.4
1.3
1.0
Austria
New Zealand
Japan
France
Spain
Hungary
South Africa
Ireland
Colombia
Greece
Sweden
1.8
0.3
1.0
0.3
2.2
7.0
1.5
9.3
15.5
0.9
1.5
3.4
9.0
3.1
3.9
1.4
0.4
2.9
4.0
0.6
Total
market
Netherlands
Canada
US
UK
Singapore
Chile
Denmark
Australia
Germany
Switzerland
Italy
Israel
Belgium
Austria
New Zealand
Japan
France
Spain
Hungary
South Africa
Ireland
Colombia
Greece
Sweden
Source:
Note:
15.7
15.6
14.7
11.4
10.5
4.0
3.8
3.6
3.2
2.5
2.4
2.4
2.2
1.8
1.8
1.3
0.7
0.7
0.7
0.6
0.4
0.3
0.2
0.2
Electrical appliances
Private labels are in general not viable in areas where significant technical expertise is required or intellectual
property is involved, as the expenses involved in acquisition and/or after sales service would make them
unprofitable markets in which to operate. Nevertheless, private labels have represented a steady 6% of global
sales of white goods since 2001. This is mainly due to their strength in the US, Germany and Canada, where
they accounted for 21%, 20% and 19% of sales, respectively, in 2003.
Kenmore brand a star example
The importance of private label large kitchen appliances in the US is attributable almost exclusively to the
Kenmore brand, which is the private label of the Sears retail group. Kenmore benefits from established
consumer shopping patterns, and from Sears longstanding commitment to competitive pricing and broad
selections within the market. These factors show that, for many consumers, Sears is a preferred outlet for
domestic electrical appliances; and Kenmore, which is prominently featured at Sears stores, benefits
accordingly. Kenmores strength is also bolstered by a very broad product assortment, covering nearly all major
categories and popular price points. The Kenmore brand draws on the strengths of different manufacturers.
General Electric, for example, manufactures most Kenmore cookers, while most laundry products are
manufactured by Whirlpool, and Electrolux supplies freezers. Within each category, other manufacturers supply
smaller numbers of appliances, usually to fill more narrow market niches. This flexibility allows the Kenmore
brand to address issues of segmentation with great specificity, and assure the availability of attractive options in
Page
45
Strategy Briefings
World
a wide range of segments and price points. That said, Kenmore is most strongly identified with the mid-market,
and in some upscale categories, such as built-in refrigerators, it is absent.
In Germany, the strength of private label large kitchen appliances stems from Quelle Schickedanzs private
label, Privileg. This is sold both through KarstadtQuelles department stores and through the Quelle mail order
business.
Private label electronics popular in Eastern Europe
In the area of consumer electronics, private label still takes a very small share, estimated at 0.5% of the global
market by volume in 2003. However, its share is growing in many markets, and is particularly high in
Argentina, at just over 20%, and in Chile. In these markets, price-competitive products appealed to consumers
who had yet to feel the immediate effects of Argentinas slow economic recovery. In Argentina, private label
products are about 40% cheaper than Sony-branded products, for example, and 20% cheaper than Aiwa. The
position of private labels was further maintained by a decision among most branded companies to stop selling
VCRs in Argentina, due to their maturity and low margins. Such companies, including Sony and Philips, also
increased their focus on higher end TV sets that carry higher margins. This created a vacuum which private
labels moved quickly to fill, which in turn has proven beneficial to less affluent consumers.
Of the top 10 largest consumer electronics markets, Spain had the highest private label share in 2003, of 6%,
while the US recorded a share of just 0.4%. In addition to the more traditional sales of cheaper store branded
products available in retailers such as Radio Shack, many of the big box electronics stores have begun to carry
brands exclusive to their stores. Often these products are manufactured by new or smaller electronics companies
that do not possess the resources to promote their brands on a large or national scale. By entering into
agreements with large retailers, such companies can quickly gain market share, especially in new product
categories such as MP3 players and DVD players.
Private label electronics are meeting with success in Eastern European countries such as Russia, where most
consumers are unable to afford the multinational brands. The prices of electronic/electrical goods built using
foreign components in Russia are 15-30% lower than for products built in the West, and retail chains economise
on customs duties and the cost of Western brands. Electronics under private labels are offered at the best prices
in their categories and allow the owners of private labels to increase overall revenues from sales of such
products. The pioneer in this area was Eldorado, which introduced private label TVs under the Elenberg brand
in 2003. Another electrical retailer, Tekhnosila, sells products under its Techno brand, which are manufactured
in Russia in the Vladimirskaya region. At present, the brand encompasses TV sets, DVD players and home
cinema systems, but is soon due to appear in ovens, kettles, kitchen units and vacuum cleaners. Techno has
come to account for around 8% of total electronic/electrical goods sales in Russia.
Table 13
Private Label Share of Large Kitchen Appliances by Country 2001-2003
% volume
US
Germany
Canada
Greece
France
Portugal
UK
Argentina
Belgium
Netherlands
Sweden
Spain
South Africa
Chile
Japan
Source:
2001
2002
2003
21.0
16.6
18.5
7.4
7.8
5.3
3.9
6.7
2.7
3.0
2.4
2.2
2.9
0.6
1.5
21.0
18.7
19.3
8.2
8.2
5.8
4.1
5.1
2.5
2.7
2.2
2.4
1.8
0.9
1.0
20.7
19.7
19.2
9.1
8.3
6.3
4.5
3.4
2.8
2.7
2.2
1.9
1.8
1.5
1.1
Page
46
Strategy Briefings
World
6. PRIVATE LABEL RETAILERS AND SUPPLIERS

6.1 Overview
The decision to enter private label
Critical mass required
The provision of private label products only becomes viable for a retailer when it reaches a level of critical mass
that gives it the necessary economies of scale to be able to purchase large amounts of goods cheaply, in order to
make a large enough margin to be profitable. For this reason, many independent retailers or small chain
operators are unable to offer private labels. This is why private label has a low penetration in small countries
such as Ireland, for example, which is still dominated by small chains. The largest retail groups, such as WalMart, Tesco, Ahold and Metro, have been the most successful in this respect, as they have invested substantial
sums in private label development, and in many cases have carried this success overseas.
For larger retailers, private label is an attractive option as it allows them to increase profitability in what has
generally become a low-margin industry. Private labels are usually cost effective, as they often require less
investment in R&D than products from branded manufacturers. Furthermore, they do not require extensive
advertising as they are able to exploit the brand image of the retailer itself, as well as benefit from point-of-sales
promotions and displays within the retailers own shopping aisles. The retailers ability to reduce costs
inevitably means that private labels can be offered at lower prices than branded goods.
A tool for differentiation
In some markets, the offer of private label has become a method of survival, since it allows retailers to
differentiate themselves from fierce competition, attract customers to their stores and contribute to the overall
image the retailer wants to convey. Private label is an effective method of drawing customers to a particular
store, as it offers consumers a wider choice of products, including products that are of a quality near, if not
equal, to that of the well-established brand names.
However, retailers must have built up a reasonable amount of trust from consumers before they can successfully
offer their own products, and must think long-term about the type of image they wish to convey when designing
these products. This is a misjudgement that was made by UK supermarket giant Sainsbury in its earlier days,
when it introduced low-priced private label products with a weak brand image and a low level of innovation.
The company soon found that it was underperforming rivals such as Tesco, which had a much stronger private
label policy, and had to work hard to turn itself around and create an image of quality, partly with the help of
trendy TV chef Jamie Oliver.
By contrast, one of the strongest success stories in this regard was that of UK retailer Marks & Spencer in the
late 1980s and early 1990s. This was a clothing retailer known for good basics that complemented its offering
with proprietary branded food products. Quality was the cornerstone of the food product range, and the only
brand provided was its proprietary label. Mainstream retailers could neither emulate Marks & Spencers
premium quality, nor match its prices.
The advantage of control
Another key advantage of private labels to retailers is that they are able to control the standards and quality of
the goods themselves through contracted private label producers. They also have full control over the
merchandising of their private labels and of manufacturer brands, allowing them, for example, to place their
own labels in prominent positions on the shelves. These developments can, however, be detrimental to small
entrepreneurial producers, as they raise the barriers to entry for these players, which must now compete for shelf
space both with the already established brand name producers and with private labels.
For retailers looking to expand into foreign markets, the offer of private labels can be seen as both an advantage
and disadvantage. If the retailer is little known, it takes time for consumers to build up trust in its private label
brands. For example, a discounter arriving in the highly developed and sophisticated UK market may have
trouble persuading consumers that products completely unknown to them are of the same quality as branded or
Page
47
Strategy Briefings
World
established retailers brands. On the other hand, in emerging markets such as Russia and Poland, foreign
retailers have a reputation for quality compared with local chains or independents, and private label products
often enjoy an image of prestige in the eyes of consumers.
Consumer doubts remain
All this said, private labels still suffer from a perception in many markets as being of inferior quality to branded
products, as consumers do not consider retailers to be experts in all fields, and are not always certain of the
origin of private label products. Retailers are frequently criticised for exploiting the brand equity of the original
brands, which can lead to disputes over intellectual property rights. This possibility could result in a lack of new
product research and development in general, as producers lack the motivation to create or produce new goods,
especially if the goods can easily be copied by large retailers, and if the goods are in areas of high price
elasticity or in the category of secondary brands, where customers already have little brand loyalty. Retailers
in developed markets, such as the UK and US, are doing their best to dispel the image of private labels as
inferior or copycat products by being innovative in terms of product features, packaging and promotion.
Summary 3
Advantages and Disadvantages of Private Label 2004
Advantages
Disadvantages
Consumers benefit from lower prices as private labels

are usually cheaper than branded products
Brand manufacturers are forced to reduce prices and

therefore margins in order to compete
Allows retailers to increase margins and improve

profitability due to low R&D and advertising costs
The level of innovation from brand manufacturers may

be suppressed due to lack of motivation and margin
pressure
Consumers are offered more choice of products in

each sector; prevents monopolisation by certain
brands
Barriers of entry are effectively raised for small brand

producers, which must compete both with big brands
and private labels
Offers consumers in emerging markets a guarantee of

quality goods
Brands of foreign retailers entering mature markets

may not be trusted
Gives retailers control over standards and quality of

goods through contracted or owned manufacturers
Goods are still generally perceived as being of lower

quality than major brands, an image that is proving
difficult to dispel
Retailers can control merchandising by giving their

products prominence on shelves
The introduction of copycat products may lead to

disputes over intellectual property rights
Gives brand manufacturers an opportunity to

supplement income by supplying private labels
Some manufacturers will not risk tarnishing their

reputation by producing private labels
Enables small producers to survive by acting as

subcontractors, offering them a ready market
Small producers become very vulnerable when

employed solely in providing private labels to a
particular retailer
Source:
Euromonitor
Suitability by types of retailer

Most types of large-scale retailer are suited to private label. However, the concept is probably most prevalent
among grocery chains, where retailers may offer private label as part of their overall mix, or, in the case of some
hard discounters, exclusively private label products.
Most large mixed merchandisers, including both US-type discount mass merchandisers and European-type
department stores, include a sizeable proportion of private labels in their product mix, in order to introduce an
element of choice to consumers, to increase their own margins, and to create and contribute to an image of their
stores.
Specialist retailers tend to fall into three categories:
Those that operate a pure private label strategy, including most clothing retailers and some furniture
retailers;
Page
48
Strategy Briefings
World
Those that offer private label lines alongside major brands, including most DIY stores and some electrical
retailers.
Those that do not operate private labels, including most book and music stores.
Grocery retailers
As previously mentioned, supermarkets must reach a certain level of critical mass before the distribution of
private label products becomes viable. Most of the worlds large grocery retailers are already well established
and have built up their private label strategies over a number of years. The consolidation process is far from
over, however, and as retailers gain in size and reach by acquiring or merging with smaller chains they are faced
with the decision of whether to convert the labels of acquired fascias to their own private labels, or keep
established private labels intact. This depends largely on the level of equity already acquired in a certain private
label.
In the case of the hard discounters, private label is an essential part of their strategy to keep costs to a minimum.
These retailers tend to select low cost suppliers and put a single brand name to the products usually the name
of the store fascia. Combined with other efficiency measures, such as a simple store layout, minimum staff
levels, a limited offer of fresh foods and, in some cases, restricted payment methods, this enables them to offer
significantly lower prices than ordinary supermarkets and hypermarkets.
In the US, Trader Joes is a standard-bearer in the grocery retailing industry, as it relies almost exclusively on
private label brands to provide its stores with a competitive point of difference. Almost 80% of the 2,500
speciality grocery products in stock carry the Trader Joes store brand.
Mixed retailers
Mixed retailers must also be of a suitable size, which usually entails national coverage, to give them the
economies of scale required to produce their own labels. Therefore, only the largest chains, such as Wal-Mart,
Target and K-Mart in the US, and department store operators such as Sears, Roebuck & Co of the US,
QuelleKarstadt of Germany, Pinault-Printemps-Redoute of France and El Corte Ingles of Spain have successful
private label strategies.
It is rare for mixed retailers to operate under an exclusive private label policy, but a notable example of this type
of retailer is Marks & Spencer of the UK. The group began by offering clothing exclusively under its St Michael
brand, and then diversified this brand into other areas, such as furnishings and grocery. However, Marks &
Spencer had to build up considerable equity in its St Michael brand and overall image before it could
confidently expand into other areas.
It is also rare for large mixed retailer chains in developed markets not to offer any private labels at all, especially
since, in many markets, department stores are losing popularity and must find ways to remain competitive.
Specialist retailers
Many specialist retailers operate exclusively on a private label basis. This seems to be a strategy particularly
well suited to the clothing industry, where retailers are able to have garments manufactured cheaply, then invest
heavily in marketing their overall brand image. Private labels in these cases can be positioned at all points of the
spectrum, from quality fashion chains (eg The Gap, and UK chain Next), to discount chains such as C&A.
Other types of specialist retailer, such as sports retailers, DIY retailers and drugstores, tend to operate a mixed
strategy, in the same way as supermarkets, giving consumers a choice of both branded products and private
label. It would not be viable for a sports retailer, for example, to offer only private label products, due to the
tremendous power of brands such as Nike, Reebok and Fila, which are often sought out by consumers.
Similarly, in the case of drugstores, consumers are loyal to certain brands, and hold more trust in OTC
medicines from branded suppliers, and therefore private labels are only used to supplement major brands and
offer more choice to consumers. In the case of DIY stores, private labels tend to be used for more basic
hardware items, while the store offers branded products in more specialised areas, such as power tools.
In general, private label is not particularly well suited to electrical and computer products retailing, since
electronics require a high level of technical expertise. However, many electrical retailers offer their own private
Page
49
Strategy Briefings
World
label brands, which are virtually always positioned at the lower end of the price spectrum, again in order to give
consumers on a budget more choice.
In the case of furniture, Ikea hit on a winning formula of offering exclusively private label brands with a
contemporary design and affordable prices, accompanied by a powerful store image based on all things
Swedish. Several other furniture retailers also operate private label-only policies, since there are no strong
brands in this sector. This is the case of MFI in the UK and Freedom Furniture and Fantastic Furniture in
Australia, for example.
Some areas of specialist retailing are not suited to the development of private labels, namely those that require
intellectual property rights, or are subject to retail price maintenance systems (in certain countries) that do not
allow for price discounting. These include books and music retailers. Nevertheless, there are cases where
retailers have introduced books and CDs under their own labels. One such example is Marks & Spencer and
Tesco in the UK.
Another is the leading Dutch drugstore, Kruidvat, which announced in September 2004 that it would offer a
range of reprinted literary classics under its own brand, Brilliant Books, in the Netherlands. Given that Dutch
book retailers are currently subject to stringent retail price maintenance for books, which prohibits discounts on
new books and new editions this could prove a growth market for the private label retailer.
Direct retailers
The mail order channel can be suited to private label, providing brands have acquired a solid reputation and are
trusted by consumers. As consumers are often not able actually to view products before purchasing, private label
mail order companies rely on a certain level of confidence that is usually built up in the company over a number
of years. This is the case with direct cosmetics retailer Avon, and catalogue retailers Quelle and La Redoute, for
example.
One emerging channel which has shown potential for private label distribution is that of teleshopping. This
method of distribution is particularly popular in South Korea, and in recent years several teleshopping
companies have increased the composition of private label products with higher margins, such as fashion and
beauty products. For example, Hyundai Home Shopping developed its first private jewellery brand, TAOS, and
its bedding brand, Cellamore, in 2002 and developed more fashion brands in casualwear in 2003.
Many private label retailers have launched on-line services, through which they sell branded and private label
products. For example, in the UK, Tesco was the first supermarket chain to launch on-line shopping to
complement its supermarkets, spinning off Tesco.com as a separate subsidiary in 1999.
There has, however, been less private label activity among pure Internet retailers. The potential may exist for
prominent e-commerce retailers such as Amazon.com to introduce private label products, now that it has built a
solid consumer base and retailer loyalty. Although it is difficult to produce private label products that carry
intellectual property rights, this has been achieved by certain companies, usually for music compilations and
non-fiction books.
Increasing the private label offer
Many retailers have recently made the decision to increase the proportion of private label products on offer
within their stores. This is partly due to the increasing competitiveness of the retail environment, which is
forcing retailers to seek differentiation through means other than price discounting, convenience and service. It
is also due to pressure from discounters, which are spreading into new markets and therefore forcing existing
supermarkets to compete by expanding their offer.
This was the case in Australia, where, in order to combat the perceived threat of the entry of Aldi in 2001, the
major supermarket chains made a considerable effort to upgrade their private label ranges and to promote them
better in-store. This led to a substantial rise in sales of these products during 2002 and 2003. For example, Coles
Myer recently announced that it was expanding its Coles and Bi-Lo private label brands. The retailer intends to
merge all administrative functions of the two private labels, and put into place a three tiered system with the aim
of doubling its private label presence from 15% to 30% by 2008.
Page
50
Strategy Briefings
World
Similarly, in Denmark in 2003 the domestic discount chain Fakta prepared for the expected arrival of German
discounter Lidl by increasing the number of its private label goods. The chain launched 100 private label
products under the brand name Fakta towards the end of 2003, with prices about 10-15% lower than equivalent
branded products in the stores. In Norway too, the large grocery chains are increasing their share of private label
goods in expectation of Lidls arrival. At the end of 2003, NorgesGruppen announced that it would meet Lidls
low prices with its own discount brand, First Price, and is aiming for sales of up to NKr100 million during the
first year.
6.2 Brand Strategies

Branding techniques
Retailers name as umbrella brand
Retailers use a variety of techniques in naming their private label products. The most commonly employed
strategy is to use the retailers own name as an umbrella brand, and to use various sub-brands, either to represent
different categories, such as ready meals, clothing, etc, or different ranges, such as healthy foods and premium
foods.
A notable example of this type of retailer is Tesco of the UK. The Tesco logo features on most of its private
label products, but the retailer uses various sub-brands for its ranges. These include:
Tesco Value: used mainly for cheaper commodities, and designed for families on a tight budget; this also
extends to clothes.
Tesco Finest: this began as a range of premium ready meals and chilled foods, known for their high prices
and quality and packaged in superior-looking silver boxes; the line was extended to include selected
categories in which Tesco considered it could add value, such as high end biscuits in tins.
Healthy Living: a range of low-fat and low-sugar items.
Organic: a range of organic foods.
By segmenting its offer, Tesco aims to attract the widest range of customers to its stores. In the case of clothing,
Tesco offers two targeted labels Florence & Fred to provide a more upmarket offer than its Value range. And in
2002 Cherokee signed an agreement with Tesco to launch its casual fashion range exclusively through Tesco
stores. Late in 2004, the company announced plans to add further value to parts of its clothing offer. Organic
cotton baby and toddler brand Green Baby is to design a babywear collection for the retailer. The range of
basics, to be called Green Baby for Tesco, is to be trialled in 25 of Tesco's larger format stores. Green Baby's
clothing, toiletries and nappies are sold in over 300 UK independents.
Similarly, French retailer Auchan identifies its private label products by a supplier visual on the top half of the
packaging, the bird logo forming the A in Auchan on the left-hand side of the product and the Auchan name
run across the bottom. In certain categories, such as textiles, sports goods, car accessories, home decoration,
wines and spirits, and childrens goods, Auchan products are identified by a sub-brand name (eg In Extenso for
textiles, Cups for sport, Veuve Emille for champagne and Rik & Rok for all childrens products), together with
the Auchan logo, which appears on all products regardless of the country where they are marketed.
Retailers name as sole brand
More rarely in the food industry, retailers choose to use the their own name across all goods, with very little use
of sub-brands. This is the case of Spar, whose eponymous brand is used across all products and all countries,
with the exception of some regional brands. The single brand strategy is much more common in the clothing
retailing industry, where retailers often attempt to build up one global or national brand associated with their
image, such as The Gap of the US, H&M of Sweden or Next of the UK.
However, some clothing retailers, such as C&A, do segment their offer. C&A uses the Rodeo brand for sports
apparel and accessories, Baby Club for baby clothes and products, Body Guard for childrens clothes and
products, Yessica for classical styles for the mature woman, Clockhouse for young fashions, Canada for casual
womenswear, Westbury for mens classic formal wear, and Angelo Litrico for mens casualwear.
Page
51
Strategy Briefings
World
In some cases, retailers operate a single brand strategy for their private labels, but use a name that is different
from the name of the retailer itself or its fascia. This is the case of Marks & Spencer of the UK, which uses its St
Michael name across all products and families, with several strong sub-brands, for example Per Una, Per Una
due, Autograph, Blue Harbour and Limited Collection.
Similarly, Royal Ahold of the Netherlands uses the AH name for most its private label products.
Some retailers consider that using a strong overall store brand identity can help to build their image. This also
offers the advantage of being a less expensive way to design packaging. For example, if the name and symbol
are the main design element, colour coding can be used to differentiate product categories.
Use of fantasy brands
Other retailers, however, prefer to use fantasy brand names, with packaging that does not feature their own
name at all, or only in the small print. This is a strategy often used to disguise the fact that these products are in
fact private labels, and is common practice in Italy, for example, where private labels still suffer from a negative
image in the eyes of consumers.
An example of this type of retailer is Intermarch in France. This chain owns some 240 different private label
brands which account for almost one third of its total sales, but customers are usually not aware that these
products belong to the ITM Group, as they are distinguishable only by the name of the purchasing group ITM
on the back of the packet. Aldi operates a similar strategy, with none of its private labels sold under the Aldi
name.
Private label brands that do not feature the retailers identity at all are also frequently used by companies that
own several store fascias. This means that products can be used across all fascias, and helps establish brand
loyalty and preference. For example, in the US, Ahold recently launched a new private label pet food brand,
Companion, which is used in all of its US fascias, including Brunos, Giant, Stop & Shop, Bi-Lo and Tops.
Frances Carrefour has employed an interesting dual strategy for its two new private label lines, No 1 and PCI.
The No 1 line is very low budget, with prices below those of discounter chains. For this brand, the retailer
decided not to identify Carrefour as the product distributor on package labels, as this might damage its overall
image. However, products in the PCI (Produits Carrefour Internationaux) line, which is designed to equal the
hard discounters in price, but match the national brand manufacturers in quality, do carry the Carrefour name.
Two-tiered strategy
Some retailers operate a two-tiered brand strategy, whereby they have a value range and an upmarket range of
private labels. This is the case of Wal-Mart, which has Great Value and Sams Choice. The Great Value range
consists of more than 1,300 SKUs, and aims to offer high quality at affordable prices. Research has shown that
Great Value is the best-selling private label in the US grocery market, worth some US$5.0 billion in 2003. For
its Sams Choice label, Wal-Mart aims to offer items that have attributes that make them significantly better
than national brands.
Loblaws of Canada operates a very similar strategy, with its No Name range positioned at the lower end of the
private label market, and Presidents Choice at the premium end.
Brand rationalisation
Some retailers are currently rationalising their brand portfolios in order to simplify their offer and to be able to
leverage brands over several fascias. This has been a common strategy in the US in recent years. For example,
Florida-based chain Winn-Dixie combined its various private labels under the Winn-Dixie brand in 2003, whilst
drugstore chain Dollar reduced its number of private label brands, grouping foods and beverages under the
Family Pantry and Clover Valley labels. In 2004, the Giant division of Ahold in the US repackaged its entire
OTC and cosmetics and toiletries line under the CareOne banner, to replace local brands like Stop & Shop and
Giant.
Summary 4
Selected Retailers and their Brands 2004
Retailer
Umbrella brands
Brands/sub-brands
Page
52
Strategy Briefings
World
7-Eleven
7-Eleven
Slurpee, Big Gulp, Big Bite, Deli

Central, Caf Select, World Ovens
Quality Classic Selection, Cafe
Cooler, Frut Cooler, Bakery Stix,
Dark Mountain Roast and V.com
Aldi
Fit & Active, Albrecht, Tandil,

Grandessa
Asda
Asda
Smartprice, Good for you!,

Organic, Extra Special, More for
Kids
Auchan
Auchan
In Extenso, Cups, Veuve Emille,

Rik & Rok
Avon
Avon
Avon Colour, Anew, Skin-So-Soft,

Advance Techniques Hair Care,
beComing, Avon Wellness, mark
Boots The Chemist
Boots
Botanics/Botanics for Men, No 7,

Soltan, Integra, Prismiq,
Mediterranean
C&A
Rodeo, Baby Club, Body Guard,

Yessica, Clockhouse, Canada,
Westbury, Angelo Litrico
Carrefour
No 1, PCI, Produits Carrefour,

Carrefour Bio, Reflets de France,
Destination Saveurs, Escapades
Gourmandes, Jaime, Filire
Quality, Cherokee, Tex, Firstline,
Bluesky, Topbike, GreenCut,
Champion, Grand Jury, Nuestra
Tierra, Basic, Terre dItalia,
Souvenirs du Terroir, Cicerone,
Boutchou, Neufunk, Harmonie
Casino Group
Casino Saveurs Gourmandes,

Casino Saveurs dAilleurs, Casino
Saveurs de Toujours, Casino Bio,
Ysiance, Tilapin, Claude Saint
Genet, Club des Sommeliers
Coles Myer Ltd
Target, Farmland, Home Brand, BiLo, Coles
Daiei Incorporated
Savings, Captain Cook, Coltina,

Saliv, Hlne, Rollina, Gents
IKEA
IKEA
Multiple individual line names
KarstadtQuelle
Privileg, Yorn, Bamboo, InScene,

Desire, Alex Athletics
Lidl (Schwarz Group)
Purland, Milbona, Sole Vita,

Firenzi, Finale, Cien, Crusty,
Gramirom, Balarom, Gut
Frielingshof, Prima Donna, Dulano
Loblaw Companies Limited
No Name, Presidents Choice,

Presidents Choice Organics, Club
Pack
Marks & Spencer
St Michael
Count on Us, The Perfect

Collection, Per Una, Limited
Edition, Blue Harbour, Autograph
Metro
Arrow, Metro Quality, Watson,

Fleurelle, Steinbach, Miss H,
Fabiani, Tip
Page
53
Strategy Briefings
World
Royal Ahold
AH
Various sub-brands
Sainsbury
Sainsburys
Be Good to Yourself, Taste The

Difference, Free From, Organic
Sears, Roebuck & Co
Craftsman, DieHard, Kenmore,

Weatherbeater, Canyon River
Blues, Fieldmaster, Crossroads,
Apostrophe, TKS Basics
Spar
Spar
Some regional brands
Target
Target, Cherokee, Mossimo,

Archer Farms, Market Pantry
Tesco
Tesco
Finest, Fair Trade, Free From, Gi

Store, Healthy Living, Organics,
Value, Cherokee, Florence & Fred
The Gap
Gap, Banana Republic, Old Navy
Walgreen Company
Walgreens
Wal-Mart 1
Wal-Mart, Sams American Choice,

Members Mark, One Source,
Great Value, Ol Roy, Puritan,
Equate, Catalina, White Stag
Source:
Notes:
Euromonitor
1 Excludes overseas subsidiaries such as Asda
Co-branding
In an attempt to bring their private label products more upmarket and add value, retailers in some of the largest
private label markets, such as the UK and the US, have developed relationships with owners of brands,
celebrities, or the owners of cartoon character licenses in co-branding initiatives. Co-branding benefits both
parties, by raising the profile of the private label, as well as giving visibility to the co-brand. Although finding
the ideal co-brand entails added time, effort and costs to the retailer, studies show that it can bring in added
income that outweighs the costs.
Some retailers actually target suppliers that already have control of prominent brands, with the hope of
persuading these suppliers to use the brand for co-branding purposes. In categories where suppliers are
frequently dropped and rehired, securing a high profile brand could be its key to retaining business or winning a
new account.
Character co-branding is particularly popular in the US in the nappies (diapers) category, where featuring
childrens cartoon characters can add value to an area strongly dominated by international brand manufacturers,
such as Procter & Gamble. Retailers that currently use co-brands on their nappies include CVS, Walgreens,
Ahold, Meijer and Wal-Mart.
An advantage of established characters is that they may generate significant publicity without much effort on the
part of the retailer. For example, Meijers major private label brand Garfield benefited greatly from the launch
of the high profile Garfield movie in the summer of 2004. Millions of dollars in publicity was spent to promote
the Garfield character, for which Meijer has a unique licensing deal. While most private label licensing is geared
towards a single product or line, Meijer uses Garfield on a whole range of items, including canned pasta,
nappies and chocolate milk mix. They are mainly used on products that are family- or children-focused, as well
as on products that compete with national brands that feature cartoon characters or their own co-branding.
Co-branding with celebrities is another initiative commonly used by retailers, both in the UK and US, mostly for
cosmetics and toiletries and housewares. In the UK, Tesco launched a range of hair care products in 2003 in
partnership with celebrity hairdresser Denise McAdam, while Asda worked with hair stylist Andrew Collinge on
a range of styling products. Boots has gone a step further and associated itself with a well known spa, The
Sanctuary, of Covent Garden, London, by launching a signature range of pampering bath and body products.
On the other side of the Atlantic, Wal-Mart uses the name of the celebrities Mary Kate and Ashley for its range
of cosmetics and toiletries directed at tweens, while Target offers a Sonia Kashuk cosmetics line. Topco uses the
Page
54
Strategy Briefings
World
Dubble Bubble bubble gum brand for its shampoos and bubble bath, with the Top Care name above the Dubble
Bubble brand. This gives Dubble Bubble exposure in all Topco outlets, without the expense of slotting fees that
most new products are subject to.
Nevertheless, the use of celebrity brand names can have its pitfalls, if that celebrity should fall from grace. This
was the case of Kmarts Martha Stewart Everyday brand, which encompasses bedding, bath towels and
decorative home textiles, and various home accessories. During 2002, the Martha Stewart brand contributed
about US$1.5 billion in sales at Kmart stores. However, during 2003, the name was tarnished when Martha
Stewart herself was challenged by an alleged infringement of insider trading rules and other FTC regulations,
which resulted in her conviction and imprisonment. Sales of Martha Stewart Everyday products dropped 6.6% at
Kmart in the first half of 2004 compared with the previous year. Despite the fall from grace, Martha Stewart
Everyday products continue to sell well at Kmart and the two companies have extended their merchandising
relationship through the beginning of 2010.
Co-branding is less common in the area of food and beverages, but is still used. For example, Weis Markets of
the US offers a line of bean coffee co-branded with San Francisco Bay Coffee Co, and offers at least one unique
item, Fog Chaser. Similarly, the Kings chain, also in the US, has a co-branding agreement with Green Mountain
Coffee Co.
Summary 5
Co-branding Initiatives 2004
Retailer
Co-brand/celebrity/character
Product
Ahold (US)
Baby Ruth, Butterfinger, Hersheys,

Nerds
Ice cream
Cottontails
Nappies (diapers)
Peanuts
Canned pasta
Asda (UK)
Andrew Collinge
Hair care
Boots The Chemist (UK)
The Sanctuary
Skin care
Costco (US)
Newmans Own
Fruit juice
Quaker
Cereal
Starbucks
Coffee
Whirlpool
Large kitchen appliances
Boots, Lumene
Cosmetics
Snoopy
Nappies (diapers)
Eckerd (US)
Paul Milan
Face and nail care
Kmart (US)
Martha Stewart Everyday
Housewares
Betty Crocker
Appliances
Thalia Sodi
Clothing
Meijer (US)
Garfield
Numerous products
Rite Aid (US)
Bear in the Big Blue House
Nappies (diapers)
Umberto Giannini
Hair care
Blue Ginger
Asian foods
Car & Driver
Automotive care
Sonia Kashuk
Cosmetics
Michael Graves
Housewares
Tesco (UK)
Denise McAdam
Hair care
Topco (US)
Angus Beef, Sweet Baby Rays
Ready meals
Dubble Bubble
Bath and shower products
Sargento
Cheese
CVS (US)
Target
Page
55
Strategy Briefings
World
Walgreens (US)
The Land Before Time
Nappies (diapers)
Wal-Mart (US)
Mary Kate, Ashley
Tween products
Better Homes & Gardens
Housewares
Real Love
Nappies (diapers)
Source:
Euromonitor
Acquisition of brands
A less common strategy, but one that has been used by some retailers, is to acquire brands for conversion to
private label. This is the case of Wal-Mart, which bought the White Cloud brand, which is now used for WalMarts paper goods and baby products. This was advantageous to Wal-Mart, as some of the equity of the White
Cloud brand was retained in the minds of consumers, so it was relatively easy for the retailer to relaunch it as a
successful private label.
Acquiring brands is a more common strategy with regard to private label clothing. This provides retailers with a
more exotic image for their private label clothing products than that which is normally associated with food and
groceries. For example, Sears, Roebuck & Co purchased the Lands End brand in 2002, which was previously
used only for mail order.
6.3 Packaging Strategies

Importance of packaging
Packaging has become an increasingly important tool in an overcrowded marketplace: it must make a product
stand out in order to catch the customers eye. This is even more important in the case of private label products,
as the package is often is the only advertisement for the product, and is often the most cost-efficient way of
promoting a product. Indeed, studies have shown that the cost of effective package design is actually one of the
best returns on investment a company can make.
Retailers traditionally paid little attention to packaging of private label products, aiming to keep costs down by
using the cheapest and plainest packaging available. Retailers considered that the price of a product was low
enough to sell it without packaging or point of purchase appeal. Indeed, if package design was considered at all
it was usually based on producing a copy of a national brand at a lower price. On the whole, this attitude has
changed, as retailers have realised the importance of packaging in a customers choice of brand. Many private
labels have now adopted many of the visual codes of the packaging of their branded rivals, with often only the
brand name allowing the consumer to recognise a private label, if at all. Plain packaging is generally now
restricted only to products such as household cleaners or paper products, where brand image is less important.
Wal-Mart is an example of a company that has focused heavily on packaging to create private label products
that have the appearance of real brands, to the extent that some consumers do not know that they belong to the
retailer. This is the case of its Ol Roy range of pet foods. It is also the case of Loblaws and its Presidents
Choice brand, and Boots with its No 7 brand, which have both achieved the status of national, and even
international, brands through high quality products and packaging.
In some cases, however, no frills packaging is still used to denote a retailers budget range, especially if it has
several private label ranges with different positionings. This is the case of Tescos Value range, which is largely
packaged in plain white packaging which prominently features the blue striped Tesco Value logo.
Universal design
Simplicity is considered to be the key to successful packaging. If too many words are used on a package, this
may encroach on brand identity or illustrations. The products benefits must be simply communicated to catch
the customers eye in the marketplace. However, one problem facing retailers that operate in several different
markets is that of universal appeal, and language. Belgian retailer Delhaize recently found it had to produce
packaging for its new 365 line in eight languages: French, Dutch, German, Greek, Czech, Slovak, Romanian
and English.
Page
56
Strategy Briefings
World
Carrefour's new private label, PCI, was designed with the international market in mind. Packaging graphics for
the label employ a unified design system. The top of the packaging is distinctively white, and the products use
crypto-English names that are the dominant visual element on package fronts (such as Puree for creamed
potatoes, Fresh for fabric detergents, Brunch for Swedish toasted bread, Comfort for paper tissues and Long
Grain for rice). The product names are designed to be universally recognised, and therefore understood in
Europe and in the other international markets where Carrefour operates. PCI products also carry up to 11
different languages on the packaging: Czech, German, Spanish, French, English, Greek, Italian, Netherlands,
Portuguese, Polish and Slovak.
French retailer Auchan won an award in the Packaging Oscars in 2002, due to its innovative Braille labelling,
allowing its private label products to meet the needs of visually impaired customers. Its Braille labelling system
includes 150 products in Portugal and 800 in France.
Trends in materials
In general, trends in private label packaging are following those seen among national brands, both in terms of
aspect and materials. For example, shrink labels are currently a growth area in the private label market.
However, these require a significant capital investment for suppliers, and are therefore difficult for retailers to
push for. Shrink labels are particularly useful for cosmetics and toiletries products, as they prevent leakage.
Environmentally friendly packaging is also increasingly used by retailers in response to demands to protect the
environment, and in order to compete with or differentiate themselves from major brands. One example of
innovative environmental packaging is that of Coop Italia. This retailer was the first in Europe to offer new
disposable tableware made of corn-based plastic in 2004. Coop Italia claims that all products branded with its
Coop eco-logici brand are created with respect for the environment, and the retailer worked with Ilip, a division
of ILPA Srl, to develop the new products, with the plastic being manufactured by NatureWorks PLA. Eco-logici
products account for over 3% of Coop Italias private label sales, and cover both food and non-food items,
including laundry detergents, household cleaners and personal care items. In Belgium, retailer Colruyt also uses
environmentally-friendly packaging from NatureWorks PLA for its Bio-Planet store products, such as salads,
delicatessen items, baked goods and produce.
Similarly, UK retailer the Co-operative Group is committed to environmentally-friendly packaging after it
carried out a survey that showed that out of 29,500 people, 60% felt that retailers should only use degradable or
biodegradable materials. It has become the first UK retailer to use biodegradable bread bags for the 55 million
loaves it sells each year. The bags dissolve in water, carbon dioxide and a small amount of organic material in
about four years, compared to an average of 100 years for regular plastic bags.
6.4 Retailers Pricing Strategies

Price differentials
As previously mentioned, retailers are able to offer private label products at prices lower than those of
manufacturers brands due to their lower overheads. However, retailers efforts to upgrade private labels to
compete more closely with branded products and improve the image of their stores have meant that, in general,
the price differential has narrowed in recent years.
The price differential between branded products and private labels varies significantly from country to country.
In the categories and channels tracked by ACNielsen, in 2003 the differential was as high as over 45% in
Poland, Australia, Germany and Belgium, where private labels are associated mainly with discounters. For
example, Aldis private label products are typically priced at least one third below the leading brands. The
retailer operates on margins which are much lower than those of conventional supermarket and hypermarket
groups, but compensates for this through fast stock turnover and high sales density.
The price differential is as low as less than 20% in largely undeveloped markets such as Colombia and Hong
Kong. However, on average, private label products are discounted by 31% compared to branded counterparts.
This is the average differential in the worlds largest private label markets of the US and the UK.
Page
57
Strategy Briefings
World
ACNielsens study also found that the price difference between branded and private label products varied
greatly according to product category, being over 40% for toiletries and OTC healthcare, and less than 20% for
cosmetics and chilled foods.
Chart 10
Price Differential Between Manufacturer Brands and Private Labels by Market 2003
% price differential
Source:
Strategies
In the UK, the largest retailers use a variety of pricing methods, which cover their private label ranges. For
example, Asda (owned by Wal-Mart) operates an every day low pricing (EDLP) strategy, and indeed its
advertising slogan is Always low prices, which covers both branded and private label products. The retailer
offers very few promotions or buy-one-get-one-free offers (BOGOFs). This means that the role of private label
is extremely important for Asda, as pricing has to be more competitive than the prices of the branded products
Page
58
Strategy Briefings
World
on offer. At the other extreme, Sainsburys uses promotions and BOGOFs, and rarely EDLP, while market
leader Tesco, as well as Morrisons, use a combination of EDLP with promotions.
Retailers may at times revise their private label pricing strategies in order to adapt to changing market
conditions, or in line with efforts to change their overall positioning. This may involve the introduction of new
private labels positioned at different price levels than existing lines. Such is the case with the French retailers
Carrefour and Casino, and Belgian retailer Delhaize, which have all recently introduced budget lines in an
attempt to surmount competition from discounters.
Delhaizes new 365 brand is to be introduced in stores across Europe. The first wave of products will include
grocery, frozen food, dairy products, fruit and vegetables, beverages and wine. Additional products will be
added to this selection to reach the goal of 300 products by the end of 2005 in Belgium and Greece. Fifty
products will be available by the end of the year in the Czech Republic and Romania. French retailer Casino
also recently launched a new economy brand, named Prix Futs (Smart Price), in order to expand its private
label offer. A cartoon euro on each product emphasises their low prices, and makes the products instantly
recognisable.
Case study: Carrefour
Having previously operated a number of private label products that carried the Carrefour umbrella brand, French
retailer Carrefour recently changed its private label strategy to adapt to new market conditions. Since its merger
with Promods in 1999, Carrefour has moved from being a single-format hypermarket retailer to a multi-format
retail group of hypermarkets, supermarkets, convenience stores, discount stores, and cash and carry stores.
Furthermore, the company was faced with economic downturn and a new price-consciousness among
consumers, which gave it a disadvantage compared with lower priced competitors, such as Leclerc and
Intermarch, and the hard discounters.
The new strategy involved the introduction of two new private label lines: No 1 and PCI. No 1 was launched in
2003 as an entry level (premier prix) price point brand to rival those of the discounter chains. The brand does
not identify Carrefour as the product distributor on package labels, and is being distributed across all of
Carrefours retail formats and in all of its international markets. According to the company, it is intended to
offer Carrefour customers a 6-7% price saving compared to the major discounters. The No 1 range was heavily
promoted by Carrefour through a poster campaign in the Paris subway system and in streets. The company also
uses free-standing flyers and inserts in newspapers to advertise the label, and advertises in-store through posters
and on shopping trolleys. In 2004, Carrefour hypermarkets carried 500 SKUs in food under the No 1 label, and
150 SKUs in light non-food.
PCI (Produits Carrefour Internationaux) is another new private label range that is being sourced and marketed
internationally. PCI is designed to equal the hard discounters in price, but match the national brand
manufacturers in quality. The PCI range currently has over 500 products, and was initially rolled out in
Carrefours European core trading area of France, Belgium, Italy and Spain. It will eventually also be marketed
in Carrefours Asian and Latin American markets. As PCI products are being purchased on a global level, the
economies of scale achieved should allow the retailer to make good margins, selling the products for 15-20%
less than the price range of traditional Carrefour products.
Carrefour is likely to keep some of its original private labels, including Produits Carrefour, Reflets de France
and Escapades Gourmandes, where they are profitable and have built up a solid reputation for quality.
6.5 Retailers Product Strategies

Premiumisation
There has been a clear shift in the private label industry recently towards developing premium products, at least
in the most developed markets. This has served to raise margins for retailers, and elevate the image of private
label products, and indeed the store itself, in the eyes of the consumer.
The trend towards premiumisation has been especially noticeable in the UK market, where two of the leading
retailers Sainsburys and Tesco have premium ranges, under the Taste the Difference and Finest labels,
respectively, as well as a number of other value-added ranges, such as organic products. This trend represents a
Page
59
Strategy Briefings
World
conscious attempt by retailers to exploit a new generation of UK consumers with high levels of disposable
income, who make more sophisticated and politically aware shopping decisions. New product lines are designed
to appeal to hard-working consumers with busy lifestyles, in both the food and non-food sectors.
Similarly, Asda launched its Extra Special premium private label range in 2000, with 40 products. This was reevaluated and rebranded in 2002, and by mid-2004 had been expanded to include 650 products across categories
such as confectionery, soft drinks, snacks, trifles, speciality breads, ready prepared meat and fish meals, and a
wide range of cheeses and sliced meats. The Extra Special range is reportedly 10-15% cheaper than rival ranges
Tescos Finest and Sainsburys Taste the Difference, while attaining similar quality levels.
Sainsbury has made an effort to upgrade its image, after becoming the first mainstream UK supermarket to have
more than 50% of its turnover accounted for by private label in the mid-1990s. It had previously taken the
traditional approach to private label, rather than being creative and listening to consumer needs. Recently,
though, the company has taken measures to change its image, converting its caf to Starbucks to give the stores
a more upmarket image, and employing popular chef Jamie Oliver to promote the chain on TV. This has been
accompanied by significant developments in upgrading its private label products.
Discounters, too, have ventured into premium private label territory. Aldi expanded its Grandessa line to a range
of high-end foods in 2004. The Grandessa name was previously used for ice cream, and has been expanded to
48 SKUs of premium foods from various categories, including kettle-style crisps, fire roasted vegetable pizzas
with artichokes, and mango chai granola cereal. Another Aldi line, Fit & Active, is also being expanded into
new categories, such as low-fat salad dressing, frozen fruit, and canned peaches.
A similar trend towards premium products can be observed in North America. Loblaws and Wal-Mart set the
precedent with the launch of the upmarket Presidents Choice and Sams American Choice brands, respectively.
This was followed by a host of premium private labels, including Safeways Safeway Select and Krogers
Private Selection. The latter includes products from chicken noodle soup mix and salsa grande to Britannia
crisps, chocolate and mint cocoa supreme, and chocolate squares. More recently, Shaws Signature was
launched by Shaws, and Topco has ventured into premium brands with World Classics Trading Company, a
range of imported and speciality items.
Mass merchandiser Target has also made attempts to bring its private labels more upmarket. For example, in
2004, its Archer Farms (no longer Archer Farms Market) upscale food brand was revamped to give it a more
elegant look, and more novel products were introduced, such as carrot cake cookies. The brand is being
promoted at in-store snack stands, where single-serve Archer Farms chips are part of the menu. Similarly,
drugstore chain Walgreens is expanding a premium private label line of food products under the Deerfield
Farms brand name.
Case Study: Loblaws Presidents Choice
Presidents Choice was originally launched alongside Loblaws budget No Name brand as a higher end private
label brand that has premium imagery and a commitment to taste appeal and quality that inspires loyalty to its
retailer. Presidents Choice is often cited as an example of a highly successful private label that has managed to
break the traditional private label mould. For example, under the Presidents Choice brand, Loblaws managed
to create a superior tasting chocolate chip cookie that was different from the competition and fulfilled consumer
demand for a rich and indulgent consumption experience. This was contrary to previous efforts by retailers to
copy branded products.
Having built up a reputation for quality, Loblaws was able to extend the Presidents Choice brand into new and
different product categories as far reaching as financial services. Loblaws financial services subsidiary is a fully
licensed bank and accredited financial institution. Through an agreement with MasterCard, the company issues
general credit cards and offers credit services, and is involved in all levels of personal banking. Financial
services are tied in with a Presidents Choice reward programme, whereby customers earn points that can be
redeemed for grocery credits.
Trends in foods
Private label premium meats are one of the latest trends to emerge in the US. Two of the largest US chains,
Safeway and Albertsons, already had premium beef brands, under the Ranchers Reserve and Blue Ribbon
labels. The Ranchers Reserve brand is designed to conjure up images of fresh meat straight from the prairies,
Page
60
Strategy Briefings
World
and Safeway backs this by offering customers its pledge of guaranteed 100% tender product. Albertsons
claims that its Blue Ribbon beef is carefully naturally aged using our exclusive ageing process. In 2004, A&P,
the USs oldest retail food chain, added its Beef Beyond Belief brand, while Winn-Dixie changed its W/D brand
of beef to W/D Prestige, thus leveraging the Prestige brand previously used only for ice cream and canned fruit
and vegetables. Similarly, Publix began to use the Publix Premium label for its beef.
Progress is still being made in the area of private label ready meals, which now have one of the highest rates of
private label penetration of all supermarket products. Sainsburys Taste the Difference and Tescos Finest
ranges have been extended to include lines of Chinese, Indian, Tex Mex and British specialities. In the US, A&P
redesigned the logos for both its Americas Choice and Master Choice frozen ranges in 2004, and extended the
latter into the luxury family meals and Chinese food categories. Safeway introduced an Eating Right sub-subbrand under the Safeway Select Gourmet Club sub-brand, which includes meals such as Creamy Broccoli Beef
with pasta and mushrooms, which has just 7g of fat and 200 calories per 20oz box.
In France, Auchan has launched premium regional meals to meet consumer demand for authenticity. In
partnership with local producers, the retailer has developed ranges of local products. In Italy, the tastes of the
regions range consists of 80 products that are typical of specific regions of the country. In France, 80 items
produced according to original recipes make up the new local products range, of fresh, processed and grocery
goods.
Case Study: Publix Premium Ice Cream
Florida-based supermarket chain Publix is an example of a retailer that has managed to build up such a strong
reputation for a certain private label product, its premium ice cream, that it has become a sought-after product
by consumers, and acts as a draw to the store. The retailer uses an aggressive new product development
programme for its ice cream brand to entice customers into its stores, in the hope of persuading them to sample
other private label products.
The Publix Premium Ice Cream brand now accounts for more than 33% of the chains total ice cream sales,
compared to a private label share of only 22% on average for most grocery retailers. Between 2000 and 2004
alone, Publix introduced nearly 40 new ice cream products that rival major brands such as Ben & Jerrys. These
include innovative flavours such as Blackjack Cherry, Banana Split, Bear Foot Brownie and Oh Fudge, Oh
Nuts. In addition, seasonal items, such as Key Lime Pie and Santas White Christmas Red Ve*lvet, are added
each quarter. Critical to the success of Publixs ice cream is its high quality, value pricing, unusual flavours and
strong packaging of a type not seen in most retailers.
Trends in non-food products
In the non-food arena, the development of premium private label lines is increasingly common in the area of
cosmetics and toiletries. In the UK, Tesco has extended its Finest range into the cosmetics and toiletries sector,
developing premium products with evidently natural ingredients, designed particularly to appeal to younger
generations, and with a development potential which will grow in line with the lifestyle aspirations of this
consumer group. Natural, organic derivation for products is a trend which seems set to continue in the UK, and
as older groups give way to maturing consumers, healthy, chemical-free consuming will be seen as a fact of life,
not as an alternative lifestyle choice.
In the US, the aim of private label cosmetics brands, such as Sonia Kashuk (Target), Apt 5 (Duane Reade) and
Lumene (CVS), is to bring a national brand, department store image to discount and drugstores. Lumene is
imported by CVS from Finland, but is exclusive to the chain in the US.
Healthy foods
Premiumisation is not the only method being used by retailers to bring their products into line with the branded
manufacturers and add value to their products. As consumers have begun to pay more attention to healthy
lifestyles, retailers have taken advantage of these trends to introduce their own ranges of healthy, natural,
organic or fair trade foods. In the UK, Sainsburys even began manufacturing all its private label products
without genetically-modified (GM) ingredients in July 1999, in order to gain a competitive advantage.
Health ranges
Page
61
Strategy Briefings
World
Many retailers now carry healthy private label brands, which are generally lower in fat or sugar than normal
foods. Examples in the UK are Sainsburys Be Good To Yourself range and Tescos Healthy Eating range,
while German discounter Aldi also has a healthy private label range, called Fit & Active.
In the US, light and healthy products are not usually grouped under a particular brand within private label, they
are just described as low-fat, sugar-free or low-salt, or sub-branded (eg Winn-Dixies weight-loss drinks Slim n
Trim). Within its Great Value range, Wal-Mart offers lower sugar or sugar-free items such as a light orange
juice with 45% fewer calories, no-sugar added pie filling, sugar-free powdered drink mixes in convenience
canisters with twist-off tops and 98% fat-free, no-sugar-added Vanilla Ice Cream Sandwiches.
However, as the trend towards all things healthy grows, US retailers are increasingly dedicating private labels to
healthy ranges in the same way as in the UK. For example, Safeway has introduced its Safeway Select Healthy
Advantage range.
Natural and organic foods
Natural foods are generally defined in the US as foods that do not contain artificial additives and receive no
more processing than would typically be carried out at home. The term natural foods does not specifically
restrict the use of pesticides or other chemicals that occur in production or processing. Organic foods, on the
other hand, are those that have been grown, handled and processed without the use of toxic pesticides and
fertilisers, genetic modification, irradiation, sewage sludge and growth hormones.
In response to consumers concerns about food scares, GM foods and the harmful effects of some additives,
both natural and organic foods have gained an increasing share of retail space in recent years, and are appealing
to an increasingly wide audience rather than just health-conscious consumers. Private label is ideally suited to
this trend, as it offers a more affordable alternative to the organic foods produced by the major brands, and it is
an area where smaller names, rather than the major brands, are accepted by consumers. Furthermore, as few
national/multinational brands have had the time or the resources yet to capture a significant share of the organic
products market, this allows retailers the opportunity to leverage their private label brands and take a strong
position.
Organic products are particularly popular in Germany, where the concept is highly developed and widespread.
All the major German supermarket chains have their own organic private label ranges. Tengelmann was one of
the first to launch an organic private label in Germany, under the name Naturkind, in 1986. Naturkind has now
become synonymous with Tengelmanns corporate image. The line has progressed from dry foods to include
fresh produce, and now consists of some 100 products, including fruit and vegetables and dairy products.
The organic private label market is also well developed in the UK, with Sainsburys and Tesco, as well as many
others, offering organic private label ranges. Asdas Organic range was introduced in 2003 with 101 products,
and at the end of 2004 stood at around 150 products across ready meals, grocery, bakery, meat and produce.
Asda has strict criteria for its Organic range: products must be produced to organic standards (or 95% of
ingredients produced to organic standards) with organic certification. Products should also be affordable and at
least 30% cheaper than other private label equivalents, and 20% better value than branded organic products.
In the US, all organic products are governed by the same stringent USDA regulations that were put in place in
2002. Therefore, consumers can have faith that private labels conform to the same standards as branded
products, despite their usually lower prices. Furthermore, as there is still some confusion on the part of
consumers regarding the new organic labels and the USDA Organic seal that resulted from the federal
regulations, retailers are able to offer their services in this area by providing printed material and trained staff
who can help their customers better understand organic products.
Organic private labels in North America are provided not only by speciality retailers like Trader Joes and
Whole Foods Market, but are now increasingly common in mainstream chains. These include Safeway, with its
Safeway Select Organic range, Kroger, with Naturally Preferred, and Canadas Loblaws, with Presidents
Choice Organic. All these retailers have expanded their ranges of natural and organic goods recently. The
Naturally Preferred line now includes such products as baby food, bottled water, eggs, rice, milk, hand-cooked
by the batch crisps, tortilla chips, cereals, juices and free-range chicken broth. Naturals at Harris-Teeter includes
specialities like basmati and jasmine rice, whole wheat couscous, juices and cereals, plus staple items like dried
beans. Organic soybean certification has become virtually standard for soy milk, even for retailers that do not
carry organic private labels.
Page
62
Strategy Briefings
World
US retailers continue to launch organic ranges as they recognise this as a long-term trend. In autumn 2004, both
Ahold USA and Giant Eagle introduced new ranges under the respective labels Natures Promise and Natures
Basket.
Fair trade
Some retailers have gone a step further and are offering fair trade private label foods, as consumers become
increasingly concerned about the origins of their products and bad practices arising from low cost countries.
Fairtrade Foundation is an organisation that focuses on providing living wages for coffee growers through
slightly higher retail pricing.
For example, in the UK in November 2002, the Co-operative Group announced it would be the first retailer to
offer only fair-trade chocolate under its private label. This move generated significant interest, with the media
specifically querying the supply strategies of major manufacturers as a consequence. As a result, the profile of
the Co-op was raised, allowing it to charge higher prices for its fair trade products, with a reasonable assurance
that they will sell successfully. The Co-operative Group pledged to double its Fairtrade offerings in 2004, and
add 22 new products in 2005, boosting annual sales to 21 million.
Another UK supermarket chain, Asda (owned by Wal-Mart), is also active in the fair-trade segment with its
Cafdirect Fairtrade product lines. Asda stocks nearly two dozen Fairtrade products, including coffees, tea, juice
and bananas. Fairtrade brands include Cafdirect, Clipper, Percol, and Teadirect. In 2004, following a successful
promotion during Fairtrade Fortnight, which is organised by Fairtrade Foundation to raise consumer
awareness of the concept, Asda decided to add four new Cafedirect products to the five currently in Asdas
stores. These include Cafdirect Decaffeinated Roast & Ground coffee, Cafdirect 5065 premium freeze dried
coffee, Cafdirect 5065 Decaffeinated Organic premium freeze dried coffee and Teadirect black tea.
Private label fair-trade products are also sold in other markets. For example, in Switzerland, the Max Havelaar
brand is exclusive to Migros, and reached sales of CHF50 million in 2003. In the US, the Wild Oats chain sells
fair trade products under the Allegro private label.
Low-carb
One of the latest concerns in the US is carbohydrate intake. This has arisen as a result of the popularity of such
diets as Zone, Atkins and South Beach, all of which originated in the US, which eschew large amounts of
carbohydrates (starches and sugars). Although carbohydrates are required for good nutrition, along with protein
and fat, hype over carbohydrates has led many people to believe that they are unhealthy. In the US, low-carb
mania has gone beyond dieters to include a large proportion of general consumers, who are increasingly
seeking out low-carb foods. Indeed, US research company Information Resources Inc found that sales of lowcarb snack and beverage brands grew in the US from US$78.8 million in 2000 to US$333.7 million in 2003,
with 21% of households buying them.
Not surprisingly therefore, the low-carb phenomenon has reached the private label sector. Walgreens has been
one of the pioneers of private label low-carb products, introducing a carbohydrate-reduced grape-cranberry juice
cocktail, using Splenda in place of sugar, under its Deerfield Farms brand.
However, some retailers are reluctant to enter the low-carb arena as they believe this is only a temporary fad.
Indeed, there are signs that growth in the segment is slowing down. Wal-Mart is a notable example of a retailer
that is preferring to invest in segments with long-term growth potential, such as health and dietetic foods, rather
than foods low in carbohydrates.
Free from
An increasing number of people are prone to food allergies and intolerances, which has been blamed on the high
level of pollutants in the air. For example, a gluten-free diet is necessary for people diagnosed with celiac
disease, an ailment that causes a physical reaction to certain protein chains or glutens which are found in
common grains such as wheat, rye and barley. The reaction leads to changes in the small intestine which
prevents absorption of nutrients from food.
Page
63
Strategy Briefings
World
This has offered food retailers yet another opportunity to exploit a growing niche segment that of free from
foods. Some retailers incorporate free from foods into their natural ranges. This is the case of Giant Eagle, for
example, in the US, whose Natures Basket line supports a range of healthy lifestyles, including vegetarian,
vegan, organic, certified organic, gluten-free and dairy-free. However, others have whole lines dedicated to free
from foods. Health food chain Whole Foods in the US opened its Whole Foods Market Gluten-Free Bakehouse
after years of perfecting gluten-free recipes. Another US chain, HyVee, has an on-line list of more than 1,000 of
its private label products believed to be gluten-free as of 1 July 2004.
In the UK, the major grocery retailers also tend to have private label ranges totally dedicated to free from
products. Tescos Free From range, for example, offers a choice of over 150 products that are free from gluten,
wheat or dairy, while Sainsburys Freefrom range is very similar.
Segmentation by target group
Children
Private label retailers are also segmenting their products in other ways, by offering products specifically
designed for children, ethnic groups, teenagers, etc. This allows them to add value and differentiate their
products, since few brand retailers have ranges for specific demographics. One of the most popular segments at
present is that of childrens ranges, which are benefiting from increasing demand for childrens foods that are
both nutritious and convenient. This trend is highly developed in the UK, where several retailers have
successfully launched childrens ranges. One such retailer is frozen food specialist Iceland, with its Kids Crew
brand. Iceland claims that its Kids Crew range has passed the companys three nutrition tests on salt, fat and
saturated fat. In addition, all Iceland products are reportedly made with no GM ingredients, artificial colours or
flavours. Icelands Kids Crew range includes a wide range of products, including ready meals, vegetables,
desserts and drinks.
Similarly, Sainsburys Blue Parrot Cafe is designed for children, with advertising aimed at convincing parents
that the range is healthy for children and as good as home made food, but with all the convenience of ready
made meals. The range has restricted colours and additives, and includes frozen sausages with vegetables
hidden in them, crisps, drinks, ready meals, cocktail sausages, snacks and ice lollies.
Asdas More for Kids food and drink range was launched in February 2003, with 65 products, and by October
2003 had been increased to around 100 products. The More for Kids range is also designed to meet the needs of
mothers shopping at Asda who are looking for a range of foods that are balanced and as good as home made.
The products must also appeal to the children from a packaging, appearance and taste perspective. For this
reason, treats are also an important complement to the main range.
In the US too, private labels for children are a growing segment. Meijer was the first to introduce its own
childrens range, Ed Venture, but H-E-B has a much greater range of products under its HE-Buddy range. This
includes such products as fruit snacks, vanilla cookies, pizza, fortified bread, yoghurt and Dino (chicken)
nuggets. The retailer uses tie-in promotions like school field trips and fund raisers, HE-Buddy coupon books and
a mascot who makes public appearances and urges kids to both read more and get more exercise.
Ethnic
Private label ranges aimed at specific ethnic groups, such as Asians or Hispanics, are becoming more common
in the US as demographic patterns shift. This is especially noticeable in areas with high ethnic populations, such
as in central Texas, where a leading retailer offers ethnic meat items such as barbacoa (roasted cow cheek-meat),
oxtails (popular with Caribbean and African Americans) and sushi. Other growing ethnic food specialities
include Asian and Caribbean dishes.
In many cases, the private label offer has expanded from ethnic commodities like tortilla flour to more
sophisticated items like ceviche (a Peruvian seafood dish). US retailers that currently offer ethnic ranges
include:
Kroger, with its Hispanic label Buena Comida;
Stop & Shop (Ahold USA), with Hispanic label Mi Casa;
Nash-Finch, with Hispanic label Avanza;
Page
64
Strategy Briefings
World
Harris Teeter, whose Traders brand covers many Asian specialities.
Producing foods aimed at ethnic shoppers is not the same as producing ethnic foods aimed at the whole market,
as it involves making a dedicated effort to get to know the ethnic consumers culture, and to acquire a solid
understanding of their product requirements, purchasing habits, attitudes and drivers. For example, research has
shown that in the US, Asian consumers tend to be less led by brands, and more by packaging, including size,
colours, symbols, images and numbers, which can be associated with meanings such as good luck or longevity.
Furthermore, it has been found that Hispanics are a more collective society, meaning that multiple generations
of families and entire neighbourhoods will prefer the same brand or type of products, while black consumers
tend to be more individualistic, using products to make a statement and distinguish themselves. These factors
offer significant opportunities to private label retailers to develop products that appeal to different ethnic groups.
One particularly fast growing area in the US is reportedly that of private label Asian cooking oils, used mainly
in stir frying and wok cooking. This reflects trends among US consumers towards experimenting with creating
the exotic foods they enjoy eating at Asian restaurants. Shelf stable private label Asian food items are also
growing strongly due to a number of new product launches. For example, C&F Foods recently announced that it
will offer Mayocoba Peruano Beans, an ethnic bean variety that is not currently available in US supermarkets.
Diversification
Grocery retailers that have reached an optimum level of private label supply in the traditional areas of food,
drink and household goods have looked to non-traditional categories in which to expand their private label offer.
These include all kinds of categories, including clothing, furnishings, jewellery and even services such as
cafeterias and financial services. Although luxury products such as jewellery and upmarket clothing do not in
general lend themselves to private label development, due to their association with prestigious brands, some
retailers that have built up a strong brand image have managed to achieve this.
Some retailers are very quick to respond to new demand by developing and launching private labels in new
niche categories. For example, in the Netherlands, the leading large grocery stores immediately introduced
private label coffee pods for the new coffee machine model Senseo, developed by Philips and Douwe Egberts,
following its explosive success.
Clothing/jewellery
Private label clothing offered by mass merchandisers and grocery retailers has suffered in the past from a
reputation for being old-fashioned and of poor quality. While this is still the case in some countries, such as
France, food retailers in the UK have made significant efforts to improve the quality of their private label
clothing, and have succeeded in creating brands that rival high street stores, such as Tescos Cherokee and
Asdas George labels.
In the US, Wal-Mart is leveraging its clothing brands. Sleepwear is now included in both its No Boundaries and
Secret Treasures labels, which began life as brands for teen fashions, and accessories and lingerie. Wal-Marts
warehouse club division, Sams Club, also recently unveiled its exclusive label Innergy by Paula Abdul.
Case Study: Asda
Asda in the UK is an example of a retailer that has a very successful private label clothing operation, which was
recently extended into the jewellery sector. Asdas George label was launched in 1991, and immediately became
popular due to its reputation for good design at low prices. The label now generates sales of more than US$1.8
billion in the UK alone. Taking advantage of its success, Asda opened its first free-standing George clothing
stores in 2003. Following Asdas acquisition by Wal-Mart in 1999, the George label was introduced in WalMart stores in the US, Canada, Mexico, Germany, South Korea and Japan.
Asda made the national headlines in the UK in July 2004, when, according to research by Taylor Nelson Sofres
Fashiontrak, its George brand became the market leader for clothing by volume, overtaking Marks & Spencer
for the first time. In that year, Asda also extended the George label into the jewellery sector with a new model
based on Wal-Marts jewellery department in the US, Always & Forever. The new George jewellery range starts
at low prices, at less than 1 for basic earrings and 10 for chokers, but rises to around 780 for a 3/4 carat
diamond engagement ring. The selection will change every three weeks, to meet new fashion needs.
Page
65
Strategy Briefings
World
Other non-food
Many food retailers are expanding into non-food private labels in order to improve their range of offer to
consumers, and to increase margins. This includes electronic goods and software, household goods, and sports
and leisure goods.
In the US, mass merchandisers and drugstores have been experimenting with private label electronic goods and
software, which were previously restricted mainly to electrical stores. This includes private label recordable
CDs and even DVDs. Private label CDs and DVDs are sourced mainly from China and Taiwan, where they can
be produced far more cheaply than in the US. However, margins are still very narrow due to fierce competition.
Wal-Mart is the leader in private label recordable DVDs, and has also expanded into MP3 players and boom
boxes.
Private label digital cameras were test marketed in the US at drugstore Walgreens in 2002, and towards the end
of 2004, another drugstore chain, CVS, launched the first private label single-use digital camera. Target has also
introduced manual zoom cameras under its private label.
In the UK, Asdas latest private label range, introduced in the summer of 2004, is Wal-Marts Durabrand range
of electrical goods, with products including TVs, DVDs and radios. The company has announced that in future
it will introduce broader private label electricals ranges under the Pacific and Schneider names, as well as two
Wal-Mart global private labels: Athletic Works (sports clothing and footwear) and Ozark Trail (camping and
leisure accessories).
Services
Many retailers are experimenting with offering private label services within their stores. These include financial
services, pharmacies, opticians and photo departments. Wal-Mart has been a pioneer of these types of services
in the US, and is currently transferring its expertise to its subsidiary Asda in the UK.
In the UK, supermarkets were estimated to account for around 3% of UK banking clients in 2003. Supermarkets
have the advantage of holding a huge database of information on customers, as well as high visibility and a high
level of trust and loyalty. They appeal to a mature market, with customers typically aged between 40-59 and
married, with either a mortgaged property or one that is owned outright. Incomes are more likely to be at the
upper end of the scale at between 25,000 and 100,000 per annum. Canadas Loblaws also has a successful
private label financial services arm.
Case Study: Tesco
Tesco was a pioneer among retailers in offering banking services in the UK. Tesco Personal Finance was
launched in partnership with the Royal Bank of Scotland in 1997, in order to offer customers a complete
shopping experience. In 2003, 1.4 million accounts were opened, giving Tesco Personal Finance a total of 3.4
million customers. From a service viewpoint, customers have the ability to enjoy 24-hour banking in 540 stores,
and the use of cheque deposit facilities at checkouts and customer service desks.
Tesco Personal Finance currently offers credit cards, savings accounts, travel and car insurance and, most
recently, mortgage services. The latter were introduced in late 2004, after teaming up with First Active, also part
of Royal Bank of Scotland. Applications can be made over the phone, or on-line. Tesco previously offered
personal loans through its Tesco Finance division, but only up to 25,000.
Other non-standard services that Tesco provides under its private label include a mobile phone service; legal
advice; travel bookings; gas and electricity utilities; and a profitable e-commerce delivery system.
Many supermarkets contain cafeterias that use their retailer fascia, and these tend to use the retailers private
label brands, as this is the most cost effective solution for them. However, Sainsburys recently dropped its
name from its in-store cafeterias, instead opting to outsource its cafs to Starbucks in order to upgrade its image.
In the US, Publix took a new tack in 2004 and went into partnership with Crispers, a local Florida restaurant
chain of 23 outlets specialising in salads, soups and sandwiches, in which Publix has an equity investment.
Crispers now uses Publixs store brand products as part of its offer. For example, Crispers milk shakes and
sundaes are promoted as being made with Publix Premium ice cream. In this way Crispers benefits from being
Page
66
Strategy Briefings
World
located on Publixs premises, while Publix has found a new market and higher visibility for its private label
products.
6.6 Advertising and Promotion of Private Labels

Overview
Grocery retailers tend not to use above-the-line advertising techniques for individual private label brands or
lines, as such campaigns are not justified by the sales of individual items. This is their main disadvantage
compared to brand manufacturers, which can afford to invest large sums in advertising leading brands through
the main media. Nevertheless, the large retailers often run corporate TV advertising campaigns, which indirectly
benefit their private labels, as these are inextricably linked to the image of the retailer. An example of this is
Sainsburys in the UK, which has advertised its supermarket business heavily using TV chef Jamie Oliver as a
front-man, in order to generate a fresher, more youthful image. This has had a very positive impact on sales of
Sainsburys private label products.
In general, however, grocery retailers tend to advertise individual private label brands on a store level, via direct
mail or through more indirect sales methods, such as offers for loyalty consumers.
With regard to US retailers, experts believe that not enough marketing goes into private labels, as their business
model does not allow for this, and neither does that of the original manufacturer. This is sometimes a point of
contention in the industry, as some retailers expect their private label suppliers to pay marketing expenses.
However, with very low margins this is often not possible. Suppliers believe it is the responsibility of those that
own the equity in their brands, ie the retailers, to foot the bill. In general, retailers tend to use above-the-line
advertising for their corporate image, which private label of course indirectly benefits from, while sticking to instore merchandising, special offer promotions and direct mail methods to advertise specific private label
products.
With regard to specialist types of retailer that operate pure private label strategies, some of the largest
companies, such as The Gap and Ikea, invest substantial sums in advertising their brands through the main
media channels. In these cases, the retailer name is the brand, so labels benefit directly from corporate
advertising.
Loyalty cards
The use of loyalty cards by retailers has become an increasingly common marketing tool in developed markets,
and can be used to promote sales of private label products. Loyalty cards allow customers to earn significant
discounts through collecting points. In return, supermarkets gain not only customer loyalty, but also a
considerable amount of information about their consumers, which they can then use to find new markets, plan
new range rollouts and manage fresh food, thus making substantial cost savings. Loyalty cards also enable
supermarkets to save on advertising, direct mail and market research costs, as well as to make money on selling
their analysis on to manufacturers. Sending loyalty card members rewards allows retailers to include brochures
containing information about their private label products and promotional offers.
The UK is a particularly well developed market for loyalty cards, and it was estimated that around 85% of UK
households had at least one loyalty card in 2003. The first of these to be introduced was the Tesco Clubcard, in
1995. The scheme was immediately successful, and, by 1996, Clubcard holders were spending 28% more at
Tesco and 16% less in rival Sainsburys. The latter soon followed suit with its Reward card, which had a
membership of 10 million by 1998. In September 2002, the consortium concept Nectar was launched, which is
used by companies such as Sainsbury, service station operator BP, department store chain Debenhams and credit
card company Barclaycard. By February 2003, half of UK households had signed up with Nectar.
The data acquired through the Nectar scheme has enabled Sainsbury to refine its private label range. Sainsbury
significantly increased responses to Nectars targeted mailings, both paper and e-mail, by applying demographic
and transaction information captured from customers Nectar loyalty cards to its marketing and product
packaging campaigns. For example, customers in its Foodie category (affluent consumers who enjoy serving
and eating unusual premium foods) receive recipes, serving suggestions and mailings with images of gourmetstyle products. Instead of targeting Sainsburys audience with money-off coupons, the company made great
efforts to appeal to Foodies by creating elegant designs and covers on some of its private label lines.
Page
67
Strategy Briefings
World
Meanwhile, leading UK pharmacy and drugstore chain Boots owns what is currently the worlds leading smart
loyalty card, Boots Advantage, which in 2003 had over 14 million members. Over 50% of sales are linked to the
card. Boots uses the card to determine customer buying patterns and the effectiveness of its marketing strategies.
For example, in 1999, its analysis showed that 65% of buyers of its private label range Botanics chose from just
one of the five product categories covered by the range. When the new range was relaunched in January 2000, it
was specifically designed to move buyers across categories. The initiative resulted in a doubling of sales. In
2004, Marks & Spencer launched its own loyalty card for the first time.
In the US, supermarket chain Safeway offers significant discounts on its private label products in order to create
the perception of savings for its loyalty card holders, and thus drive store traffic.
Merchandising
The location of products in the store, and where sale prices are located on the shelves are also essential factors in
the marketing of private labels. On shelves, private label products are often placed in prominent positions. This
varies from retailer to retailer, or from product to product, but can include placing products to the right of their
national brand counterparts, at eye level, or on an end cap. It tends to be the case that for more commodified
categories, with lower brand loyalty, as well as growth categories and categories that produce higher than
average profits, private labels can be more suitably promoted and more aggressively merchandised, including
allocating them more shelf space. On the other hand, in categories with higher brand loyalty it will always be
difficult for private labels to be positioned in a way that gives them a competitive advantage.
Therefore, determining whether or not to attribute more shelf space to private labels depends ultimately on their
level of sales. If more space is given to certain private label products with the aim of generating sales at the
expense of better-selling national brands, this can negatively affect overall sales in the category. Experts believe
that the focus for retailers should be on providing shelf space that corresponds to total sales of a product in any
give category.
The role of the private label product also plays a part. For example, if a private label product has been
introduced in order to generate profits, it is better placed as close to the leading traffic-building brand as
possible. It is believed that this will stop a customer and allow them to reconsider their choice, when they come
in for a specific brand. However, if a private label product is a new entry in the category, something capable of
creating excitement, it is better placed at the front of the shop, closest to the traffic flow.
Cross-promotional merchandising is considered by experts to be one of the most effective ways to raise the
profile of private label products, providing the promotions are relevant. For example, if the promotion centres
around a barbecue theme, it is wise for retailers to offer a mix of private label items that relate to barbecues.
Similarly, private label snacks can be placed near branded spirits or other beverages, or private label pasta or
vegetables near the meat department.
Print and web advertising
Leaflets, or circulars, distributed in Sunday papers or consumer magazines, through direct marketing or in-store,
are a popular and cost-effective way for retailers to advertise their private label products. Indeed, many busy
shoppers look at circulars for special offers to determine purchases before shopping, in order to save both time
and money. A recent study carried out in the US showed that 71% of female grocery shoppers read advertising
circulars and plan their grocery shopping based on items advertised each week.
With an increasing number of people worldwide using the Internet, this is becoming an effective tool for both
advertising private labels and selling them on-line. Sears Roebuck of the US recently came up with a
particularly innovative idea for promoting its private label clothing range on-line. The company upgraded its
website to allow customers to shop for clothing and furnishings on-line, but also provided a facility to try
clothes on virtually, through its My Virtual Model feature, which it acquired with the Lands End line and
landsend.com. Customers enter their height, weight and personal characteristics to create their own customised
on-line model, to see how they would look in a given outfit. The updated version of My Virtual Model also
allows shoppers to zoom in and get a close look at fabric and construction detail, and change an items colour.
Wal-Mart has also begun selling clothing over the Internet, including its private label brands such as George,
Faded Glory, and White Stag.
Page
68
Strategy Briefings
World
Celebrity endorsement
Celebrity endorsement of private label brands has become popular in the area of clothing, and is intended to
raise the perception of grocery retailers brands from their rather downmarket image of the past to that of
premium fashionwear. Celebrity endorsement has also long since been used by pure clothing retailers for their
own labels. For example, The Gap has run some very high profile global advertising campaigns, including a
multimillion dollar ad campaign fronted by superstar Madonna in the autumn of 2003. The only other product
that Madonna had previously endorsed was Pepsi, in 1989.
With regard to non-specialist clothing retailers, German retailer KarstadtQuelle promoted its Yorn label,
targeted at the career person, with endorsements by two high profile athletes, Isabell Werth, the Olympic
champion in horse riding, and footballer Karl Heinz Rummenigge. Its premium sports label, Alex Athletics, is
also endorsed by high profile athletes. These campaigns are part of the retailers marketing strategy to increase
the share of its private labels in all divisions in the coming years.
In the US, discount mixed merchandiser Kmart has partnered with cable TV networks to promote its clothing
ranges. In 2004, the retailer joined up with the WB Television Network, whereby celebrities from WB shows
7th Heaven, One Tree Hill, Reba, Summerland and Blue Collar TV wore Kmarts new autumn clothing range as
part of its Back-To-School TV advertising and marketing campaign. In addition, The WB stars dressed up in
Kmart apparel in multiple episodes of the participating shows. Later in the year, Kmart partnered with E!
Entertainment Television to launch its exclusive clothing line Attention. As part of the deal, celebrities from the
daily news programme E! News Live modelled Attention fashions in Kmarts magazine advertising campaign,
and also wore the retailers Attention line on E! News Live weekly throughout the autumn season. In return,
Kmart included tune-in messaging for E! News Live in the magazine campaign and in signage throughout its
stores.
6.7 Sourcing of Private Labels

Overview
Retailers have several alternatives with regard to the sourcing of their private label products: they may own
manufacturing plants themselves, or they may source from third party suppliers. Many operate a mixed strategy,
owning some production facilities for basic products, and using external suppliers for other. The general trend
among retailers is to contract private label products out to third parties, as this allows them the flexibility to
terminate agreements with suppliers that do not confirm to requirements, while still allowing them a certain
level of control. These products may be sourced either from large brand manufacturers or small producers.
The number of private label suppliers a retailer uses depends on its size, country coverage and the product in
question. For example, it is not always wise for retailers operating across international markets to have too few
suppliers, since tastes and standards vary across markets. In the case of toilet paper, for example, Spanish and
French consumers have a different perception of quality of toilet paper to those in Scandinavia and the UK.
However, in categories such as pizza, which is a global concept, only one supplier is often required.
Employment of middlemen - buying groups
Another option is for retailers to join buying groups that deal with sourcing of private label products on their
behalf. This is especially effective for smaller retailers, which may choose to pool their resources in order to
increase their buying power and benefit from the expertise of an organisation dedicated to getting the best deals
from suppliers.
One example of a successful buying group is Associated Marketing Service (AMS). It has nine European
members, namely Ahold (Netherlands), Caprabo (Spain), Dansk (Denmark), Edeka (Germany), ICA (Sweden),
Jeronimo Martins (Portugal), Kesko (Finland), Safeway (UK) and Superquinn (Ireland). AMS controls over
100 billion of retail sales value and supplies 19,000 stores in 18 countries. The group is always looking to
expand in order to gain more leverage in negotiating. AMS focuses heavily on private labels, finding multiple
suppliers for the private labels of each member. It is not necessary for all nine members to agree on a supplier or
product line: AMS looks for approval from three of its members before proceeding. One of the groups main
private label lines is Euroshopper, which was launched in 1996. The brand is used mainly for dry categories,
such as paper and beverages, and is used across all members and countries.
Page
69
Strategy Briefings
World
In the US too, many private label products originate with companies that specialise in developing and
distributing private label products, but do not manufacture them or sell them directly to consumers. These
include independent companies that collaborate with manufacturers and retailers, as well as cooperatives of
wholesalers and/or retailers. One such company is Topco Associates LLC, a cooperative that supplies private
label products to Meijer, Ukrops, Giant Eagle and other food retailers. While some of these private labels carry
the retailers name, others are specific to Topco.
Move towards low cost countries
In general, the supplier base for private label products is shifting from high cost countries such as France, Italy
and the Netherlands to countries with lower labour and material costs, such as those of Eastern Europe and Asia.
This is the case for both third-party suppliers and retailers own manufacturing divisions. China is becoming a
particularly popular source for non-food private label items, as they can be produced there cheaper than
anywhere else, and shipping costs are minimal.
Vertical integration
Ownership of suppliers allows retailers control of the entire supply chain, and provides an even stronger
bargaining position vis--vis brand manufacturers, although some of the latter are displeased about the conflict
of interest that arises from the merging of manufacturing and retailing. Retailers such as ITM Group of France
have a policy of acquiring producers whose output is sold under private labels.
Global furniture retailer Ikea, which operates an exclusive private label policy, owns most of its production
facilities, which allows it to secure long-term production capacity for key items. The companys Swedwood
Group of sawmills and factories was purchased in 1991, and has grown to number 33 factories located in 10
countries around the world. The main task of the factories is to focus on the areas in which Ikea has difficulty
finding external suppliers, and they produce around 11% of Ikeas total purchases. In addition, the Swedwood
Group acts as a tool for knowledge transfer with regard to production and industry between the Ikea sales and
purchasing division and external suppliers.
Sourcing from third-party suppliers
Most retailers source their products from third-party suppliers, as they often do not have the means to invest in
their own facilities, and enjoy the flexibility of outsourcing. This is the case of most clothing retailers. The Gap,
for example, has shown no signs of vertical integration, and most of its products are procured from third-party
contractors.
Opportunities for SMEs
The manufacture of private labels benefits a large number of small companies which may otherwise not gain the
volume of sales needed to survive in todays competitive environment. For companies that cannot afford to
invest the vast sums necessary to promote their own branded products, private label production is an ideal
solution. Some producers are able to survive in a difficult economic environment by acting as sub-contractors
for large retailers, and at the same time, they do not have to spend time and energy searching for a market for
their goods all this work is performed for them by the large retailers, without their having to invest heavily in
market research and advertising costs. In France, for example, manufacturing and agricultural SMEs (small and
medium sized enterprises) are estimated to constitute 64% of private label suppliers.
Some retailers rely on only a small number of producers for their private label products. For example, German
retailer Tengelmann uses the same company, Hamburger Warenhandelskontor GmbH, to supply most of its
A&P and other private label products.
When using small producers, retailers are generally very demanding with regard to the quality of production. In
order to guarantee the quality of its products, Belgian retailer Delhaize audits all suppliers according to the BRC
standard, and makes sure strict quality criteria are written down in specification books, while external
laboratories conduct quality controls on the products. Similarly, while the actual production and processing of
Loblaws Presidents Choice brand is undertaken by third-party specialists, Loblaw is deeply involved in the
development and testing efforts of new products. The company boasted over 1,200 private label products in its
portfolio as of 2003.
Page
70
Strategy Briefings
World
Case Study: Wal-Mart

The worlds largest retailer, Wal-Mart, works with a multitude of private label suppliers over 200 in all. Being
a supplier of Wal-Mart can be particularly lucrative for private label manufacturers, given that the retailer has
national coverage in the US, and most stores are open 24 hours a day. However, expectations from Wal-Mart are
very high, and any manufacturer not adhering to its stringent manufacturing standards is likely to lose its
contract.
The manufacturing facilities of Wal-Marts suppliers must be capable of keeping up with the high level of
demand and delivery requirements of the retailer, and suppliers must meet its logistics needs with the ability to
ship on time to the right distribution centres. Producers need to be flexible, and adhere to extremely high
expectations for food safety and quality.
Wal-Mart claims that, despite its stringency, its turnover of suppliers is very low, and that suppliers in general
provide a high level of service. The retailer works closely with its supplier base to create products that are
innovative and of high quality, and also products that are designed for specific local markets. The retailer
operates a Store of the Community programme, which targets items to particular demographics, such as ethnic
communities, a retirement community, college town or resort area.
Multinationals taking more interest
At first major national and multinational companies were reluctant to produce private label brands, as they did
not want to tarnish their images with what were largely considered downmarket products. However, an
increasing number of conglomerates such as Nestl, Philip Morris and Groupe Danone are now entering the
private label arena. This is a clear sign that the perception of private labels as inferior quality products has
largely evaporated and of the shift in power to the advantage of retailers over manufacturers.
In the UK, the large domestic food producers dominate the production of private label products, including
Northern Foods, Hillsdown Holdings and Bookers. Similarly, Japans largest private label retailer, Daiei, has
developed strong relationships and partnerships with major producers such as Marubeni and Ajinomoto in the
food sector, Kanebo and Colgate-Palmolive for cosmetics and toiletries, and Konica and Agfa for photographic
goods.
There is, nevertheless, still a conflict of interest for brand manufacturers in supplying private label products. On
the one hand, they want the chance to fill capacity and generate extra income, but on the other hand they also
want to remain competitive, and this means protecting their new products and formulas. Some retailers therefore
find it difficult to find branded manufacturers that will provide them with products that match their proprietary
brands in terms of quality and sophistication.
In areas that require technical expertise, such as electronic goods and kitchen appliances, it is preferable for
retailers to engage the services of major manufacturers. For example, Sears Roebuck & Co of the US relies on
manufacturers such as General Electric, Whirlpool and Electrolux for the production of its Kenmore brand of
large kitchen appliances. This fact is known to consumers, who have built such a high level of trust in the
Kenmore brand that it has become one of the countrys leading brands of large kitchen appliances.
Reverse auctions
With regard to procurement methods, some retailers prefer to use on-line reverse auctions, a new way of doing
business by which fixed-duration bidding events are hosted by a single buyer, and multiple suppliers compete
for business. Advocates of the system claim reverse auctions can lower the cost of procuring products and
services as much as 20%, thereby improving margins. However, others eschew reverse auctions, as the emphasis
tends to be on price rather than building up solid buyer-supplier relationships to achieve quality, reliability and
value-added services.
According to the PLMAs 2004 Retail Trends survey, retailers expressed largely negative opinions on auctions,
with two thirds claiming they do not use them. Of the one quarter of retailers that said they do use auctions, only
20% said they intended to increase their use in the future.
Page
71
Strategy Briefings
World
Mixed sourcing
Some of the larger retailers operate a mixed sourcing strategy in order to allow maximum flexibility, with a
view to keeping prices as low as possible. Aldi is one such retailer, sourcing many of its private labels from
branded companies. This has contributed to its reputation for high quality private label products, although the
identity of many of these branded companies remains a closely guarded secret. For a long time, branded
companies neglected Aldi, but it is known that in 2000 Kellogg developed five cereals products for the retailer
to distribute under its private labels. Other Aldi products are sourced from small producers. For example,
German company Stute produces all Aldis juice drinks. However, many of its secondary brand products
originate within the company. Aldi owns several small food processors, and recently formed a company to
process and market dairy products in Belgium.
Migros, which dominates the Swiss retailing market and has around 90% private labels in its product mix,
sources most of its products from its own production units. For example, its subsidiary Mibelle is its main
supplier of cosmetics and toiletries, and is one of the leading producers of such products in Switzerland.
6.8 Suppliers and Their Strategies

Major private label producers
Soft drinks
Apart from the worlds leading private label soft drinks producer, Cott Corp, the supplier base for private label
soft drinks especially fruit juices is very fragmented. A major supplier of 100% pure Florida fruit juice is
Southern Gardens Citrus, which has 32,000 acres of orange trees and one of the largest citrus processing plants
in the US. Southern Gardens Citrus produces more than 600,000 gallons of orange juice a day. Other major US
juice producers include Clement Pappas & Co and Signature Fruit Co.
Case Study: Cott Corp
Cott is one of the most successful private label producers in the world, producing soft drinks on behalf of
retailers all over the world, including Wal-Mart, from nine manufacturing sites. Over 50 years, the company has
grown to claim a massive 66% share of the private label soft drinks market in the US, 97% in Canada and 40%
in the UK by 2003.
Cotts products include carbonated soft drinks, juices and blends, seltzers, spring water and purified drinking
water, and clear sparkling flavoured beverages. The company also operates its own brands, including Cott, Stars
& Stripes, Vess and Vintage. Cott is famous for having created a cola drink that is virtually indistinguishable in
taste from Coca-Cola, something that no other company had previously been able to achieve.
The company is currently focusing on international expansion, having successfully entered the Mexican market
in 2003, and expanding its activities in the US by acquiring Quality Beverage Brands in North Carolina.
Cott reported record results for 2003, with sales up by 18% to reach US$1.4 billion in revenue, while operating
profits increased by 21% to US$149 million. Wal-Mart accounted for approximately 42% of sales.
Foods
The private label food manufacturing industry is also highly fragmented, and consists largely of specialised
producers. However, some of the major international foods companies also supply the private label industry. For
example, Birds Eye Foods Inc is the USs leading provider of private label frozen vegetables and fillings and
toppings, and also provides private label canned foods. Birds Eye Foods claims to offer retailer partners the
broadest product portfolio in the industry, combined with excellent food quality and security, continuous
product innovation, and marketing support. McCain Foods and Ralston Foods are two other major branded food
producers that also have significant private label operations.
One of the major food groups in the US, Dean Foods, announced at the beginning of 2005 that it would spin off
its large speciality foods group into a separate business focusing on private label development. The division was
expected to generate sales of US$700 million in 2005. Dean Specialty Foods Group will cover Dean's private
Page
72
Strategy Briefings
World
label pickle and non-dairy powdered coffee creamer business, as well as aseptic cheese sauces, pudding,
peppers, dressings, liquid non-dairy coffee creamers and egg substitutes.
Some of the major international branded companies, such as HJ Heinz and Nestl, produce some private label
products in order to fill excess capacity, although their strategies vary widely. HJ Heinz supplies a wide range of
private label products, but refuses to supply private label ketchup in competition with its flagship brand. In
2002, HJ Heinz sold off its US private label canned soup operation to Del Monte.
Other, smaller companies tend to specialise in certain product areas. These include Baumer Foods, one of the
leading producers of private label sauces and mustard, which supplies 75 countries worldwide. Similarly,
Mother Parkers Tea & Coffee is one of the largest private label tea and coffee companies in North America,
and has also established its own brands, including Higgins & Burke and Mother Parkers.
In the area of baby food, PBM Products Inc is a major player in the US, supplying milk formula to many highprofile retailers, such as Wal-Mart, Target, Kmart, Albertsons, Walgreens, and CVS. Abbott Laboratories also
entered the private label arena in 2001, by manufacturing a private label formula for the Costco warehouse club
chain.
Scandic Food A/S, one of the largest food producers in Denmark, supplies private label products throughout
Europe, Asia, the Pacific, and North and South America. Scandics production is mostly in jams, marmalades,
toppings and fruit-based desserts. The company is vertically integrated, having moved into growing fruit, and
processing and storing fruit and vegetables, in addition to its manufacturing. This enables Scandic to keep tight
control over quality from the fields to the trucks.
Scandinavian company SCA (Svenska Cellulosa Aktiebolaget) is unusual in that it is both a major player in the
private label paper industry throughout Europe, while also marketing its own corporate brands. The company
produces a range of disposable paper products, including tissues, toilet paper, paper towels, napkins, and
personal care products, such as feminine hygiene, adult incontinence products and babies nappies (diapers).
SCA has grown rapidly in recent years due to a combination of organic growth and numerous acquisitions. It is
now the fourth largest consumer disposable paper products company in the world. It ranks top in Europe for
private label supplies of paper goods, and is the second largest company in Europe in private label nappies,
supplying private label goods in 24 different European countries, and more than 40 countries worldwide. In
terms of its own corporate brands, SCA owns Tena (the worlds largest incontinence brand), Libresse, Velvet,
Edet, Zewa, Danke, Serenity (recently bought from Johnson & Johnson), Libero and Tork.
SCA has a very open private label strategy, While some branded manufacturers can be protectionist, the
company claims to be proactive in sharing its innovations with retailers. For example, recently, a new liner
developed for feminine hygiene products was simultaneously debuted in Europe through SCAs brands, as well
as by a Spanish private label retailer.
Across the Atlantic, Associated Hygienic Products (AHP) is also a major supplier of private label paper
products, and has built a reputation as a category innovator in the area of nappies and training pants in order to
help retailers build up brand equity and compete with the advertised national brands. AHP claims to be
accomplishing this with new product ideas emerging from a global product development initiative, innovative
marketing strategies and a dedication to supply chain management.
More specialised US-based suppliers of disposable paper products include Rostam US and Rockline Industries.
Rostam claims to have been the leading global producer of private label tampons for more than 20 years. The
company is highly innovative, and was reported to be the first to introduce premium plastic applicator tampons.
Rockline Industries is a family-owned company that has become North Americas largest supplier of coffee
filters and private label baby wipes. With production facilities worldwide, Rockline does business in more than
50 countries.
Detergents/C&T
As for disposable paper products, the private label supply of non-food products such as detergents and cosmetics
and toiletries products is easier to handle on a pan-European level than foods, as demand is more homogenous.
Page
73
Strategy Briefings
World
Interestingly, while Procter & Gamble is not keen to supply private label detergents, Unilever specifically
develops private label brands on a selective basis to help take sales away from Procter & Gamble.
However, the UKs McBride is Europes unchallenged largest supplier of private label detergents and cosmetics
and toiletries, with a turnover of EUR730 million. McBride not only supplies the leading UK retailers, Tesco,
Sainsbury, Asda and Safeway, but also Germanys Aldi.
German company Dalli Werke claims to be Europes second biggest private label manufacturer in the detergents
field. DalliWerke is estimated to hold a share of 30-40% of the detergents market in Germany, its main
customers being Aldi Nord and Aldi Sd, Lidl, Schlecker, dm, Rewe, Edeka and Penny.
Another major European detergent manufacturer is Germanys Barfin. It achieves a turnover of around EUR40
million form its activities in Italy, Germany and Eastern Europe, and private label production accounts for about
60% of turnover. The company claims it holds a 15% share of the detergent and household cleaner market in
Germany in terms of volume.
Summary 6
Major Private Label Suppliers 2004
Category
Company (areas of speciality)
Country of origin
Packaged foods
Abbott Laboratories (baby food)
US
Ajinomoto Company
Japan
Baumer Foods (table

sauces/mustards)
US
Birds Eye Foods (frozen foods)
US
Bookers
UK
Dean Speciality Foods Group
US
Golden Wonder/Longulf Trading

(savoury snacks)
UK
Hamburger Warenhandelskontor
Germany
HJ Heinz
US
Hillsdown Holdings
UK
Hormel Corporate Brands (canned

food, desserts, rice and pulses,
sugars)
US
McCain Foods (frozen foods)
US
Mother Parkers Tea & Coffee (hot

beverages)
US
Nestl Group
Switzerland
Northern Foods
UK
PBM Products Inc (baby food)
US
Perkins Foods
UK
Quality Food Group
Italy
Ralston Foods (Breakfast cereals,

biscuits, snacks, confectionery,
sauces, jams, bakery products)
US
Rank Hovis (bread)
UK
Scandic Food A/S (Jams, honey,

fruit-based desserts)
Denmark
Stute
UK
Express Dairies
UK
Dairy products
Page
74
Strategy Briefings
Soft drinks
Alcoholic drinks
Household chemicals/ Cosmetics

and toiletries
Electronics
World
Robert Wiseman Dairies
UK
Groupe Danone
France
Clement Pappas Co (fruit juices

and fruit products)
US
Cott Corp (carbonates)
Canada
Gerber Foods
UK
Southern Gardens Citrus (fruit

juice)
US
Flawa (mineral water)
Switzerland
Danone Waters of North America
US
Whyte and Mackay (whisky)
UK
Logret Import and Export (beer)
US
Associated Hygienic Products LLC
US
Cascades Tissue Group
US
Ontex
Belgium
Rockline Industries (coffee filters,

baby wipes)
US
Rostam US (tampons)
US
SCA (Svenska Cellulosa

Aktiebolaget)
Sweden
McBride
UK
Dalli Werke
Germany
Barfin
Germany
Unilever
Netherlands/UK
Private Portfolio (Riviera) Inc (bath

and body products, fragrances,
colour cosmetics)
US
Ranir (oral healthcare)
US
RC International
US
Trillium Health Care Products
Canada
Mibelle
Switzerland
General Electric (white goods,

small appliances)
US
Konica Minolta (digital cameras,

film cameras, inkjet paper, singleuse cameras, scanners,
binoculars)
US
Agfa
Japan
Source: Euromonitor
Producer strategies
Industry consolidation
Consolidation is a trend among private label suppliers, as it is throughout the consumer goods manufacturing
and retailing industries. This enables suppliers to achieve better economies of scale in raw material supplies,
marketing costs etc, and also allows them to expand into related product areas. One of the worlds largest soft
drinks producers for the private label industry, Cott Corp of Canada, has expanded significantly through
Page
75
Strategy Briefings
World
acquisition. The company recently added to its US business by acquiring North Carolinas Quality Beverage
Brands LLC. The agreement also involved Independent Beverage Corp, which is expected to add approximately
US$45 million in annual sales.
In 2004, it was also announced that New Orleans-based Baumer Foods had acquired the Figaro Company, best
known for its Crystal brand hot sauce, and which also owns the Hickory Liquid Smoke, Mesquite Liquid Smoke
and the Fajita Marinade brands. This will add significantly to Baumers current portfolio of private label sauces,
which includes hot, soy, steak, teriyaki and Worcestershire sauces, and brown and yellow mustards.
Focus on service and value
Manufacturers of private label products range from the largest multinational companies to small producers that
work on exclusive contracts. Most private label producers strategies centre on providing high quality,
innovative products, combined with a high level of customer service, in order to attract and retain the custom of
leading retailers. Many companies now offer dedicated customer relations, logistics, sales and marketing
services to ease the execution of retailer requirements. Some producers offer market and trend analysis to enable
retailers to maintain a better understanding of their position within the marketplace, and to develop new
products accordingly.
Other suppliers appeal to retailers by offering them a chance to improve margins significantly. For example, US
company Logret Import and Export claims to have developed a unique production, marketing and distribution
system for beer which allows retailers to make margins of up to 20%. In most states, brewers and their
distributors have had legislation passed to create a distribution monopoly, so margins can be as low as 5%. The
Logret system is reported to allow retailers to exercise some control over a good percentage of their beer
business. In addition, Logret claims, retailers with this leverage can achieve higher profits on their premium
segment and not to be forced to run near cost or below cost advertisements on those brands.
In categories where it is very difficult for private labels to compete with the major brand manufacturers due to
the high level of promotional activities, some product suppliers do their best to supply a similar level of
marketing support. Ralston Foods offers retailers a range of promotions, including tie-ins, sweepstakes, in-packs
etc, for its private label cereals. For example, the company recently partnered with National Geographic
Magazine to offer consumers a send-in coupon for a free issue of the magazine.
Wooing with innovation
The development of new products and technologies is highly important to private label suppliers, as retailers are
increasingly demanding more innovative products in order to maintain a competitive edge over other retailers
private labels and branded products.
Swedish paper goods manufacturer SCA (Svenska Cellulosa Aktiebolaget), which markets both its own brands
and private labels, has a very open private label strategy. While some branded manufacturers can be
protectionist, the company claims to be proactive in sharing its innovations with retailers. For example recently
a new liner developed for feminine hygiene products was simultaneously debuted in Europe through SCAs
brands, as well as by a Spanish private label retailer.
Similarly, in 2004, the FDA approved a new tampon developed by private label supplier Rostam, which releases
natural supplements to prevent infections. Rostam engaged in extensive clinical research to develop and refine
the product.
Another private label paper products manufacturer, US-based Associated Hygienic Products (AHP) offered its
retail customers in 2004 a range of highly sophisticated nappies with features such as a Super-fit Stretch
fastening system, a custom-printed cover with wetness indicators, a soft elastic waistband, a Dry-Lock dryness
layer and the Baby Garfield licensed character.
In the area of frozen foods, McCain Foods is also innovating for the private label industry. In response to
concerns that trans fatty acids clog arteries, and lead to type 2 diabetes and other ailments, McCain announced
in 2004 that it had revamped much of its frozen potato offerings for private labels, processing them in nonhydrogenated oil. The company claims that this makes them trans fat-free, while still crisp and golden when
baked.
Page
76
Strategy Briefings
World
However, there are still many private label manufacturers that believe in imitating major brands, rather than
innovating, in order to keep up with the competition. Many companies do not have the resources to spend on
research and development, and tend to borrow research instead. For example, US private label fruit juice
producer Clement Pappas & Co launched a square 64oz plastic bottle for cranberry and other juices that was
very similar to the one introduced by market leader Ocean Spray, as research showed that consumers preferred
this size. Outright imitation of national brands is still very popular in certain categories, such as over-the-counter
(OTC) medication.
7. OUTLOOK
7.1 External Demand Factors
The future of private label development will be affected by both economic factors and the changing pattern of
retail distribution.
Global growth to slow in 2005
Global economic growth will be beneficial to the private label market, especially in terms of the development of
value-added products. However, long-term economic trends are difficult to predict with accuracy. With regard
to the short-term outlook, economic growth is expected to begin to slow in 2005, following a particularly good
year in 2004, when global GDP expanded by around 5% its fastest growth for more than 20 years. According
to The Economist magazine, global economic growth could reach 4% in 2005, which is still impressive with
regard to historical growth rates. Indeed, unless the global economy suffers a shock, such as a major rise in oil
prices or a sudden collapse of the dollar, no major collapse is in sight for the foreseeable future.
Recent economic growth has been based on strong US demand, the economic boom in China, and low interest
rates. However, household debt in the US being at record levels, the countrys expanding budget deficit and
higher interest rates are likely to slow spending in 2005. Furthermore, it is expected that Chinas fast pace of
growth will begin to slow, as there is already evidence of overcapacity and falling margins in some sectors.
Furthermore, the Chinese government is making efforts to slow foreign investment, which could hurt the
economy.
Although Japan made a very good economic recovery in 2004, its growth is highly dependent on exports to
China and the US, so it could be negatively affected by any slowdown in these markets. Other, emerging Asian
economies, which traditionally perform well when world trade is rising rapidly, may also have to adapt to
slower demand in their key markets. Some of these countries were also severely hit by the major tsunami caused
by an earthquake in the Indian Ocean at the end of December 2004, which devastated the region and killed
many thousands of people. The economic effects of the disaster were still not known at the time of writing.
Elsewhere, Latin America, which is reliant on foreign capital in order to fund its significant debts, will face
rising borrowing costs. The only region that is likely to perform well in 2005 is the Middle East, which will
benefit from higher oil revenues, which will lead to a higher level of government investment. In Western
Europe, economies are expected to tick over at a similar level to 2004.
Supermarkets to increase penetration
The major factor affecting growth of private label around the world will be the increased penetration and
consolidation of the large grocery chains. The share of total retail sales accounted for by supermarkets and
hypermarkets is set to increase in all of the countries under review in the table below during the six years to
2008, with the exception of Japan.
Growth in large grocery retailers will be especially strong in Eastern Europe, notably in Ukraine, where their
share is predicted to grow by 38 percentage points, to represent well over half of all retail sales by 2008.
Supermarkets developed extremely rapidly in Kiev in the three years to 2003, and are expected to expand into
more regions of Ukraine during the forecast period. Hypermarkets began to appear only in 2002, and will
continue to develop in the major cities. This will give rise to higher demand for private labels, sales of which are
currently still negligible in Ukraine. Elsewhere in Eastern Europe, Hungary and Russia will also see strong
development of supermarkets and hypermarkets.
Page
77
Strategy Briefings
World
Within Asia, large grocery retailers are expected to make very strong progress in both China and Malaysia over
the review period. With the complete opening of the Chinese market in 2006, according to the WTO agreement,
it is expected that more multinational retailers will enter China, bringing with them their private label brands.
From then on, all foreign retailers will be allowed to open their businesses with 100% foreign currency capital.
The fastest and easiest way for foreign retailers to expand their business is to merge with domestic retailers.
Therefore, from 2006, there is likely to be considerable merger and acquisition activity between domestic and
foreign retailers. Chinese retailers have been well aware of this potential threat, hence merger and acquisition
activity is taking place between domestic retailers in preparation for 2005.
In Japan, however, the share of supermarkets and hypermarkets of retail sales value is expected to decline over
the forecast period, from 25% to 22%. This decline will be caused largely by the heavy price discounting that is
expected to continue over the forecast period, which will continue to limit profit margins on sales, resulting in a
significant number of store closures. Nevertheless, the continued growth of convenience stores in Japan will
provide opportunities for retailers to distribute private label products through this channel, especially valueadded products, such as ready meals, which appeal to increasingly busy consumers.
In the developed world, supermarkets and hypermarkets are forecast to increase their share significantly in
Ireland, from 18% in 2003 to almost 29% in 2008. This will reflect new store openings and supermarkets
increasing participation in areas outside grocery retailing, such as clothing and electrical goods.
Table 14
Forecast Penetration of Supermarkets/Hypermarkets by Market 2003/2008
% value
Ukraine
Mexico
Colombia
Hungary
France
Chile
Brazil
China
Switzerland
Malaysia
New Zealand
Argentina
Sweden
Finland
Denmark
Australia
South Africa
Ireland
UK
Spain
Israel
Portugal
Greece
Poland
Belgium
Czech Republic
Italy
Netherlands
Japan
Venezuela
Slovakia
US
Canada
Germany
Norway
Singapore
Turkey
2003
2008
% point growth
20.4
44.2
40.4
29.3
37.1
34.8
32.3
24.0
32.3
25.0
26.5
31.6
24.5
25.6
26.3
24.5
22.3
18.3
26.1
23.2
18.2
21.9
16.9
19.3
17.7
19.5
19.3
20.7
25.3
20.2
16.0
20.1
16.5
19.5
17.4
16.5
11.1
58.5
49.9
49.0
47.9
42.1
41.8
38.1
37.3
36.1
35.1
34.3
33.8
31.5
29.6
29.4
29.1
28.7
28.6
28.0
27.6
25.0
24.8
24.1
23.9
22.9
22.6
22.1
22.1
21.9
21.6
21.0
20.6
20.0
19.8
19.7
19.4
19.4
38.0
5.7
8.6
18.6
5.0
7.0
5.8
13.3
3.7
10.1
7.8
2.2
7.0
4.1
3.1
4.6
6.3
10.3
1.8
4.4
6.8
2.9
7.2
4.6
5.2
3.2
2.7
1.4
-3.4
1.4
5.0
0.5
3.5
0.3
2.3
2.9
8.2
Page
78
Strategy Briefings
World
16.4
5.4
12.1
13.5
12.2
5.8
6.3
6.8
6.1
3.7
4.8
4.4
0.3
0.2
Austria
Russia
Thailand
Hong Kong
Taiwan
Egypt
Morocco
Bulgaria
Philippines
Indonesia
South Korea
Saudi Arabia
India
Vietnam
Source:
17.4
16.6
16.5
15.6
13.9
11.7
11.3
10.2
10.1
7.8
5.9
5.2
1.2
0.6
1.0
11.2
4.4
2.1
1.7
6.0
5.0
3.5
4.0
4.1
1.1
0.8
1.0
0.4
Discounters also set for rapid growth

A slowdown in the global economy will be beneficial to the discounters sector, which is already increasing its
presence in many countries due to the ambitious expansion plans of the leading players. The highest growth in
discounter penetration will be seen in Northern and Eastern Europe, notably in Norway, Germany, Belgium and
Hungary. In these markets, growth in private labels is expected to be particularly strong, not only due to the
growing presence of discounters, which sell mainly private label products, but also due to the fact that
supermarket retailers are introducing their own value private labels in order to compete with the discounters.
Discounters will remain negligible in the US, due to the strength of mass merchandisers such as Wal-Mart,
which also operate a discount policy. In the UK, too, discounters are unlikely to make an impact on sales
through the major supermarkets, as consumers prefer a more sophisticated shopping environment.
The Chinese market could hold strong growth potential for discounters, as they are particularly well suited to the
Chinese way of life and the high population density. The first discounter only entered the market in 2003, when
Carrefour imported its discount concept, Dia, into China, along with its private labels. Before this there were no
real discount stores, just many small-scale discount shops selling goods of low quality at low prices. With the
full opening up of the Chinese market to foreign retailers in 2006, this may herald the entrance of other
discounter concepts, as well as supermarket chains.
Table 15
Forecast Penetration of Discounters by Market 2003/2008
% value
Norway
Germany
Belgium
Hungary
Denmark
Austria
Russia
Poland
Slovakia
Czech Republic
Sweden
Finland
Netherlands
Portugal
Egypt
Switzerland
Argentina
Ireland
France
Israel
Italy
2003
2008
% point growth
20.8
11.8
10.6
9.8
10.8
9.4
4.6
7.5
2.8
4.3
3.9
1.1
3.7
4.3
2.3
3.0
3.1
1.4
2.1
2.3
2.6
28.5
18.9
14.2
13.6
13.3
12.3
11.7
10.1
8.0
6.8
6.1
5.4
5.3
5.3
4.6
3.7
3.5
3.5
2.8
2.7
2.7
7.8
7.1
3.6
3.8
2.5
2.8
7.1
2.6
5.3
2.4
2.3
4.3
1.7
1.0
2.2
0.8
0.4
2.1
0.7
0.4
0.2
Page
79
Strategy Briefings
1.5
1.0
1.6
0.2
0.3
0.1
Greece
Turkey
UK
Ukraine
Saudi Arabia
Australia
Source:
World
2.6
1.9
1.5
0.9
0.3
0.1
1.1
0.9
-0.1
0.7
0.1
0.0
Expansion of non-food specialists

The worlds largest non-food chains, which are also highly active in the private label market, are also expanding
rapidly into new markets. These include clothing retailers, electrical stores, DIY stores and furniture stores. For
example, the worlds largest retailer of private label furniture, Sweden-based Ikea, intends to increase its
presence in Spain, France and Russia during 2005, as well as opening two new stores in China. In addition, two
new Ikea stores are planned in the US, increasing its presence in that market to 22 stores. Beyond 2005, Ikeas
main focus for expansion is set to be Asia, chiefly Japan and China, and Russia. The company plans to open
between four and six new stores in Japan by 2009, and 10 new stores in China by 2010.
Retail company The Gap has stated that it will also pursue international growth, especially in France, Japan and
the UK, which have already been successful markets for the company.
Even non-food stores are under threat from the supermarkets. The leading British supermarket chain, Tesco, will
be testing its first non-food store in 2005. The focus will be on products such as clothing, homeware, electrical
goods, CDs and DVDs. The decision to test a non-food store was prompted by the success that Tesco's Extra
stores enjoyed. These stores sell a larger selection of non-food items than its mainstream stores. Non-food sales
stimulated growth and accounted for approximately 6% of Tesco's total turnover in 2004.
7.2 Private Label Demand

The private label market is expected to continue to grow strongly in the core grocery products sectors, including
food, drink, OTC healthcare, cosmetics and toiletries, pet food, household cleaning products and disposable
paper products. Euromonitor estimates that the global private label market as defined above rose by some 6% in
2004, to reach around US$106 billion, and is expected to grow at a similar rate in 2005 to total US$112 billion.
Growth will be fuelled by efforts by retailers to increase their private label offer, and to raise the value of private
label products by adding value where possible. Furthermore, increased consumer acceptance of private labels,
and the expansion of supermarkets and discounter chains into emerging markets, should contribute to raising
private labels share of global sales to around 17% in 2005. Although most private label sales will continue to be
concentrated in Europe and North America, other regions are growing strongly, and could account for around
5% of total sales in 2005.
Emerging markets and Japan set for growth
In developed markets, such as the UK and US, private labels are expected to grow only gradually, but will
undoubtedly continue to become more sophisticated as retailers attempt to develop more added-value products
and extend into non-traditional categories. Furthermore, Wal-Mart, the USs largest retailer by far, has a strong
private label policy and will continue to expand in terms of new stores around the country.
The greatest potential for development of private label lies in those markets where it is currently
underdeveloped but growing strongly, due to the increasing penetration of foreign supermarkets and discounters,
and the association of these retailers by consumers with high quality, Western products. Countries that are
expected to see strong growth over the review period include markets in Eastern Europe (eg, Poland, Czech
Republic, Hungary and Russia), Asian countries such as the Philippines and Thailand, and markets in Latin
America, such as Argentina and Colombia.
In China, private label was still undeveloped in 2003, though there were signs that domestic retailers were
beginning to understand its importance and had plans to increase this side of their business. It was reported that
in Shanghai, the development of private labels picked up speed in the first seven months of 2003, with growth of
Page
80
Strategy Briefings
World
32%. Furthermore, the expected influx of foreign retailers after 2006 will eventually bring the concept of private
label to more consumers.
The Japanese private label market is particularly underdeveloped, and holds strong growth potential. As the
large-scale supermarkets are not likely to increase their penetration rapidly, it is in small supermarkets and
convenience stores that the greatest potential lies. Given fierce competition from national supermarket chains,
regional supermarkets are receptive to new products and marketing ideas, including private labels. Some smaller
supermarket chains have, through affiliations or joint ventures, already begun to sell private label products
developed by large supermarkets or food distributors. Furthermore, Wal-Mart has plans to expand in Japan,
having already opened its first store in 2002, and will bring with it its successful private labels.
Strongest growth in ready meals and chilled foods
The share of private label is expected to increase in all of the sectors under review over the forecast period.
However, growth in share is likely to be highest in the areas of ready meals and chilled processed foods. These
sectors offer retailers opportunities to make high margins and to extend their private label brands over several
different segments, including ethnic meals, traditional cuisine, low-fat meals, etc. Ready meals in general is also
a fast-expanding area, due to trends towards convenience and busy lifestyles, so it offers good opportunities for
retailers.
Private label shares will also remain high in commodity sectors where consumers are less choosy about brands,
including canned foods, pasta and dairy products. Private label growth in these sectors will be fuelled in
particular by the expansion of supermarkets and discounters in emerging markets.
Analysts believe the market for private label soft drinks is largely untapped, and offers significant long-term
growth potential. Indeed, the leading private label supplier in this area, Cott, has ambitious plans for growth.
However, due to the strength and discounting techniques of the major players in this sector, plus the tendency
for soft drinks to be purchased on impulse outside of supermarkets, retailers still have some work to do in
building up faith in their brands, and making drinks more accessible for convenience consumption.
It will remain very difficult for retailers to penetrate the alcoholic drinks market, due to their domination by
large brewers and drinks conglomerates. However, retailers are expected to gradually make inroads into these
sectors, especially if economic conditions deteriorate and consumers are unable to afford the major brands, or if
retailers manage to successfully build up brands of their own with a premium image.
Strong potential for private labels also exists for grocery retailers in non-food areas, where brands are less
strong, or where private labels can be created under fantasy brand names to add credibility. This includes
clothing, stationery, jewellery and electronic goods.
Chart 11
Forecast Penetration of Private Label by Sector
% value
Page
81
Strategy Briefings
Source:
Note:
World
Shares are by value except for drinks and large kitchen appliances, which are in volume terms
7.3 Challenges and Opportunities

Innovation will remain key to private label success
The future of private label is bright, as long as retailers play their cards right. It is no longer enough to produce
copy-cat products. In order to retain customer loyalty, generate a strong store identity, improve margins and
compete effectively both with branded products and other retailers brands, it is essential for retailers to be
innovative. This includes innovation in terms of creating new niche categories, improving product quality,
appealing to different segments, and creating packaging that is both simple and effective.
Certain umbrella categories, such as childrens products, lend themselves well to private label. This is because
parents (in this instance) have built up a certain level of trust in the retailer, and ranges can cover a wide array of
products under a childrens label, whereas manufacturers tend to be focused on particular categories such as
Page
82
Strategy Briefings
World
frozen food, toiletries, etc. Only by innovating can retailers dispel the image that still exists in some consumers
minds of private labels as the poor relations of national or international brands.
However, innovation comes at a price, and retailers must be prepared to invest in their brands. Many suppliers
do not have the means to invest in R&D themselves, so in some cases retailers will need to foot the bill. This is
also the case with packaging and marketing, which requires effort and collaboration from both sides. The
PLMAs 2004 Retail Trends survey revealed that only 37% of retailers currently share the cost of new product
development with the private label manufacturer, with 23% reporting that they pay for all development costs.
Marketing must be stepped up
Although retailers are unable to advertise each and every private label brand or even line, due to lack of
resources, it will be increasingly necessary to communicate the benefits of their innovations to consumers. Instore marketing will probably be the most cost-effective method of doing this. For example, leaflets and posters
showing private label offers will increase visibility, while staff knowledge of the stores products will create an
element of credibility and trust among consumers. For premium lines, such as clothing, celebrity endorsement
and other high profile methods of promoting private labels may become more commonplace in the future.
Expanding the private label offer
Most retailers will develop their private label offer in the future, whether this is in terms of extending lines or
existing labels, introducing new labels or expanding into new categories. According to the results of the
PLMAs 2004 Retail Trends survey, nine out of every 10 retailers intend to expand their private label offer over
the next few years. About half the retailers said they would offer more value-added lines, including more
convenience foods, bio-organic and natural products, and regional/speciality cuisine. According to the survey,
the health and beauty department was mentioned by the most retailers (51%), followed by frozen food (42%),
household and kitchen (41%), dry grocery (38%), confectionery and biscuits (38%), dairy products (37%), and
beverages (35%).
Needs will vary according to market
Private label opportunities for retailers vary according to the characteristics and buying behaviour of the
countries in which they operate. For example, in countries such as France, Germany, the Benelux countries and
Scandinavia, there currently exists a need for supermarket retailers to develop more value-orientated private
label brands to counteract the threat of discounters; whereas in markets such as the UK, retailers are under
pressure to create premium, value-added brands that fit the sophisticated images of the leading supermarket
operators.
The PLMA 2004 survey showed that many retailers intend to expand their budget ranges in response to pressure
from discounters. A majority of respondents said the growth of discounters will serve to boost market share for
private label, and half of the retailers believe the success of discounters represents a permanent attitude change
by consumers.
In the US, supermarkets and drugstores struggle to compete with the mass merchandising giants such as WalMart and Target, and private label is one way in which they can achieve this. There are opportunities in this
market for retailers to distinguish themselves by building up strong exclusive private label brands, which act as
a draw to stores, such as Wal-Marts OlRoy pet food brand, Publixs Premium Ice cream, and a number of
retailers upmarket cosmetics brands. Character licensing is particularly effective in the US, and products from
private label suppliers that manage to achieve licensing deals are likely to be popular with retailers.
It will be cost-effective for retailers looking to expand their retail operations into emerging markets to carry the
same private labels as they do in Europe or the US. Nevertheless, it will be important for them to adapt products
to meet the needs of overseas consumers.
Finding the ideal supplier
Another challenge that will continue to face retailers in the future is that of finding suitable suppliers. Ideally,
retailers need to partner with companies that have the following attributes:
Possession of substantial R&D operations, and a willingness to share new innovations with retailers;
Page
83
Strategy Briefings
World
A willingness to collaborate in areas of packaging and marketing to create products that fit with the
retailers vision overall vision and positioning;
The ability to source products cheaply from low-cost countries without compromising on quality;
The ability to cope with the large and continuous production runs necessary to supply large retailers.
According to the PLMAs 2004 Retail Trends survey, value-added products and new sources of supply,
especially from the Far East, were high on the list of priorities for retailers across Europe. Almost one third of
all retailers said Asia would increase its importance as a source of their private label non-food goods over the
next five years, and two in 10 said it would become more significant as a source of their private label food.
However, almost half of retailers cited lack of innovation as the greatest problem they face when dealing with
private label manufacturers. One third pointed to lack of marketing support. However, around half of
respondents said that an increased willingness to work with retailers is the greatest improvement they have seen
in private label manufacturers over the last two years, whilst one third cited better quality control and better
product development.
Collaboration with brand manufacturers
Finally, retailers must be prepared in the future to work together with, rather than against, brand manufacturers
in the area of merchandising and category management. Rather than the traditional method of creating copy-cat
products in order to offer consumers a lower priced alternative to national brands, thus forcing manufacturers to
reduce their own prices and margins, retailers and manufacturers must work together to create excitement within
categories. This should bring up the total value of categories and lead to increased margins all round.
Summary 7
Opportunities and Threats for Private Label Retailers
Opportunities
Challenges
Development of private label products in currently

untapped categories
Many categories are dominated by very powerful

brands with marketing muscle that retailers will not be
able to match
Development of premium products, both in food and

non-food categories, such as cosmetics and toiletries
Consumers may take time to trust retailers labels

enough to pay the extra price demanded for premium
products
Responding to consumers health concerns by

creating more organic, GM-free, free from, dietetic
products etc
Stringent rules must be adhered to when classifying

products as organic, etc, which may be costly to the
retailer; also, retailers must look to long-term trends
and not cater to passing fads
Design of packaging will become an increasingly

important tool in drawing customers to a private label
product rather than its branded equivalent
Producers may not be prepared to take on the

expense of package design or marketing, again
adding costs for the retailer
Innovation will be necessary to compete with brands

and add value to products
Many producers will lack the means to invest heavily

in R&D, and suppliers that are also brand
manufacturers may continue to protect their
innovations
Increasing private label offer, with new brands/lines

and new categories
New brands create higher costs, and retailers must

not lose sight of their core values, and must think
carefully about which categories fit their brand images
Co-branding and character licensing
Co-branding and character licensing adds expenses

for the retailer and original manufacturer, so retailers
must be sure of the added value it will bring to
products
Promote private label brands through celebrity

endorsement
Retailers must be careful to choose celebrities that

suit the corporate image they are trying to achieve,
and those that are not likely to lose popularity quickly
or fall from grace
Promote private label brands though effective

merchandising
Retailers must still keep brand manufacturers happy,

ideally by working together with them on category
Page
84
Strategy Briefings
World
management issues
Market research will become increasingly important to
determine consumer needs in order to create new
products; loyalty cards are an ideal way to reach
consumers
Market research requires added expense, but retailers

must avoid the dangers of accepting new products
that are presented to them rather than finding out
whether there is a real need, and create new products
in tandem with suppliers
Sourcing from lower cost regions such as Eastern

Europe and China in order to achieve better margins
Sourcing from lower cost regions must not be at the

expense of quality, which is essential in order to raise
the value of private label products in the minds of
consumers
Expanding private labels into emerging markets via

store expansion
Expansion into emerging markets must meet local

requirements in terms of taste and packaging
Source:
Euromonitor
Page
85

The Future of Private Label

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

The Future of Private Label

Caricato da

Copyright:

Formati disponibili

The Future of Private Label

Euromonitor International : Strategy Briefing

List of Contents and Tables

Private Label Share of Selected Household Care Products by Country and by

6. Private Label Retailers and Suppliers ............................................................................................................. 47

THE FUTURE OF PRIVATE LABEL

Mail order companies

2.2 Impact of Economic and Retail Environment

Penetration of Supermarkets/Hypermarkets 2003

Penetration of Discounters 2003

2.3 the Private Label Market

Share of Private Label in Core Retail Sectors 2003

2.4 Leading Private Label Markets

Breakdown of Private Label Sales by Country 2004

2.5 Retailer Strategies

2.6 Marketing Strategies

2.7 Sourcing Strategies

2.8 Producer Strategies

3. RETAIL SALES TRENDS

Total Retail Sales and Growth by Market 1999/2003

3.2 Supermarket Penetration

Penetration of Supermarkets/Hypermarkets by Market 1999/2003

3.3 Growth of Discounters

Penetration of Discounters by Market 1999/2003

Selected Retailers in Order of Total Size 2004

Cash and carry,

Stop & Shop,

Coles Myer Ltd

Private label shares are largely estimates

4.2 Retailer Concentration

Major Mergers, Acquisitions and Disposals in the Retail Sector 2000-2004

Agreement to merge with

Royal Vendex KBB

Acquisition of French DIY

Merger with fellow

CVC Capital Partners

5. THE PRIVATE LABEL MARKET

Private Label Value Breakdown by Region

Global private label shares by sector

Global Private Label Share in Selected Categories 2001-2004

Retail disposable paper products

Cosmetics and toiletries

Large kitchen appliances 1

5.2 National Market Trends

Leading Private Label Markets by Value 2004

ACNielsen, Euromonitor International

Fastest growth markets

Fastest Growing Private Label Markets by Value 2004

ACNielsen, Euromonitor International

Private label share in developed markets

Share of Private Label in Developed Markets by Value 2004

% total retail sales

ACNielsen, Euromonitor International

Private label share in emerging markets

Share of Private Label in Emerging Markets by Value 2004

% total retail sales

ACNielsen, Euromonitor International

5.3 Sectoral Trends

Private Label Share of Packaged Food by Country 2001-2003

Benefiting from one stop shopping

Private Label Share of Pet Food by Country 2001-2003

Cosmetics and toiletries

A need for greater sophistication

Disposable paper products