Supermarket ‘home brands’ vs ‘name brands’
Australian supermarket majors have this week received quite a ‘spray’ through the media from local food processors over the supermarket plans to dramatically increase their ‘home brand’ (private label) offerings:
No simple (home) branding exercise
As Dr David McKinna notes in his submission to the Senate Select Committee on Australia's Food Processing Sector: “Private label marketing has been evident for at least 30 years, but has only recently started to be embraced by Australian shoppers…Private label now accounts for approximately 25% of all groceries sales in Australia and it is forecast to reach 30% within two years. In the UK, private label products account for up to 70% of sales in some chain stores. However, private label dramatically erodes the profitability of food processors…”
Interestingly retail newcomer Aldi has gained 4% share of the Australian food market with close to 90 per cent of its products being house brands.
If you want to better understand what is going on in the modern market place, I strongly recommend food producers and consumers read Store Wars The battle for mindspace and shelfspace by Judith & Marcel Corstjens (Published by Wiley 1999).
I found this book a real eye opener as it clearly explains how ‘fast moving consumer goods’ (FMCG), (read “processed food”) marketing, has become a struggle between the manufacturers (read “food processors”) and the retailers (read Coles & Woolworths), for the control of consumer “mindspace” and retail “shelfspace”. As Corstjens explains:
“Marketing for FMCG manufacturers now involves understanding retailers, their business and marketing strategies, their strengths and their limitations. The major aim of modern marketing is to affect the balance of power between retailers and their suppliers.”
According to Corstjens the big issue for retailers is that manufacturer’s brands are available anywhere and everywhere, because that’s what manufacturers want, and what consumers come to expect. What retailers want are more customers in their stores. Retailers are only interested in manufacturers helping them to achieve this goal they are not in the least worried about whether a manufacturer can make a dollar out of it.
The battle for consumer mindspace involves the three basic consumer imperatives of convenience, price and quality. The battle is played out daily on the telly, on the radio and through the letter box, with retailers working their company name as an “umbrella brand” to attract customers and so weaken manufacturer brand loyalty with strategies such as Coles “everyday low prices”, Woolworths “the fresh food people” etc.
Meanwhile the manufacturers continue to push their brand message with the best advertising agencies money can buy to insert their brands into the consumer mindspace, so strengthening brand loyalty (at the expense of store loyalty ) and the expectation that all retailers will have no option but to carry their leading brands.
Manufacturers these days are also working together to fight the retailers for consumer mindspace with their “Brand Power – helping you buy better” campaign. Recently we have also seen twelve of the best performing and longest-standing Australian wine families banding together under the banner of “Australia’s First Families of Wine”.
The battle for shelfspace works firstly by retailers building their networks, and addressing the convenience factor with “a store near you” strategy. This increasing retail concentration also serves to weaken the manufacturers bargaining power.
Secondly manufacturers seek to occupy as much of the premium eye level shelfspace in as many retail outlets as can be negotiated. However, not all brands are equal, with some brands regarded as “traffic builders”, and other as “profit builders”. Obviously retailers need to balance store traffic with profits. In the past retailers were happy to just sell this shelfspace to manufacturers and make their margin on sales of branded product; but this strategy put retailers in a weaker bargaining position relative to manufacturers in their price / margin negotiations. These days retailers seek to maximise the value of their shelfspace.
The retailers initial strategy was to gradually replace manufacturer brands with Type 1 “no brand” generics, which not only helped them in their shelf space / margin negotiations with the manufacturers, but also attracted the more price sensitive customers into their stores with their “everyday low prices” (EDLP) strategy. Invariably this strategy reduces manufacture brand shelf space, lowering prices and manufacturer profitability. Unfortunately for the retailers everyday low prices is also a somewhat of race to the bottom with the “we will not be beaten on price” discount stores, so retailers needed to come up with a new strategy to restore their profitability.
More recently and perhaps of greater concern to manufacturers are the Type 2 “house brand” quality products that are aimed at replacing the leading manufacturer brands with store exclusive brands. This strategy not only further strengthens retailer negotiations with the manufacturers but builds store loyalty as these products can only be obtained from that retailer. This trend is most developed in the UK where Tesco’s and Sainsbury’s stock as much as 2/3 of their shelves with quality “house brands”, and continue to introduce over a 1,000 new products each year based on their own market research. Their customers trust the quality and value of these products, and have become loyal shoppers at their stores.
It’s not only food processors who are impacted by the battle for mindspace and shelfspace, all fast moving consumer goods including fresh produce, manufactured food and beverages are caught up in this marketing vortex. Unfortunately it is the increasingly powerful retail chains that are winning.
The manufacturers appear to have lost the war in the UK, and are losing it in much of Europe and the USA. The same is likely to happen in the growing consumer markets throughout Asia as the global supermarket giants expand into India, China and .
Yes, retail consolidation is a big issue in Australia, and anti-trust legislation such as operates in the United States looks attractive, but don’t hold your breath that similar legislation will be supported by Australian Governments.
The key to working with retailers is for food producers / manufacturers to know more about consumers and your products than they do – that way food producers can add real value to retailers business - and their own. The South Australian Government’s Thinker in Residence Prof Andrew Fearne worked with local food producers during 2008/09 to help them better understand the application of “Value Chain Thinking”, his report Sustainable Food and Wine Value Chains is also worth reading.
Primary Industries and Resources SA (PIRSA) has followed up on the Prof. Andrew Fearne residency by establishing the Value Chain Development Unit in 2009 to drive the uptake of value chain thinking and management through the agrifood and wine sectors in South Australia.
In the UK, the Kent Business School at University of Kent through its Centre for Value Chain Research (where Professor Fearne works) is helping the UK food & farming industry with businesses tools to obtain a greater understanding of their markets and the knowledge needed to help boost profits, through its DEFRA project.
Through the UK project food businesses have access to a free service providing analysis of supermarket shopper behaviour for individual products, or groups of food products, that will reveal detailed insights into which products are growing the fastest, who is buying them, where they are buying them and what else they are buying.
Peter McFarlane
23 November 2011
(Updated from an earlier post)
Food Industry Comment: http://foodindustrycomment.blogspot.com/
Posts
