011-icssh 2012-s00010nkn
TRANSCRIPT
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OWN BRANDS:INCREASING CONSUMER CHOICE AND
DRIVING INNOVATION
DECEMBER 2010
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3Increasing consumer choice and driving innovation
What are own brand products?
The term own brands, also known as store brandsor private labels, reers to all merchandise sold
under a retailers brand. That brand can be the
retailers own name or a name created exclusive-
ly by that retailer. (Source: PLMA website)
Own brand products are not a new phenom-
enon. They have been in the market or almost a
century. Whereas some retail ormats have de-
veloped almost exclusively as own brand sellers,most retailers sell a mix o both branded and
own brand goods.
In the early days, own brands were oten per-
ceived as cheap or generic. Over the past 20
years or so, however, they have shown an im-
pressive development. Own brand products
have become more and more sophisticated and
their market share has grown signicantly in all
types o retail. Nowadays they sit alongside oth-
er brands at all value and price ranges.
Nevertheless, market penetration in Europe
varies signicantly between member states,
store ormats and product lines. In most Euro-
pean countries own brand market share lies be-
tween approximately 20 and 30 percent. Own
brands are particularly popular in Switzerland
and the UK with a market penetration o morethan 40 percent. At the lower end o the scale
are countries like Italy, Poland and Greece with
market shares between only 10 and 15 percent.
Notwithstanding this diversity, Europe is at the
oreront regarding own brands: The world-wide
weighted average market share is only approxi-
mately 15 percent (Source: Nielsen 2010).
Today, a broad selection o own brand productsis available in stores, ranging rom resh, tinned
and rozen oodstus, organic and air trade
products to household products, health and
care products, home improvement products and
many more.
The market shares o own brands at product level
show large variations. Product ranges with a high
proportion o own brands are household goods
such as aluminium oil, rubbish bags or kitchen
towels as well as vegetables, sh and meat, and
milk products. Ready meals are a particularly suc-
cessul example o own brand products. Toiletries,
baby ood, beer or sot drinks, on the other hand,
account or the lowest shares o own brands.
Own brand oodstus, an important segment,
are available in a number o categories such as
gourmet ood or local and regional specialities.
In terms o quality, there are, or example, value,
gourmet, regional or estive oodstus. In terms
o health and wellness, the range comprises
products with authenticated health claims, ree
rom allergen oods or unctional, e.g. choles-terol reducing, ood. A more recent phenom-
enon is the strong growth o eco-riendly, ethical
and organic own brand products.
The recent economic downturn and increased
price sensitivity o consumers have increased
growth and popularity o own brands. However,
despite their successul development, it is un-
likely that the share o own brands will continue
to grow endlessly. There is a simple reason or
this. Consumers expect a variety o products in
the shops. They want to nd a certain number
o branded products on the shelves o their pre-
erred supermarket. Examples are sot drinks,
breakast cereals or hazelnut sandwich spreads.
For other products they preer own brands. Ex-
perience shows that i a retailer does not have
certain must have products in its range o
goods, it is very likely that the customer will goto a competitor.
Own brands: good value ormoney keeping ination down
With own brand products, consumers benet
rom a greater choice, as own brands share shel
space with branded items, increasing productrange at both the low cost and more expensive
ends o the range.
Own brands are highly accepted by customers.
Europe wide, 78 percent o consumers agree that
own brands are a good alternative to named
brands (Source: Nielsen 2005). There are various
reasons why customers choose own brands. Ac-
cording to a 2009 IH/BBE study rom the Ger-
man Retail Federation HDE, 64 percent o con-
sumers buy own brands because they are good
value or money.1 61 percent indicated a low
1 At European level this number even mounts up to 73 percent o consumers (Nielsen 2005).
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4 Increasing consumer choice and driving innovation
price, 59 percent good quality and 58 percent
mentioned good experiences as a driver or their
buying decision. Only six percent o customers
replied that they never buy own brand products
(Source: IH/BBE Study 2009).
These gures conrm that own brands can oer
good value or money and quality at aordableprices. Price dierences between branded prod-
ucts and own brands can be up to 50 percent.
With lower prices, own brands help keep infa-
tion down. Since retailers do not need to make
huge advertising investment in their own brands,
savings are passed on to consumers.
Furthermore, with their own label on their prod-
ucts retailers retain control over quality and thuscan guarantee consumers that their own high
quality standards are maintained.
Increased competition beneftsthe consumer
Own brands are an essential part o retailers
strategy in creating more choice and better
value or their customers. They are also a way
or retailers to maximise their own brand equity
What BEUC, the European Consumers Organisation, says about own brands
Retailers own brands are an important element o consumer choice. They alloweven the most vulnerable groups to have access to sae and aordable productswhile at the same time contributing to making retail markets more open tocompetition. It is crucial that the saety and quality o consumer goods areguaranteed by all suppliers in the market chain and with many retailers applyinghigher standards this can only be seen as benecial to the consumer. On ood and
health, retailers lead the way when it comes to reormulation to reduce the levelso at, sugar and salt in their products with other branded goods ollowing in theirootsteps thus providing consumers with more and healthier ood choices.
BEUC, the European Consumers Organisation has a membership o 44 independent national con-
sumer organisations rom 31 European countries (EU, EEA and applicant countries). BEUC acts as the
umbrella group in Brussels or these organisations and its main task is to represent its members and
deend the interests o all European consumers.
and to increase their price competitive oer in
relation to branded products.2 Hence, through
their own brands, retailers have become direct
competitors o brand manuacturers.
Retailers are criticised by some manuacturers
or playing a double role where they are both
their customer and competitor. The act thatretailers not only sell but also produce some o
their products is not unusual - such vertical in-
tegration also takes place on the manuactur-
ers side. There are a number o manuacturers
who sell goods directly to consumers without
retailer intermediaries. One o the most nota-
ble current examples is coee capsules, which
are sold by producers exclusively in their own
shops or over the internet. Other examples canbe ound in the clothes, computer and beverages
sectors. Just as we welcome armers selling di-
rectly to consumers, we welcome such initiatives
as they ultimately result in consumer benet.
Critics accuse retailers selling own brands o
damaging the workings o competition and
so causing detriment to consumers. This alle-
gation does not refect reality. The European
Commission has recently conrmed that no
case of anticompetitive effects stemming from
the increasing use of private labels has been
found to date by any competition authority3.2 European Commission, SEC(2010)807, p. 463 European Commission, SEC(2010)807, p. 46
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5Increasing consumer choice and driving innovation
With their own brand products retailers oer
a wider choice o alternative products to con-
sumers. Thus own brands increase competitionboth between dierent retailers and between
retailers and manuacturers to the benet o
consumer choice and prices.
Own brands allow retailers to position them-
selves on the market and to distinguish them-
selves rom their competitors by creating a
unique identity. They can lead to competitive
advantages vis--vis other retailers - somethingthat branded products cannot oer. In this re-
gard, own brands help attract and retain cus-
tomers. In a highly competitive sector such as
commerce, customer loyalty is clearly an asset.
Stronger competition between retailers and
manuacturers will also provide an incentive to
brand manuacturers to respond to own brand
products and bring new products to the market.
Eventually, this will lead to greater choice or the
consumer.
Innovation through own brands
Own brand products today are well respected
and trusted brands, which are based on innova-
tion. Furthermore, retail companies oten go
beyond their legal obligations to ensure quality,saety and traceability o their own brand prod-
ucts leading innovation even urther.
The act that retailers produce their own prod-
ucts allows them to respond quickly to new
trends, changing consumer demands and re-
quests by policy makers. As the closest link to
consumers, retailers might thereore be quicker
to introduce new products to the market thanbrand manuacturers.
Own brands promote sustainable
and environment-friendly products
For some time, retailers have been selling or-
ganic, ethical and environmentally riendly
products under their private labels. With own
brands retailers have greatly promoted the sale
o organic and air trade oodstus and made
them more aordable. Thanks to retail these
products - coee, tea, chocolate, ruit and veg-
etables, wine - have moved rom the niche to
the mainstream market and are now available to
the wider public. Retailers own brands are also
at the oreront with regard to sustainable sh-
ing, or example.
Most retailers also have an eco-product line un-
der their own brand, or example cleaning prod-
ucts. With own brands retailers are also able to
take initiatives to reduce packaging or replace
traditional with biodegradable packaging.
Own brands promote healthy eating
Own brands allow retailers to drive product de-velopments which exceed public policy goals
or ood with healthier ingredients or better
labelling inormation. Sophisticated nutritional
labelling aims to help consumers make the right
decision or a healthy diet. In Germany, or ex-
ample, 80 percent o own brand ood products
provide voluntary nutrition labelling (Source:
HDE 2010).
Ready-made resh meals are a particularly suc-
cessul example o own brand products and
they are oten market leaders in terms o nutri-
tion and healthy eating. Many retailers have re-
ormulated recipes in order to reduce sugar and
at and to remove articial colours and favours.
A growing number o people are aected by al-
lergies or intolerances to certain oodstus or
ingredients. Retailers have thereore developedspecic own brands to provide customers with
ood which does not trigger allergies. Own
brand products now oten comprise gluten or
lactose ree oodstus. Another example o in-
novative healthy own brand products is unc-
tional ood which, or example, helps to reduce
cholesterol.
Some retailers also take religious belies into ac-count in their own brand production by oering
a range o halal ood under their private label.
The supplier side: promotingSMEs and creating employment
Own brand products are manuactured and sup-
plied in dierent ways.
Some major retailers operate their own manu-
acturing sites and provide own brand products
or themselves.
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6 Increasing consumer choice and driving innovation
Carreour Quality Lines
M C Q L
In 1992, Carreour launched its rst Quality Lines range o resh ood products (meat, vegetables,
cheese etc.). With this product range, Carreour aims to meet consumer demand or ood saety,reshness, taste and authenticity, working with upstream suppliers to ensure quality is maintained.
It also prioritises the economic, social and environmental impact o these products.
E :
Building long-term partnerships with suppliers, armers and producers, remunerating them
according to the real value o the product
Oering high quality products at reasonable prices to consumers
Promoting regional products and giving suppliers access to export markets
Contributing to the economic, social and environmental development o local communities
through inormation and access to education or international suppliers
E :
Developing an integrated approach to arming involving responsible water usage and the pro-
motion o integrated pest control
Promoting arming conditions that respect animal welare
Avoiding chemical treatments and the use o soil-ree plant production, antibiotics and growth
hormones
Forbidding GMO products in animal eed or plant production
In October 2010, Carreour also launched in France a non-GMO label, which now appears on more
than 300 meat and egg products. The companys aim is to increase the ability o consumers to
make inormed choices and to link sustainable development goals with consumer expectations on
choice, quality, and price.
Delhaize Private Brands affordable and healthy
In these budget-conscious times, many shoppers eel they have to choose between aordability
and health. We dont agree. We believe all our customers should be able to choose rom a varied
range o ood that is nutritious, tasty - and aordable.
In 2009, Delhaize Belgium adjusted its procedures or testing and buying private brand products to
identiy opportunities to increase their nutritional value. The main reormulations related to reduc-
ing salt, at (including transat) and sugar.
The rst step in changing the procedures was to introduce a systematic nutrition benchmark-
ing o private brand products against equivalent national brand products, to give a quantied
perormance indicator or each product. In the second step, Delhaize implemented detailed nu-
trition testing with internal and external panels. Meeting these goals depends on close collabo-
ration with private brand suppliers. Delhaize will communicate the results o its assessments to
guide reormulation opportunities, and suppliers will widen their own testing to improve their
products nutrition value.
The review o more than 900 products in 2009 led to reormulations that reduced salt by 11 tons
and at by more than 100 tons. An additional 1800 existing private brand products were under
review in 2010, with a target o covering all private brand ood products within three years. All newprivate brand products are subject to nutrition screening since the beginning o 2010 - and none will
get on the shelves i they havent passed these screenings. These reormulations were done without
necessarily pushing up the price.
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7Increasing consumer choice and driving innovation
Mercadona employment creationthrough own brands
Most o Mercadonas own brands are pro-
duced in Spain. In 2009, Mercadonas Inte-grated Suppliers invested 500million, work-
ing with 8,500 local SMEs. They created 1,100
new direct jobs, raising the total number o
their payrolls to 40,000 employees. In 2008,
they created 1,000 new jobs.
A particular example is Martnez Loriente,
who runs an integrated supply business or
meal products. In 2002, Martnez Loriente
created a actory in Valencia. Since then, the
total investment has been 200 million, with
1,400 new jobs created in the region.
Another example is Senoble, Mercadonas in-
tegrated supplier or yogurt. This French com-
pany specializes in good quality own brands all
over Europe. Thanks to this retailer-producer
relationship, Senoble set up a actory in To-
ledo (Spain) in 2002 and began production oMercadonas own brand yogurt, with an initial
investment o 60 million and the creation o
500 new direct jobs (1,300 indirectly). Since
2002 the turnover o the actory has increased
by 100 percent.
Kaufand Voluntary nutritionlabelling and dietary advice forcustomers
In 2008, Kaufand implemented an extendedvoluntary nutrition labelling scheme or all o
its own brand ranges. In this way, Kaufand in-
orms its customers about calorie and nutrient
content o products on the packaging.
Almost all o the more than 1000 products
o the own brand ranges K-Classic, K-Bio,
K-Classic WellYou have this additional ront
o pack customer inormation, thus helping
customers to realise a balanced choice to suit
their needs. Kaufands own brands customers
are invited to use the ree service hotline or
any questions and comments.
To deal with dietary questions in greater detail
and provide consumers with practical assis-
tance, Kaufand has developed a diet concept
or its customers with six dierent nutrition
types, e.g. sensitive type or amily type. Kau-land oers dietary advice that suits the needs
o each single nutrition type including recipes,
specic shopping and cooking tips.
Customers can obtain inormation about
Kaufands diet concept on the internet or in
Kaufands customer newspaper. Kaufand also
oers ree nutrition consultations via phone
and e-mail. Customers appreciate the proes-sional guidance and make use o the ree ser-
vice hotline to get answers to their questions
regarding topics such as lactose intolerance,
cholesterol-conscious diet and osteoporosis.
Metros Horeca Select tomato
sauce in aseptic pouches
In March 2009, Metro Cash & Carry Interna-
tional teamed up with CYROVAC/Sealed Air,
one o the most innovative packaging manu-
acturers or sealed air and launched a new
packing solution in its Horeca Select range:
aseptic pouches or tomato sauce. Instead o
cans the sauces are aseptically packed in plastic pouches which ensure that the products are germ-
ree and shel-stable. This innovation allows a more ecient business or HoReCa customers such
as canteens, caterers and restaurants by saving time, storage space and money. The benets or
the customers a maniold:
Convenient to handle: The pouch is easy to open. No can opener is required. There are no sharp edges.
See the product: Transparent packaging lets customers check the product beore they buy it.
Save storage-space: Packaging requires 30% less storage space compared to cans.
Greater yield per pouch: Flexible packaging lets users get almost all the sauce out o the pouch.
Improved favour and quality: Reduced heat processing due to the aseptic plastic pouches preserves
the favor o the tomatoes.
Easy and cheap disposal: The pouches create less packaging waste. The packaging contains no alu-
minium.
The tomato sauce is produced by the Parma-based company Columbus, part o Mantua Surgelati
Group and specialized in the eld o tomato processing and in the production o semi-nished and
nished products. Columbus is a producer with a private label share o 85%.
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8 Increasing consumer choice and driving innovation
What the European Commission says about own brands
Private labels refect a new orm o relationships between processors, retailers andconsumers. They oten allow SMEs to access large markets. Compared to A-brands,marketing costs are relatively low or private labels. Thereore, consumer prices aregenerally lower.(European Commission, SEC(2009)1448, p. 8)
Even i European retailers have, at aggregate level, achieved lower productivitygrowth over the past decade than their counterparts in the United States, theirgrowth and the waves o horizontal and vertical integration have contributed tomaking the retail sector more ecient and to lowering infation. Moreover, greatercompetition, in particular because o the rise o European discount stores andbudget price own brands, has reinorced this trend, ever pushing retailers to become
even more ecient in order to curb the erosion o their margins.(European Commission, COM(2010)355 nal, p. 4)
Retail brands have also increasingly become vehicles or product innovation as wellas a means or retailers to control quality levels o products directly and thereorealso their product liability obligations, which underline the strength o theirrespective brands.(European Commission, SEC(2010)807, p. 12)
On the retailers private label contracts business: It should also be noted that it hasresulted in eciency gains in certain processing plants where manuacturing linecapacity can be more ully exploited. It has also allowed or less well known brandsor medium sized companies who could not compete ace on with the major brandsto remain in business and grow.(European Commission, SEC(2010)807, p. 46)
On the relationship between retailers and own brand manuacturers: Some othe most durable and stable contractual relationships with suppliers have been
developed in this way. Through such trusted relationships, the two work togetherand maximise the utility o the market trend inormation that the retailer collects.The retailers product lines are thereore oten trendsetting and innovative.(European Commission, SEC(2010)807, p. 38)
Tesco introduces Mutsu apples in Poland
Tesco in Poland worked with one o its Polish
ruit growers, Adam Soska, to introduce a new
variety o apple called Mutsu. This variety ismuch like a Granny Smith, but grows well in Po-
land and is between 40-60 percent o the price
o imported Granny Smith apples.
Adam Soska has been supplying apples to Tesco
or eight years. Developing the new Mutsu vari-
ety took ve years and required investment by
Soska. On the basis o his long-running relation-
ship with Tesco, Soska was condent that Tesco
would buy the Mutsu apples. When he encoun-
tered some problems growing the new variety,
Soska and Tesco worked together to solve these.
Tesco is currently the only retailer o Mutsu
apples in Poland. However, as the crop increas-
es over time, Soska will be able to supply other
retailers and expand. With a unique product
and a cost advantage over imported apples,
Soska is now more insulated rom fuctuations
in apple prices and has gained acces to a large
market.
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9Increasing consumer choice and driving innovation
not compete with major brand manuacturers.
Indeed, more and more small and medium-sizedmanuacturers specialise in particular product
lines and concentrate on the exclusive produc-
tion o own brand products. A 2010 Nielsen
study, commissioned by the French Federation
or Commerce and Distribution (FCD), ound
that there has been a signicant increase in own
brand products made by SME suppliers. The
study also ound that over 70 percent o French
own-brand products are made by French SMEs.
Own brands thus help many small suppliers to
access national and international markets. In the
process, these SME suppliers gain access to inor-
mation on consumer preerences, while not hav-
ing to nance the development, marketing and
distribution o a brand. Without the production
o own brands, many SMEs would be unable to
nance the marketing o their brands.
There are also large brand manuacturers who
produce both branded and own brand products orretailers. In act, brand manuacturers and retailers
collaborate increasingly on developing exclusive
products, co-branding and joint promotions.
According to a study o the Spanish trade un-
ion UGT published in June 2010, 66 percent o
Spanish brand manuacturers also produced own
brand products. With the production o own
brand products, brand manuacturers can realiseeciency gains by making use o possible excess
capacities and thus exploiting manuacturing
line capacities to a higher degree. Own brands
thus provide an opportunity or growth and de-
velopment or brand manuacturers.
Thanks to own brands, numerous retailers also
provide an entry to the market or many thou-
sands o smaller suppliers who could otherwise
What the Federation of Enterprises and Entrepreneursof France (FEEF) says about own brands
The FEEF arms that own brands ensure constant growth o activity or itsmembers. Own brands have allowed or the emergence o pertinent innovationsor consumers thanks to the unailing support o distribution companies thatnd in these own brands a true brand name identity (Marque Refets de France,Carreour Market, Marque U, Marque Auchan, Marque Repre).Own brands reinorce the nancial independence o our SMEs, help them to resistbeing bought up by large groups and contribute to the maintenance o jobs andconsumer purchasing power.Moreover, own brands oer producers the opportunity to extend their marketshare thanks to the partnership they have been able to create with distribution
companies by beneting rom their internationalisation. This collaborationbetween distributors and suppliers has also resulted in advances in terms oinnovation (dierentiating products) and quality (raised expectations), whilstremaining a competitive oer in terms o quality/price compared to brandproducts.In France the market share o own brands amounts to 35%. Not supporting ownbrands would not only endanger the uture o our SMEs and their suppliers, thearmers, but also the purchasing power o consumers.
The Federation o Enterprises and Entrepreneurs o France, which was ounded in 1995, encompassesmore than 600 amily enterprises today, including suppliers o large retailers. Among its members are
producers who produce exclusively own brands, but most o them also manuacture in their own name.
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10 Increasing consumer choice and driving innovation
Contrary to some suggestions, own brands do
not compete with local and regional products. In
act, own brands have played an important role in
bringing unique ood specialities to a larger market.
In France, or example, own brands have brought
many local specialities on to the shelves (delicates-
sen produce, cheeses, biscuits etc.), thus helping toincrease their sales. Lesser known local specialities
and recipes, in particular, benet rom this positive
partnership with established retail brands.
Retailers have a strong interest in engaging in
stable and long-term partnerships with their
Own Brands: Share in terms o productnumbers by large & medium stores, France, 2008
SMES LARGER COMPANIES
F F F F
Large & medium stores 64.7% 21.9% 7.9% 5.5% 100%
Dry products 64.0% 20.6% 8.7% 6.7% 100%
Beverages 79.3% 11.0% 6.4% 3.3% 100%
Cosmetics, Personal &
Homecare38.2% 50.3% 0.0% 11.5% 100%
Rerigerated section 75.4% 11.4% 11.5% 1.7% 100%
SME suppliers, as they help retailers innovate
and introduce new products to the market.
At the same time, SMEs can benet rom sig-
nicant growth in sales, productivity and know
how.
Through their close cooperation with local andregional SME suppliers, retailers make an im-
portant contribution to the preservation and
creation o jobs in Europe. The production o
own brands can thereore be seen as a contribu-
tion to the EU 2020 strategy or smart, sustain-
able and inclusive growth.
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11Increasing consumer choice and driving innovation
OWN BRANDS
A UNIQUE SUCCESS STORY
To sum up, own brands
provide consumers with a more diverse range o goods.
oer good value or money. With aordable prices
they help keep ination down.
increase competition among retailers as well as with
brand manuacturers to the beneft o consumers.
No anticompetitive eects caused by the rise o own
brands have been ound.
are innovative and oten developed where brands are
not very strong.
promote sustainable and environment-riendly
products and oster healthy diets.
give SMEs suppliers access to large national andinternational markets and a long-term perspective or
growth and employment.
bring unique local and regional ood specialities
to a larger market.
help create and saeguard employment in Europe.
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