cee private label trends
TRANSCRIPT
KNOWLEDGE
Trends and opportunities
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November 2011
CEE Private Label
As the world struggles to free itself from global recession, the one silver lining in an otherwise grim scenario is the expected growth of private label brands. Indeed, the continued growth of private labels remains one of the major macro trends affecting FMCG (and other) sectors. In this short round up, Cocoon Group summarizes a few of the trends driving and affecting private label brands - with a particular focus on opportunities for (Central and Eastern) Europe.
Introduction
Our report begins with a round up of six major opportunities for retailers to grow their private label portfolio, l isted according to accessibility. While ranking these opportunities, we take into account the cost of entry, consumer trends, retailer credibility, and inherent barriers to entry.
10 Opportunities and trends
1 Value
2 Buy Local
3 Bio/Organic
4 Premium
5 Niche and Specialty
6 The Muddled Middle
7 Collaboration
8 Leaving home
9 Design
10 Foreign leadership
Opportunities Trends
In addition to the 6 PL growth opportunities, we’ve spotted these 4 other trends which are affecting retailers around the world and around Europe.
1. Value Value for money remains the strongest driver of private label consumption, as well as the easiest entry-level opportunity for retailers to launch a private label brand. Value has traditionally been synonymous with 'cheap'- but there are other ways to build a value for money brand, especially since research shows that consumers are less inclined to give up quality (unless forced to). Family sizes and bulk formats can all be used to create a value proposition that will appeal to the consumers’ desire to save money without giving up on the quality they have become accustomed to.
_Opportunities
In Poland, Tesco has taken advantage of the economic uncertainty to launch 700 'value' products, putting pressure on more expensive independent markets and less convenient discounters.
_Opportunities
One micro-trend prevalent in the environmental movement is Buy Local. Attractive to consumers as both a way to cut down on carbon emissions as well as supporting local small businesses and farmers, the Buy Local movement makes great sense for retailers who wish to take on a more active role of supporting the community, the environment, or both.
2. Buy Local
_Opportunities
A retailer’s inherent expertise in sourcing products and the feet on the ground aspect of the retail business provides relevant credibility for the launch of any locally-focused brand proposition.
_Opportunities
Other factors that positively impact the Buy Local trend are health scares and politics. The E.coli scare from the recent ‘cucumber scandal’ has prompted a rise in demand for local vegetables throughout Europe, including 34% in Latvia. In these cases, the demand for local produce far outweighs supply.
_Opportunities
Another fast growing sector that straddles the environment, health, and wellness macro trend is Organic and Bio. Many retailers are taking advantage of the fact that this new trend is under-represented by manufacturer brands, and that the playing field is basically even in terms of credibility. This has allowed retailers to use the retail environment to really promote these brands as healthy, environmentally friendly alternatives to leading manufacturer brands.
3. Bio/Organic
_Opportunities
The global market for organic products is expected to grow by 8% by the end of 2011. This is up from 4.7% one year ago.
_Opportunities
Premium private label brands are expected to be one of the major sources of private label growth in the coming few years. This growth mainly comes from consumers who have grown to trust retailer value brands when money is tight. When this kind of relationship exists between the retailer and consumer, the retailer can use a premium PL proposition to retain those consumers when they start looking to upscale.
4. Premium
_Opportunities
To launch a premium brand successfully, a retailer must already have a great deal of credibility with consumers, either in the form of high shopper loyalty or experience with other PL brands.
_Opportunities
While the previous four chapters represent the greatest opportunities for overall PL growth, there are individual categories where retailers can compete with their own PL offering. In sectors that have little competition, with few or no well-established brands, retailers can easily step in as the value alternative or even as the front-runner. Horeca, dietary, vitamins/food supplements, and other niche areas are fertile ground for forward-thinking retailers.
5. Niche and Specialty
_Opportunities
6. The Muddled Middle
Trying to launch a brand without significant price point advantages in well-developed, saturated sectors is going to prove the most difficult for retailers. This 'middle ground' is fast disappearing, and even manufacturer brands are finding it difficult to survive. Any brands that wish to compete here will need to draw upon vast stores of consumer goodwill, p r o d u c t i n n o v a t i o n , a n d outstanding design (not to mention more than a bit of luck) to survive.
_Opportunities
7. Collaboration Retailers seeking to streamline are finding success collaborating with each other rather than competing. In this way, retailers can utilize their expertise or resources while providing new markets or channels for their partners. The collaboration between Carrefour and Boots in the UK is a prime example of erstwhile competitors creating win-win situations out of cooperation. Carrefour carries Boots’ branded products, while the Boots manufacturing subsidiary creates health and beauty products under the Carrefour brand. Boots benefits from Carrefour's extensive global footprint, while Carrefour gets Boots' expertise in helping to create a name for itself within the health and beauty sectors.
_Trends
German discounter Metro (owner of Makro cash n' carry stores) has worked out a collaboration deal with French retailer Auchen to improve the reach of both brands' products. Metro will gain access to Auchen's private label supply network, while Auchen will benefit from exposure to Metro's small business owners.
_Trends
8. Leaving home
In some exceptional cases where a private label brand has a particularly strong proposition (either in association with the retail brand, or not), we really see them coming to life as they are sought after and offered in different retail channels. Sainsbury’s SO Organic in the UK and the Martha Stewart brand in the USA are two such success stories. As retailers continue to collaborate (see above), we should expect to see more and more private label brands grow out of their own stores and onto the shelves of other retail chains.
_Trends
9. Design Design remains one of the primary tools for communicating private label brands. In many cases, packaging design is the only way that consumers can be made aware of a private label proposition. As a result, private label pack design is becoming increasingly strategic, i.e. drawing from the same advanced techniques as their A-brand counterparts. A successful private label no longer necessarily means simplistic 2-color design and cheap production material!
_Trends
10. Foreign leadership The acceptance of private label brands is driven by exposure and loyalty to retailers. Since most private label initiatives in CEE come from foreign retailers, it is logical that consumers in countries with the most penetration from foreign retailers would be the first to try new private label brands. While recent economic activity has added an element of uncertainty to any near-term predictions, we can expect a spike in private label activity in Poland and Ukraine as they are inundated with western Europeans traveling to those countries for the upcoming 2012 UEFA World Cup. These consumers will be looking for familiar environments and familiar brands to stock up on food and other supplies.
_Trends
Several major western retailers have cited Romania as an important market for future growth. This is due in large part to the country's expected fast economic recovery. Discounters, whose business models are based on private label products, are heavily prevalent in Romania.
_Trends
For more information, please contact: Cocoon Group Douglas Kaufman [email protected] 00420 603 840 287 U Pruhonu 13, Prague, Czech Republic 170 00 www.cg-eu.com
Thank you for your attention!
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