Private label

Maria Andrzej Faliński, General Manager of POHiD

Monday, 22 June, 2015
Private label goods are enjoying success around the world, somehow following the steps of the concentration processes of markets and competitive battles, assuming good price and high quality. Private label, competing in terms of price, ceases to be a synonym of absolutely lower prices – these are good value products in all price positions: from economy to premium. This is the case both in Poland and around the world
Today, in Poland we can speak of ratios at the level of 20% (the market analysts indicate from 19% up to 23% in the entire market scale), but in FMCG this percentage value is estimated at the level of ca. 34%. We are admittedly far behind the Swiss – 53% or British – 47%, even Germany oscillating at the level of 40% remains a distant perspective, but the share of these products in the market are increasing each year. Their structure is also changing – only several per cent are economy class products, the rest are high value products. This determines the function of private label in export, mostly of food products, since it is often found in the packaging of export umbrella labels of commercial networks and producers. Therefore, both export and “terms of trade” are favourable for Poland in Europe and outside its borders. The tendencies of the internal market are also conducive to private label and its specific manifestations, e.g. common labels created by groups of smaller producers within the framework of projects for common distributors and producers, or cooperation of various producers and farmers working within the scope of clusters, “attacking” the domestic and export markets with “adjective” labels (regional, eco, traditional, etc.) according to distributors’ orders.

An interesting process has taken place in terms of the perception of private label – ca. 45% of customers accept them and emphasises their qualities; this, however, is an averaged value, derived from analysis of several product categories (food and household non-food). What is interesting, their quality correlated with good price is emphasised. The medium sized shop network policy (until recently – discount shops, but this name is less and less adequate for their offer and strategy), based on private labels and structured by the umbrella labels, relies on promoting their commercial labels, favouring the message of “shop X with good products” and a flexible market offer. The customer notices and appreciates this, as can be seen, for example, in the convergence of the ranking positions of networks and the share of their private labels. Paradoxically – the measure of success can be a gradual introduction of the so-called brands in these areas which, “in the shadow” of good private labels, sell better, with no harm to the labels - such a synergy was not expected until recently, and today it is a fact. Therefore – in order to satisfy some of the market players – private label is strictly correlated with the market success of commercial companies and their communication with the customer.

Private label has ended up in smaller commercial areas, because of the policy of the network wholesale companies, integrating traditional shops in the form of franchise. Such horizontal agreements of merchants (purchase groups, partners) have become an important private label distribution channel, working with producers of a highly diversified profile and size. This way, private label becomes a significant factor determining the processes of non-capital forms of market concentration of the commercial and production segments. Especially, work on the local market (strong in Poland and very specifically competitive, functioning efficiently within the framework of integration networks) assumes the creation of good private labels which facilitates the search for own export and import opportunities in the regions of other EU states – one can enumerate a number of interesting cooperation initiatives of regional companies from various countries, mutually enriching their offer of very specialised and specific products. Their distribution is often conducted under a common label, agreed with the distributors ordering products according to special criteria. The political and financial support for such initiatives from the EU improves the already good prognoses. It must be remembered that Poland is, among other things, a country of ca. 45 thousand merchant shops, operating within the framework of integration networks (franchise), which are very successful in competing with large-area shop networks by utilising the network effect and scale effect introduced in the local markets  

tagi: Maria Andrzej Faliński, General Manager of POHiD,