This is a result of changes in consumers' shopping behaviour; dynamic integration processes in retail trade; as well as activities undertaken by retail enterprises, aimed at quality improvement of private label products; as well as manufacturers' activities who see benefits to their company in private label production. The consumers' approach to shopping is changing - price is not the sole product choice factor anymore. Consumers believe that private labels are of increasingly better quality and regard them as a possibility of “smart shopping”.
The development of private labels in Poland is fostered by the dynamic growth of discount stores and integrated domestic chains which, encouraged by the successes of foreign retail chains, are introducing private labels to their own stores. The largest share of private label products in total sales has been recorded by discount stores (54.3% in 2014), and the lowest one (3%) – by traditional stores, with a distinct upward trend, since private labels are also created by wholesale enterprises, not only introducing them to the wholesale chain stores but also offering them to independent outlets. Examples include Bać-Pol wholesalers as well as Piotr i Paweł supermarkets, who have jointly created the “Lubię” brand products available in traditional distribution channels.
In recent years, trading enterprises have been showing much activity in the development of private labels, as evidenced by the following activities:
1. Enhancement and deepening of the assortment of private labels. Currently, most chains offer private label products on at least two price and quality levels: first-price products and premium products. The former have quality corresponding to brand products but are less expensive and ensure higher margins for the enterprise. Premium private label products are often used to change the image of a store into one offering products characterized by a favourable quality-to-price ratio. Building the image of private labels, not as mere imitations of producer brands but in a way ensuring an independent place in the market, as well as strong promotion of private label products, result in consumers having problems with distinguishing a private label product from a manufacturer’s brand product.
2. Quality improvement of private labels is used to build competitive advantage of a retail chain, based on the competitiveness of the assortment offer. Trading enterprises develop quality control of products, performed by accredited research laboratories and by the internal quality assurance department.
3. Introduction of innovative private label products. These are products targeted at precisely defined customer groups, such as hard-working young people, or bio- and eco-products under private labels, intended for persons caring for their health, as well as products from local suppliers, based on traditional recipes.
4. Strong promotion of private label products, often showcasing their high quality and freshness.
5. Own production of assorted articles by retail chains. For instance, the Intermarché stores offer preservative-free, high-quality cold meat products from their own smokehouses.
Trading enterprises apply various development strategies for private labels:
- family brands, where all products of an enterprise are presented under one label. Its disadvantage may be the so-called brand dilution, in case of highly diversified operations of the company, as well as a risk in loss of the distinctive image of the chain and loss of confidence in all products bearing the same label in case of failure of just one of them;
- individual brands: branding of each product or product line with a different label, which involves high costs of communication with customers and promotion of the private label products;
- combined brand strategy, involves partial adoption of the principles applicable in the family brand strategy and in the individual brand strategy.
This gives a large diversity to commercial brands which play various roles. Consequently:
- flagship products, recently being replaced by chain brands (uniting the names of the brand and the store chain – e.g. Tesco, Lidl), have price advantage over producer brands;
- exclusive (discount) brands are currently second generation products, made similar to brands of leading manufacturers with regard to their quality and packaging;
- first available price private labels, enabling a consumer to purchase a product at a price as low as possible on the market;
- private labels being exclusive brands of the chain, the goal of which is competition against a specific producer brand acting as leader on a given product market. They are also referred to as counterbrands.
The dynamic development of private labels is also fostered by manufacturers who:
- regard cooperation with a chain as an opportunity for development, reduction of risks and costs of marketing a product, entering new geographic markets;
- through production under a private label, seek to improve the position of their brand in a given retail chain, treating production under a private label as investment into a producer brand;
- eagerly cooperate with a trading enterprise in the creation of products under a trade brand. Producers of private label products are often owners of brand leaders in the product category.
The development of private labels affects the situation of producer brands because:
- premium private labels become an alternative for consumers to products of strong brand producers;
- producers whose products bear a local brand and are positioned in the economy segment are “crowded out” by private labels;
- sales under a private label forces producers into constant cost reductions and results in a lower margin. A solution to this situation is innovativeness of producer brands.
Private label development strategies of trading enterprises surely affect supplier relations. In the 1990s, chain stores used to utilize private labels as a tool to impact the supply chain relations and to reinforce their negotiating power against manufacturers. A chain store would make use of its predominant position in the supply chain. Currently, chain and private label suppliers are interested in harmonious cooperation. Global companies are increasingly more focused on brand portfolio management, delegating the production process to local enterprises characterized by more flexible operations and cost effectiveness. Appreciated suppliers are those who guarantee appropriate production capacity as well as high and repeatable quality of private label products.