In the period from February 2009 to January 2010, based on the data provided by The Nielsen Company, the sales of private label brands went up by 19.2% in terms of volume. The dynamics of the sales of food products as a whole category reached a level of 5.2%, and own brands from the food market recorded a 10.5% share. Discount stores offer the widest variety of such products. In the case of foodstuffs, they constitute 57.2% of the entire range. The share of private label brands in hypermarkets slightly exceeds 5%, similar to the situation in supermarkets. Last year, private label products recorded the highest dynamics of sales in discount stores (+21.8%). Meanwhile, supermarkets recorded a 15% increase and hypermarkets, 12.6%.

Private label brands in the category of chemical products are also gaining dynamically with a 12% share at the present time. Customers are seeking them out both in drug stores as well as in hypermarkets or discount stores. The sales dynamics of private label brands in terms of value, when comparing the period from January to December 2009 with 2008, went up by 28.6%, whereas the dynamics of sales of the entire chemical category in the same period increased by just 8.8%. Undoubtedly, the global crisis affected the results as customers were searching for less expensive products. However, it was not the only factor which influenced purchasing decisions. The fact that the cosmetics offered under retailers' own brands are characterised by good quality is equally important. During the analysed period, discount stores recorded the highest increase in the level of sales, where the value of chemical products sold rose by 24.7%. By comparison, the sales of these products offered in hypermarkets went up by 8.5% and by only 4.8% in the case of supermarkets. An average increase for the entire segment of modern trade totals 8.5%. Discounters recorded an increase of private label brand sales of 33.5%. In this segment the entire modern trade grew by 28.8%, followed by supermarkets (an 18.4% increase) and hypermarkets (14.3%).

“Private label products are given increasingly more space on the shelves of retail chains and are gaining in popularity among consumers. Several years ago, the price of private label products, which was 20-40% lower as compared to branded goods, had a distinctly unfavourable influence on their quality. Today, such a situation has virtually disappeared. Retailers treat the quality of their products in a much more responsible and stricter way, whereas manufacturers must absolutely guarantee the correct quality and safety of their supplies”, says Iwona Lebik, Sales and Marketing Director at 3 Topole.

Private label brands are also gaining in popularity on the Polish market of nectar, juice and beverages.
The Nielsen Company informs us that in 2009, in terms of sales volume, this segment grew by 3% and reached the level of 29%. The shares of private label brands in the market of bottled water also went up. “We are observing that basic foodstuffs offered in all of the retail chains are manufactured under private label brands. Today, private label brands are not only found among the products with the lowest prices, but also among the goods in the so-called premium segment. This market has been developing very dynamically in the last few years and this trend will not change in the immediate future, in my opinion. New products in the private label market are being continuously launched; these are not only food products, but also household articles, cosmetics and pharmaceuticals”, says Krzysztof Rubak, Deputy President of Makarony Polskie S.A. Management Board. The market of private label brands is changing very dramatically and intensively. Consumers are much more aware of the fact that private labels are usually the equal counterparts of branded goods – gas stations and large stores are observing this trend and are willing to fill their shelves with private labels.

Private labels appeared in Poland not a long time ago, in the second half of the 1990s. Similar to any other country in the world, also, the first products of such kind on sale in Poland were positioned in the lowest segments and were located on store shelves next to the simplest goods in terms of production technology. They included mineral water, tea, coffee or dry goods (sugar, flour). The number and diversity of such products was consequently expanded.

“This market in Poland is still in its developmental stage and will, without any doubt, continue to grow. Due to the specific nature of the market, it is limited to large retail chains However, in recent times, there has been a tendency for important distributors to launch their own brands, especially on the European market. Hence, two distribution channels for private labels have been formed”, says Zbigniew Krawczyk, Vice-President at Cuprod Sp. z o.o. “As far as the Polish market is concerned, together with the slowing down of the development of retail chains, this market also stopped growing so dynamically, yet quality improvement has remained consistent.”

Poles count on own brands

According to research studies conducted last year by Market Side Sp. z o.o., within the space of the last two years, a very distinct – almost 40% – increase in the number of households willing to purchase private label brands offered by hypermarket chains took place in medium and large cities. In June 2009, nearly 60% of the respondents confirmed buying at least one such brand regularly. As part of private label brand purchases, a strong movement towards other products was noticed, simultaneously with the growth of food product sales especially in the sector of domestic detergents. An increasing number of people buying own brands offered by hypermarkets are affected by many factors such as expansion of the chain (more stores as compared to 2007), product range improvement (new brands and products, better exposition) or a change of shopping preferences among Polish customers who have a much more positive opinion about private labels and look for such products often. The position of Real improved a lot among other large hypermarket chains thanks to the introduction of Real Quality private label goods, which has been received very enthusiastically by customers so far. Carrefour is still the leading retailer in this category. Tesco comes second with its range of private label brands. Research results clearly indicate that private label brand awareness is strongly reflected in its sales. Therefore, as in the case of the brand producers, besides an attractive price and acceptable quality, this factor is another important element in the cost of building brand value. In marketing activities, it means the necessity of having active communication based on brochures and newspapers as well as in-between store shelves. Only 11% of the respondents taking part in the research study conducted by Market Side Sp. z o.o. know one private label, whereas nearly a half of them (48%) know four or more brands. It is a much better result when we compare it with the study carried out two years before. In October 2007, 16% of main buyers knew one brand and only 41% could confirm their knowledge of four or more brands. The people who knew own brands were able to immediately name two of them and pick out almost four from a list. Brand awareness and knowledge is influenced by several factors such as the geographical expansion of hypermarket chains or introducing new private labels as well as the changing preferences of Polish shoppers caused by the economic slowdown last year. However, every sixth person who knows private label brands is able to name at least one product of this type which they do not intend to buy. Private label products are usually rejected by people aged 25-34. Pasta is the most commonly rejected food product. Every tenth customer of hypermarkets who knows own brands can point out those private label products they would buy, but which are not on offer. They mention such goods as juice, sparkling beverages, wafers and cookies.

Retailers create various strategies for building own brands. Competing with an attractive price is the most common element while, at the same time attempting to distance themselves from the cheapest products. Own brands are known to almost all inhabitants of large and medium size cities. Almost everyone has heard of them. The younger the customers are, the greater the awareness of own brands is. The most popular and recognisable brands include Tesco, which offers three variants of its private label (Tesco, Tesco Korzystny Zakup, Tesco Value), and Carrefour. Eco Plus, offered by Leclerc hypermarkets, is the least recognised brand launched by a large retailer. Almost half of the people who have heard of own brands buy them regularly and food products dominate. Milk, pasta, rice, sugar, flour and groats are the private label products that are bought by the biggest number of customers.

Bad reputation of commercial brands?

Own brands have a poor image as compared to the average level of the entire sector and in the case of individual brands. Constant availability and lowest price dominate in people’s perception of them.

The quality of private labels is rated as relatively low by the consumers who do not use them. “Unfortunately, such a situation is the outcome of the way customers have been messed around by certain retailers. I was taking part in a few negotiations of this kind, when a purchaser told me to put just anything inside as long as the cost was below the set level. Our company has never signed such a deal, but I know that there were many products like that on the market, especially in the early stages of the formation of private label. Hopefully, that era is now over and will never come back, but undoing the damage done still needs some time”, explains Zbigniew Krawczyk. The poor reputation of private labels has its roots back at the very beginning when they were launched. Consumers are still convinced that own brands are no good. The situation today is much better – the products are characterised by high quality, manufactured from the best raw materials and the quality of packaging is frequently better than the packaging of many branded goods. Private label owners, i.e. recipients of our production, have finally understood that not only price, but most of all quality, is the element which defines a product, its marketing success and whether it will become popular or not”, says Krzysztof Rubak. However, the way consumers perceive private label products, according to Bartosz Czachorowski, Export Manager at Krynica Vitamin, is influenced by other factors. “First of all, the price. If a branded energy drink costs as much as PLN 7 in a store and a private label in discount stores less than PLN 2, the customer draws a simple conclusion – the less expensive product is made from much cheaper and poorer ingredients. The customer is not aware of the fact that when buying a branded product they pay not only for the quality but also the marketing activities connected with a particular brand, events sponsored by this brand, company cars – everything is included in the price. Secondly, advertisements persuade consumers to buy a given brand. They choose what they like. I like Coca-Cola so I buy it instead of a similar product offered by discounters. Branded products have a much more interesting design than private label products, which is another important difference.” However, the image of private labels is a lot better among their actual users, in particular in terms of perceived quality and in comparison to branded products. Emotional benefits, such as trust towards a brand and pleasure in buying it, go hand in hand with the above-stated advantages. Nevertheless, even the opinions expressed by the people who purchase own brands remain very moderate. Building a positive image (communication, packaging and POS activities) should encourage new customers to buy this type of products.

Carrefour has the strongest private label on the market. It is characterised by the most positive image among all private label brands included in the research. The Carrefour brand attracts customers with appealing packaging and good quality of products. Tesco is the second most popular private label brand introduced by hypermarkets and the second most often purchased. As compared with the competition, Tesco is distinguished by high availability and lowest prices. It is also considered a brand which is good for value. The Real brand is the third most recognisable label on the market. The products offered under this brand are perceived as the least expensive, always available and characterised by high diversity. Only one in ten customers could point out any private label products offered by hypermarkets that they knew but did not intend to buy. As compared to 2007, the percentage of indications was distinctly reduced. It may result from the increasing acceptance of retailers' products as well as from the improved quality of such products as perceived by the consumers. Such a low level of rejection shows that private labels still have a potential for growth. Some 40% of main buyers notice the increased quality of products offered under private labels; however, 25% of the respondents expressed a negative opinion on the quality of own brands. One in every four respondents admitted that they were buying more private labels than before. As compared to 2007, the perception of private labels offered by retail chains improved radically among the most important buyers. Customers got to like buying private labels and have become more convinced in doing so. Such significant changes are connected with purchasing own brands. The people who decided to try and then began buying private labels regularly think much better of such products than the people who do not buy them at all.

The main reasons for buying private labels include low price or a substantial difference in price as compared to branded goods. Customers often claim that own brands are equal in terms of quality or only slightly worse than branded goods. The quality of packaging still remains the weakest point of private labels. The majority of people who took part in the research study conducted by Market Side Sp. z o.o. confirmed that packages of own brands differ in aesthetics and quality as compared to how other brands are packed. The respondents took the greatest notice of the unappealing and uninteresting design as well as uniform colours. However, despite such low evaluation, packaging is not the main factor when deciding about the purchase of a private label. The people who do not buy private labels are clearly wary of the quality and influenced by the general opinion of these products. A significant number of the respondents would be willing to try private labels if a person they trust recommended them or if they were able to find out the quality of such products based on samples or during tasting sessions. An advertisement pointing put the positive sides of own brands could encourage unaware consumers to buy these products.

The perception of own brands as a category, both in a rational (attractiveness of packaging, perceived quality, variety of products) and in an emotional aspect, has improved significantly as well. Based on a packaging test, a substantial difference between the leading producers' brands and retailers' own brands is still noticeable in terms of quality, general opinion or intention to purchase. However, some own brands are getting very close to the level represented by the brands of leading manufacturers.

Benefits and threats

The problems of own brands offered by retailers cannot be interpreted without taking into account the opportunities and benefits for individual market players, i.e. retail chains, producers and consumers. “Huge savings resulting from the change in the flow of goods are undoubtedly the most important benefits. A standard supply chain includes a manufacturer, distributor (who often is a brand owner) and eventually a retailer”, says Bartosz Czachorowski. “A brand owner or distributor invests a lot of resources into product advertisement; hence, the cost of production is only a small proportion of the final price which a customer has to pay in a store. It means that a customer does not pay for the quality of a given product but for the company's logo. Thanks to private labels, advertising expenses can be omitted. The same product is sold but under the name Auchan or Carrefour. The content is identical because both branded goods as well as private label brands are produced by the same factories and based on the same ingredients. A price difference results from the lack of advertising expenses.” In the opinion of Krzysztof Rubak, the benefits connected with the production of private label goods include, among others, permanent cooperation with business partners, regular and growing turnover, secured orders, ensuring maximum utilisation of production capacity as well as reducing manufacturing costs. Meanwhile, in the case of 3 Topole, which considers own brands as the key area of operations which constitutes approximately 50% of their entire sales, production of own brands brings a multitude of benefits. “Taking care of the quality and constant supervision of our products and production processes, access to a distribution network and the economy of scale are only some of the most important advantages. Without any doubt, private label production was an opportunity for the further development of our company. An opportunity we made use of to the fullest”, says Iwona Lebik.

The benefits for retailers connected with offering own brands can be classified into two basic groups – the benefits relating to building a competitive advantage and the benefits connected with shaping a company's image by means of creating a unique and appealing range of products. The first group comprises, among others, the very fact of having an own brand which bears testimony to the strength and superiority of a given retailer over its competitors and indicates the increasing advantage over producers. Moreover, it provides the possibility of having better control over the quality and type of goods on offer as well as offering products at lower prices. The second group of benefits includes, among others, reinforcing the image of stores in the consciousness of customers, building loyalty to a label and higher prestige. An private label brand can be evaluated on the same level as a producer's brand, and a retailer is perceived as a “strong player” on the market, because it is able to launch a private label.

As a consequence of private label brand development, with a consistent level of consumption, the market share of producers' brands is automatically reduced. However, private label expansion usually takes place at the expense of weaker brands offered by manufacturers. Their typical defence reaction is usually based on a price reduction, which in turn affects profitability. This is the biggest threat, not only for manufacturers, but also for consumers to some extent. Because of lower profits, producers are engaging less intensively in research and development and, hence, are not able to offer improved and better products. Meanwhile, the private label brands of retailers are a real opportunity for many producers, especially small and medium size companies, whose brands are not commonly known and who would have to spend large amounts of money to create proper brand awareness. Private labels allow them to make a product without incurring market research costs as well as advertising and promotional expenses. There are certain situations where the entire production is dedicated to one or several international retail chains. If such is the case, a decision to start the production of own brands is a strategic choice of the direction of a company's development. Among other reasons for the commencement of private label production for retail chains, domestic producers are suggesting such elements as the possibility of the company's potential growth (thanks to an increased scale of production, the bargaining force in negotiations with raw material suppliers is growing as well) or anticipating the intentions of competitors. “The necessity to implement high production standards as far as food safety is concerned is another positive aspect. I mean higher standards than HACCP”, says Zbigniew Krawczyk. “Our company has certified BRC and ISO 22000 standards and has implemented an IFS system. Most certainly, the expenditure on advertising and marketing as well as secured stabilisation and market predictability represent additional benefits.”

The private labels of retailers should be discussed together with the benefits for consumers. Their influence on the level of prices and, to a smaller extent, on the innovativeness of supply (at least in the initial period of introducing private label brands to the market) is the most important advantage connected with the launch of private label brands by international retail chains. “The benefits for the customer include, most of all, obtaining a good product at an affordable price. In a mature market of private labels, a customer knows that the prestige of a particular retailer supports a given label and the product has been tested many times”, says Zbigniew Krawczyk.

Retail chains can afford to offer private label products at lower prices, because they do not require incurring additional expenses connected with promotional and advertising operations. The costs of introducing a new brand to the market are much lower and the timescale is shorter. However, it is connected with a certain threat, i.e. the enormous pressure exerted by retail chains on a product price, which forces manufacturers of private label brands to permanently reduce costs. This process can be observed not only on the Polish market, but mainly on the so-called undeveloped markets. Controlled reduction of costs is a healthy solution. However, surrendering to the demands of international retailers can consequently lead to a reduction of the quality of products marked with private labels. Every company needs to cover its costs and generate profits in order to function properly. If it happens that making a profit is not possible, the company is forced to withdraw from private label production or change the qualitative parameters of their goods.

Private label brands, gradually introduced to new product categories by an increasing number of retail chains, have gained in popularity in Poland in recent years. According to certain forecasts, their share in the market will continue to grow. Besides the benefits connected with the fact that retailers have a stronger position in relation to manufacturers, private label brands (if created and managed skilfully) can become a tool used to build consumer loyalty and reinforce the barrier to entering a market for competitive chains, e.g. discount stores. Slow yet systematic trade concentration in Poland will most probably lead to the realisation of the Western European scenario. A consumer who is under constant attack by advertisements and other promotional activities will start to believe that private labels are as good as branded products. Low prices offered by retailers can lead to a situation where customers are no longer loyal towards branded goods. “The market of branded goods is the most dynamically developing market, especially in times of crisis as happened not long ago. It is growing by a dozen or so percent a year”, says Krzysztof Rubak. “New goods, offered under private labels, their rising quality and the consumers' increased awareness of these products indicate that the growing tendency will continue.”

 

Author: Aleksandra Syrtow, a.syrtow@foodfrompoland.pl,
Maja Swiecka,  m.swiecka@foodfrompoland.pl