Consistently going forward
Private label products are systematically gaining shares on the market. Although in Poland they still don’t have such a strong position like e.g. in Great Britain, they are already a distinguishable “player” on the market. What’s more, everything is indicating that it is becoming a more and more important player.
Recent years are great changes on the Private labels market, mainly concerning the quality of the products. Today, these products are characterised by high quality, produced from the best raw materials, and the quality of packages surpasses the quality of packages of many brand name products a few times over. A few years ago in the production of Private Labels, there was an opinion that price is the most important. Today, it is quality that decides, of course at a reasonable price. Although, there may be producers, for whom the price is a guarantee of success, regardless of the quality. - “Makarony Polskie is definitely not one of them, for which the quality of produced products is the most important and constitutes its success, and thanks to this, we can cooperate and develop with the greatest leaders of sales in the Private Labels segment”, says Krzysztof Rubak, Vice-president of the Board of Makarony Polskie S.A. This is an important change, guaranteeing the appropriate quality of own brand products.
The beginnings of Private Label
Since the beginning of the seventies, when own brands appeared in great chain stores for the first time, the situation on the world market has changed immensely. The real and fast bloom of Private Label in the world was in the nineties. In Poland, only in recent years has this market experience real evolution in sales. According to analysts, in the near future, every third product will be signed by Private label.
The history of Private Label began in 1976, when Carrefour launched its “produits libres” – free products (no-name products, equally good but cheaper). The great advertising campaign of Carrefour under the slogan freedom for the consumer opened a field for the expansion of a new category of products, competing with brand name products by its price, against comparable quality. A year after its introduction, free products already constituted 3.5% of the chain Carrefour’s turnover. In the following years, free products were launched by other chain stores. The second generation of Private Label came about in the mid-eighties. Under the influence of growing competitiveness from German chains like hard discount (and their strategies of introducing products like “the best price”), Carrefour was first in creating a line of articles marked by its logo. The third generation of Private Label products appeared at the end of the nineties. Within the last few years, the shares of Private Label in retail trade of particular European countries increased significantly. Already in 2003, only in a few countries, the share of the private labels sector on the market reached 30%. Now, this result has increased by almost two thirds. The record maker is Switzerland, where Private Label constitute up to 54% of the retail trade market; Great Britain and Belgium have a share on the market of over 40%. The private labels sector is doing well in Germany (40%), Spain (34%), in Slovakia (33%), in France (32%), and in Portugal (31%). In the remaining countries embraced by research, Private Label constitute an average of 24% of retail trade, and only in Italy, the private labels sector has notes a result below 20%. In Poland, products from chain store lines make up 21% of the market, which places us at the second last position on the list.
According to experts, the economic slowdown brought on by the world crisis, will cause an increase in the popularity of own brand products offered by chain stores. Clients will have to limit their expenses; consequently they will choose cheaper equivalents of brand name products.
Price segments of Private Label
Private label products are available in stores in a few price segments. The highest standards are offered by those from the premium shelf. In the case of food products, they usually make up a copy of the market leader; have the same ingredients, taste and nutritional values, often possessing an attractive packaging. The medium shelf comes next and at the end the lowest and cheapest.
In order to revalue the social perception of own products, chain stores are expanding their range of products from the medium to the highest price segment. The greatest progress has been made by the supermarket chains Tesco and Carrefour. The Private Label offer belonging to the medium price shelf in Tesco (Tesco line) has grown from approximately 2000 articles in 2006 to 7000 at the beginning of 2008. In this time the number of products from the line Leading Brand at the E.Leclerc chain has increased by two and a half times, according to the data from the company PMR Publications.
The expanding offer of products equals to the growing expenses of chain stores for advertisement. Distributors do not promote specific products; however, they invest in the promotion of their brand and specific stores. However, the costs of promotion of chain stores are relatively low, especially in comparison to the expenses of FMCG producers. It is much cheaper to promote an image of an entire chain, on which reception of the products marked by it is to be based, than to invest in advertising a specific good.
- “Until now, in fifty-three stores of the chain, products under the trade brand TiP were available, embracing staple products and giving a guarantee of the lowest price in Real. The motive of introducing them was the need to offer clients products of good quality at the lowest possible prices. TiP articles enjoy an unabated interest among clients, who now also have the possibility of getting to know products of the second own brand of the chain store. A service dedicated to the new brand has been established at the Internet site of the chain: http: //www. real. pl/real_quality. php. Here, users will find information about particular groups of products. The following made up the promotional campaign of the new brand in March: broadcast of the TV spot presenting Real Quality, special offer directed at the participants of the Program Dziesiątka [Programme Ten] – everyone, who has tried the new brand received ten times more points for the purchase of Real Quality products. Additionally, many articles could be purchased at more profitable prices within the offer “3 for the price of 2”. In all the posts consumer tests and sampling will take place, for customers had the opportunity to share their opinion about Real Quality in a special questionnaire. “Its results showed that the new brand has already gained the acknowledgement of clients, who have assessed the chosen products positively – their quality, price and packaging, as well as declared their readiness of purchasing Real Quality products again in the future”, says Katarzyna Petrykowska, Specialist for Public Relations at the Real chain.
The largest chains of stores commission production even for 1 million dollars monthly. The margin of the Private Label producer of the chain is on average 1.5%, and the products are up to 20% cheaper. Producing for chain stores may even be a way for the development of a company. Limiting expenses by customers favours cheaper goods, also those offered under the Tesco, Carrefour or Auchan logos, because they are on average 20% cheaper than brand name equivalents. As chains estimate, the sales of Private Label products has been increasing by a few percent monthly in the recent period. If this speed maintains, then the forecasts assuming the increase of Private Label shares in retail sales to the level of 25% can come true. This is good news for producers, who are looking for a market in light of the limited demand. Especially those, who do not know what to do with unutilized production powers, for the increase, which they decided on two, three years earlier on the wave of a good economy, taking out credits, which must be paid.
The Premium segment is changing opinions about Private Label products
Because year after year a significant increase of acknowledgement for own brand products is taking place, more and more companies are expanding their portfolios by these products. All the largest retails in Poland have decided on the introduction of own brands from the lowest price segment, and many of them also introduced brands from the medium price shelf after a few years. Another step in the strategy are Premium class brands, which can become the factor influencing the change of perceiving own brands. Suggested by the success of other European countries, it is a matter of time for the conviction and implementation of the strategy of products from a higher price shelf. There is another disproportion between Poland and Western Europe, both in the evolution of the market itself, as well as the understanding and approach towards own brands. The hitherto analyses of the Private Label market present satisfying forecasts for the development of this category of products. The consciousness of own brands is growing significantly among Polish consumers; however, it still remains somewhat low in relation to other European countries. The western private labels market not only surpasses us in seniority. Above all, it is the consciousness of the customer and his approach that makes Western Europe the leader in Private Label sales. And not only products, but also financial or telecommunications services, already marked by own brands of chains. Own brands in Poland have been perceived as cheap and poor quality products for a long period of time. Not only producers themselves seeing profits in this segment, but also chain stores have contributed to the speedy education of the consumer. As a result, products indicated by own brands are better perceived. The client’s sensitivity for searching products adapted to his needs, in the case of own brands, has caused strong self-education of the client, who has learned to search for valuable information for him on the packaging, e.g. about the producer. The situation on the Polish market in Private Labels and how they are perceived is changing rapidly over recent years. In the offer of chain stores, one can now buy products that are not only first about the price. The segment of the middle shelf is an offer that is most widely represented in each chain. The last year is marked by the appearance of a strong trend in the direction of premium products, which may become real competition for strictly brand name products. Chains are more often and willingly supplementing their offer with products from the top shelf, not only imported, but more and more often those produced by native manufacturers.
- “A few years ago, customers did not really know what is hidden under the name Private Label and they needed to be convinced to own brands. However, our society belongs to a group of the economical, and here, the Private Label sector has been checked out fantastically. Despite information sometimes appearing, that the low price of own brand products of supermarkets is “thanks to” their poor quality, we can see that the speed of increase on these goods is at least two times higher than the increase of brand name products. The customer should have guarantee that in buying the product from the Private Label sector, he is buying a product, which is equally valuable to that bought under the brand of a private producer, and its lower price results from the substantially higher buying power of supermarkets. I can guarantee our customers, that all products sold under Private Labels do not have separate recipes, therefore, their quality is just as high as the products under a producer’s brand”, says Tomasz Sinkiewicz, President of Rarytas Ltd.
Private Labels have dominated the European sales of paper products, frozen products, animal food and car products. These products are selling best in Poland, too. Like we have mentioned earlier – in comparison to Europe, the share of own brands in retail sales in Poland is low. Even a fall in the sales of certain products in comparison with previous years can be noticed.
Availability of Private Label products in Poland
The main distributor of Private Label products in Poland are discount stores. In 2007 (February 2007 – January 2008) they were responsible for 55.9% of sales in the Food Basket. In the Chemical Basket, they were responsible for 62.5% of sales. In 2008 (February 2008 – January 2009) for food articles, this value amounted to 57.3%, and in chemical – 61.6%. In 2007, 4.5% in the food branch and 6% of products from the chemical market were distributed via supermarkets. The year 2008 brought a clear increase in sales of own brands in supermarkets and amounted to 5% for the food sector and 7.2% of chemical products. Supermarkets were responsible for 4.8% of sales on the market of food products (February 2007 – January 2008). In the chemical branch segment in 2007, they were responsible for 5% of sales. In 2008 (February 2008 – January 2009) in the food sector, this value amounted to 4.9%, and in the chemical – 5.1%.
In the reality of free market economy, where there is huge competition, private labels have the greatest successes, especially visible between brand name products. They are simply an alternative for brand name products. Of course this general definition does not equal to the simple implication, indicating that the own brand are products worse in quality, at the same time cheaper than it market, brand name equivalents.
Private Label is above all an answer to the needs of the modern-day consumer, who searches for goods at reasonable prices, good in quality, but not necessarily brand name, those from the highest shelves. Customers are more and more eagerly convinced to Private label products. They are more willing to experiment while shopping, trying, searching, comparing and checking. Thanks to such procedures of customers, really not costing more than simply the courage to make a purchase, customers gained are a hundred times more loyal and returning for the same shopping. Here, it is worth pondering on the phenomenon of the brand itself in general. From the moment of labelling the XIX century of the United States of cattle with stamps, much has changed. The brand is not only a carrier of cultural values, certain timeless symbols. It is a carrier of the product’s personality, which brings with it emotions a priori.
A way for improving the quality of one’s offer is the import of articles from the country of the producer. For example, the chain Carrefour offers a wide range of food products imported from France under the brands Bio and Reflets de France. The company Jeronimo Martins is also working at the improvement of its store’s image. Although products of the Biedronka brand belong to the medium price segment at tops, recently, such pearls like Porto imported from Portugal can be found on the shelves of their discount stores. For the development of own brands export is also important. More and more producers export their own brand products to foreign contractors. The interest in Polish products is a great success. The high quality of the products influences this. - “The production of pasta the Private Label sector both for Polish, as well as foreign customers is very important. The company Makarony Polskie is a leader on the Polish market in the production of Private Labels and is systematically increasing the sales of own brand products also for foreign customers. Also the company Stoczek, which 100% owner is the company Makarony Polskie, is increasing its shares in the sales of ready meals for the Private Labels sector. We have been producing the so-called own brand products from the very beginning when this category appeared on our market. It is above all connected with the appearance of large foreign supermarkets in Poland, and the own brand products in their offer. Of course the fact that we produce Private Label and cooperate with the largest recipients of this type of products is the result of the high quality of our products, as well as the interesting and complex product offer”, says Krzysztof Rubak.
Brand building
For building a brand, all marketing tools that are currently functioning on the market can be used. The last two years in the branding world is a time of great changes. It can be said, that even something more. The shock, which is significantly changing the polarisation on the market, caused that the classic layout of forces changed its meaning. And all this due to the stronger and stronger position of Private Label.
At the beginning, it was practically an ideological revolt on the side of chain stores, which decided for such a courageous and radical step, meeting the global brands with own brands. Actually, the situation turned into a specific revolt, taking into consideration only the philosophy of approaching the essence itself of own labels. Creators used pure psychological and sociological procedures, using simple, cheap packaging, at the same time making the customer aware, that the high price of great brands is due to their external appearance – it is the packaging and any marketing measures, which serve them, generate the greatest costs. The same product can be possessed, but at a significantly lower price.
This was a breakdown of approach towards the product, as well as the sole perception of it. From the perspective of time, it is worth noticing, that definition of the label and branding itself has taken on entirely different distinguishing marks from the moment of own labels entering.
In the line of business, there is a well-known saying that the customer first buys with his eyes. The aesthetics of the packing alone influences the entire perception of the product. Through the packaging, in the first moment, the customer assesses the quality of the product and the price. Only in further steps does he verify his subconscious observations and makes the choice of purchase.
That what essentially influences the image of own brands in the negative assessment, are products of the lowest prices under the chains’ brands. As a result of this, there is a strong conviction of the low quality of the product. And the price itself, a few times lower than comparable products in the chain, becomes suspicious right away. An example is Tesco, where most Poles perceived the chain’s brand only through products of first price, the so-called “pasiaki” [“stripes”]. Yet the offer of this chain is no longer just the mentioned products of the lowest price, but a wide segment of the medium shelf, as well as the premium shelf offer appearing recently. It is enough to see Biedronka’s, Tesco’s or Lidl’s offers in order to be convinced that the concept of own brands has changed greatly, due to the approach towards the issue of packaging. It is not only the segment of “pasiaki” of Tesco, but also imported products, or those produced in the country by well-known producers, e.g. Mokate or Lorenz. The attractiveness of the packaging does not differ from other national products. Own brands have not only come out from hiding, but are becoming a strong competitor for suppliers. Private Labels are successful where many brand name goods exist on the market, but none of the brands dominate over the sector. The following belong to the category of products: chemical articles and food products. The importance of own brands in particular assortment groups still shows the immaturity of the Polish market, but also of potential development. Own brands have the largest share in such assortment groups as: paper, plastic packaging up to 19% of the share, diapers and women’s hygiene – 9%, food of extended life – 8%, frozen foods – 7%, snacks and sweets 5% each, household chemistry 5% or soft drinks also 5%. The results of research conducted in Poland by Nielsen in 2007 still show a dominating opinion, that the quality of own brands is different from the quality of brand name products. Only 35% of the research’s respondents believe, that these products are comparable in quality, to compare with Great Britain, this opinion is held by 70% of those researched.
Private label is a line of products produced for a specific distributor and sold under his logo. It embraces a wide range of goods, from food products, through cosmetics, to household articles. The products of own lines of retailers are to constitute a cheap alternative for local products and international luxury brands. The idea of the private labels sector is offering high quality for low prices. Having an own brand makes the distributor independent from the dominating products on the market, reduces advertising costs of particular goods and allows to maintain fixed prices in stores.
Market changes which we are observing are a downright trading shock, which is changing the layout of proportions on the market. In Poland, from the beginning of the nineties, when own brands entered the market, the situation changed completely. The last two, three years have been a huge leap. Beginning at food supermarkets, where private labels are currently in most categories, ending at industrial supermarkets – private labels are gaining more and more strength. The development of own brands has really just begun. It is not only a symptom of business and knowledge, but more and more often a trading essential. Regardless to what group of assessors we are in, e.g. to those, who perceive own brands of chains as a specific way of distinguishing products. For those, the benefits from the point of view of chains and producers are pretty clear: control of costs and quality of products, possibility of offering products adjusted exactly to the specifics of the stores’ customers, reduction of costs for advertising and promotion. For others, it is also an opportunity for the customer himself to take advantage of the low price of the product, receiving guarantee of the product’s origin, having availability to an expanded choice of brands. However, own brands also have its adversaries: concentration of trade, dominating suppliers, suggesting the difference between products to consumers only at the level of price, or simply forging or copying brand name products. However, one must take into consideration the consciousness of the aim above all. A product, not only of an own brand, must have strong features of certain inalienable values, so that it can compete in the reality of the real market: stable quality, character of the product, investment, appropriate management.
The power of Private label can not only be fulfilling the needs of the consumer, as in the primary sense, or preceding these needs, but above all excellent knowledge how such needs can be fulfilled in a completely different way to competition. That, what is simply called the power of the brand, can be brought to the level of its character. Only if perceived in such a way, does it have a chance in being successful and surviving longer perspective on the market.
Maja Swiecka