Cheap, good and with perspectives of development
A long time ago, they were perceived as cheap products and of low quality, not without reason. Today, they are competition in price for brand name products, and their quality is at a comparable level. Private Label products, as that is what is referred to, have not yet said the last word - the market is open for their development.
Private Label products appeared on the Polish market at the end of the nineties. One of the first chain stores that introduced them was the no longer existing Geant from the Casino group. Products, which were offered by the chain store under the own brand Leader Price were cost-competitive, however, the quality brought many doubts. Depending on the development of supermarket chains in Poland, therefore, own brand products, the quality of these products has ceased to be treated unfairly. Currently, offered products with chain-store logos are equally cost-competitive, if not surpassing brand name products in quality. Moreover, for FMCG producers, cooperation with chain stores in the scope of own brands equals to additional revenues and a chance of utilizing free production powers, therefore, they take care of the quality of Private Label products.
Own brands have been perceived as cheap and poor quality products for a long period of time. Many clients were discouraged not only by the packaging indicating the chain brand, but also the low price, which suggested a product that was at least “suspicious” in quality. The situation in psychology of consumer choices is practically changing before our eyes. But it isn’t changing without a reason. 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. Economic growth also has a big influence on such a situation in our country, as does the change of the consumer’s approach.
Here, it is worth paying attention to own brand awareness among clients. Just a few years ago, the average Mr Brown not only didn’t know what own brand was. Even if, then he didn’t pay attention to the fact of the origin of the product, which he was holding. 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. More and more often, purchasing is not only wanting to check a product on the basis of a consumer test, but a consciously made choice.
The situation on the Polish market in the segment of Private Label products and how they are perceived has changed rapidly over the last 2-3 years. In the offer of chain stores, we can now buy products that are not only the cheapest. The segment of the middle shelf is an offer that is most widely represented in each chain. The year 2008 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. The influence on such a situation have: great economic transformation in our country, an increase in salaries, the feeling of financial stability, huge foreign investments, the increase in export. The good economic condition of the country favours the increase of expenses from the household budget.
In the day of the international economic crisis, production for own brands is also a safe investment ensuring profits. In the difficult times, when demand is falling, consumers are changing over to cheaper products, also those under Private Label. The necessary quality of products sold under Private Label is forced by both regulators (more and more strict and precise standards), as well as controlling institutions and consumers. In this area, significant improvement can be seen in recent years. Leading and well-known producers also have a great positive share in this process, which chain stores are more often trying to cooperate with, as well as those who have entered into cooperation with chains in recent years. Such companies simply cannot allow for lowering the standards of production, regardless of the fact, if their name will appear on the packaging or if it doesn’t appear.
The producing contract for Private Label is difficult to negotiate, and very easy to lose. If a supplier appears, who in a comparable amount and quality of deliveries has a better price offer, the hitherto producer falls off the market. Why? Because the price in the case of own brands is a vulnerable element of the contract. And forecasting a fixed price of a product in a 12-month perspective (that is the minimal length of a contract with a chain) – in a situation of sudden changes in currency rates, equally sudden increases of production costs (energy, imported raw materials, packaging) brings with it quite a risk. It cannot be forgotten that contracts with chains are secured by high penalties, which even in the changing business environment bind the producer to meet the deliveries.
There is a case of a producer cooperating with Private Label, who despite severe penalties in the contract, decided to renounce a huge agreement and pay the penalty rather than continue unprofitable production. However, for such a courageous act, which practically closes chances for cooperating in the future with a given chain, not many producers can afford. In the case of a smaller company, both the penalty, as well as further, non-profitable production could lead to bankruptcy.
An asset of cooperating with Private Label is the guarantee of receiving contract deliveries and a significant amount of sales (for given assortment the chain usually chooses two suppliers – three at most), with a lower margin than in the case of brand name products. A condition of profitability is the appropriate scale and effectiveness of production, and of course a safely calculated price.
Talks with chains usually last from about 6 months to a year. Producers who would like to enter into cooperation must take into account the perspective of cooperation in the following year after signing the contract. They must meet the quality, logistical and financial requirements imposed by chain stores. This demands safeguarding of production means and their financing of the producer. Quality requirements of chains are connected with the necessity of possessing certificates, and often investments in quality systems (e.g. IFS, BRC), as well as certified suppliers of raw materials and semi-finished products. Production factories are audited by representatives of chain stores.
It is worth remembering about the increasing shares of discount stores in trade, at the same time, the greater demand for own brand products, thanks to which the production for Private Label can be a very important additional source of income for many producers. However, it needs to be approached very carefully and calculate the risk well, which is connected with such cooperation. Investments based solely on the realisation of a contract for own brands can be dangerous, as then its loss or change of production costs do not necessarily have to lead to excellent profits.
The Polish product – a safe product
Membership in the European Union obliges Poland to comply with the Community’s standards connected with quality and safety of food. Total compliance to the regulations of the Union is a time-consuming process and does not take place evenly in all sectors. However, the significant progress made in this field should be noticed. It is visible both among producers, perceiving compliance to such standards as an element that is essential is continuing to exist on the market, as well as among consumers, who are paying more and more attention to the quality and safety of products, condemning any violations via the media.
Safety procedures and ways of acting are to guarantee the delivery of healthy, safe and high quality products to consumers. Polish companies are conducting detailed inspections both at the stage of purchasing raw materials, production, as well as storing the goods and distribution.
Polish safety standards do not differ from the standards of the European Union, event those generally accepted around the world. Poland has been a member of the Community for five years, which obliges it to observe the regulations binding in it. If the products offered by Polish food producers did not meet the commonly adopted standards, they would not be admitted to sales. It happens that in some cases, Polish safety standards are even more rigorous.
The food industry is developing very quickly in Poland. The continuous introduction of new types of products shows the dynamics of changes and the advanced development of the FMCG sector, also in the segment of Private Label products. Companies are not only expanding the list of assortments by new products, but are simultaneously perfecting the quality of goods. The departments of development, among others responsible for the quality of products, can be found in practically all Polish producing companies. What’s more, the tendency for expanding these departments, the clear division of technologists strictly concentrated on specific tasks is noticeable. Once, the department of development was usually limited to one, or a maximum two persons, who took care of the entire process of creating a product – from the moment of an idea appearing, through conducting trials, tests, setting up and choosing machines, to the moment of introducing the product to production. Currently, in medium-sized and large companies, a division of at least three sections is visible: the innovation department (where the innovative technologist creates new products and recipes), the department of implementation (where the technologist of the process is responsible for the effects of implementing the product, changes in the process and solving technological problems of the process) and the department of quality. Sometimes, this team is enriched by one more sensor technologist.
Polish products meet the International Food Standards, which are a collection of rules and requirements developed for the needs of organising retail and wholesale sellers, connected with food safety directed at the producers of food products. Many Polish products meet the international standards - International Food Standard (IFS) and British Retail Consortium Global Standard – Food (BRC), which aside from criteria connected with quality and safety of products, contain specific technical requirements for the production factory, and confirm the readiness of companies to function on the market of united Europe and the world. Possessing these certificates, among others required by the largest European networks of supermarkets, make Polish producers sure and reliable trading partners.
Maja Święcka