Best practices in private label may soon be spreading around the globe.
With some exceptions, private-label products in U.S. supermarkets are still regarded by most retailers and their customers as secondary to national brands.
This is much different in Europe, where private label is often preferred by consumers for its superior quality. Sophisticated packaging helps mark these products with the credibility attached to the retailers' own brand names.
"Own range" products, as they call private label in the United Kingdom, represents well over 40% of the market share in that country, according to industry sources. While other European countries also have a healthy appetite for private-label products, store brands are about 20% of sales in the United States, said Brian Sharoff, president, Private Label Manufacturers Association, New York.
"Europe is the most competitive and mature market in private label, and it therefore covers all tiers, such as economy, national-brand equivalent and premium," said Nick Gale, spokesman for Ahold, Zaandam, Netherlands. "This is why a lot of countries outside of Europe follow their example."
As global communications become more seamless, and multinational retailers like Ahold, Tesco, Sainsbury's, Carrefour and Wal-Mart seek to maximize the value of their brands, private-label products that are successful in one country will soon find their way to others, industry observers said.
For example, at Ahold, the exchange of best practices between the Americas and Europe is encouraged, Gale said. "Europe has learned from the U.S., and vice versa." In particular, Ahold chains in the United States have learned a great deal from their European counterparts about innovation and premium products, he said.
The U.S. stores still emphasize national-brand equivalents, he said. "Our operating companies' focus is on margin improvement, and providing value and choice for the consumer. However, moving forward, it will also extend to innovative and premium products across numerous consumer groups and building our brand's awareness in the U.S.," Gale said.
However, not all multinationals are moving in this direction. For example, the private-label team at Food Lion, Salisbury, N.C., concentrates solely on Food Lion, and European parent Delhaize has had no significant influence, said Jeff Lowrance, spokesman. Other retailers with international connections, such as Sainsbury's and its U.S. company, Shaw's, and Wal-Mart and Tesco, did not respond to requests for comment.
"The world has become such a global marketplace" that the larger retailers and manufacturers are taking their successes across borders, said Wendy Liebmann, president, WSL Strategic Retail, New York. "U.S. manufacturers and global manufacturers have always taken learnings from one country and evaluated it for others. That's what the global retailers are beginning to do, too, in terms of their own brands. They are becoming brand marketers," she said.
For example, she noted that Wal-Mart has taken the George clothing line from Asda in the United Kingdom, and is now selling it in its U.S. stores. "They are thinking more like a brand marketer than a retail marketer," Liebmann said.
Apart from the George line, significant international influence on private-label lines is not evident yet, said Victoria Williams, president, Signature Sales & Marketing, Toronto, a product development consultancy specializing in retail corporate brands. "However, I do believe it is coming. Every retailer is keen to increase their share of private-label business, to increase profits, as well as for other reasons," she said.
"I think they are starting to test the waters with some unique products and global sourcing. I do believe we will see much more of this in the future," Williams said.
"We will continue to see more sophisticated international private-label programs that are marketed similar to branded products. I think multinational retailers will begin to think globally and have development teams that work only on private label on behalf of their total company. They will make programs available to all of the multinational units," Williams stated.
Yet superior private-label programs are not only found in Europe, noted Colin Porter, chairman, CorpBrand Identity Ltd., Twickenham, England, a branding consultancy specializing in package design. In the late '80s and early '90s, CorpBrand worked with A&P to develop its upscale store brand, Master's Choice, in response to the success Loblaw's had with its President's Choice program, he said.
"The revolution in store-brand terms was that, for the first time, private label was elevated in the North American consumer's mind to the status of a real brand," Porter said. "In many product categories, because of the high quality, pricing strategy and distinctive product presentation, these two brands were outselling many of the national-brand leaders."
A few years later, A&P's German parent, Tengelmann, introduced its own version of the A&P line, MasterProduct, to its stores in Germany, Porter said. "Similar initiatives have been introduced in the U.K. with the launch, about five years ago, of the upscale range, Tesco's Finest." At about the same time, Sainsbury's introduced its Taste the Difference line, he said.
"The influences of the U.S. and Canadian experiences have been dramatic and undoubtedly contributed to each others' success, as well as sowing the seed here in the U.K. But who can legitimately claim authorship is difficult to say, as it is certain that what gave Loblaw's their initial inspiration was the work that Marks & Spencer's were doing in the U.K. with their amazing success in the premium food grocery sector over 20 years ago," Porter said.
For U.S. retailers to tap the private-label product development practiced in the United Kingdom and other European countries like France, Belgium and the Netherlands, would result in a "one plus one equals three" situation, said PLMA's Sharoff. "You take the products from Europe, and the European retailers that are in the U.S. market, and you get more than the sum of the parts," he said.
In a highly competitive environment, retailers would have unique products, he said. Also, because multinational retailers have common management, they can more readily take advantage of corporate synergies. Wal-Mart's George line, although in the clothing area, is a good example of this, Sharoff said. "The retailer can take what he thinks will work from Europe, and he doesn't have to convince himself; he doesn't have to pay a licensing fee."
Central and eastern Europe are fertile areas for private label as there is less brand preference there, said Frank Badillo, senior economist and director, Global Retail Intelligence System, Retail Forward, Columbus, Ohio. As Tesco, Carrefour and Metro expand into eastern Europe, "they are probably going to find situations where the brand ties aren't as strong and there are opportunities to build up private-label programs," he said.
European retailers are the international leaders in expansion, he said. "Even Wal-Mart isn't really taking the lead. It's Metro, it's Tesco, it's Carrefour, it's Ahold. It's those western European retailers that are really leading the movement into these developing countries across the globe. And so it is their private-label programs that are going to be having the most impact in the near term," Badillo said.
"Most retailers will have to face the growing number of discounters by developing stronger economy brands for the consumer's basic shopping needs," said Ahold's Gale. "Additionally, some retailers will opt for differentiation by developing innovative premium ranges within their destination categories. In the U.S., we want to ensure that we are even more competitive and are the preferred choice of our consumer."
