Why home label brands are good news
In this guest post, Tim Riches reckons that the rise of supermarket home label brands may not be such bad news for established brands after all.
Retailers will always need strong, established mainstream brands to drive sales. The key to survival for manufacturers is to look at the market from the retailer’s point of view. Brand managers must show retailers how their brand can grow a category. Retailers don’t care how your brand might take market share from a competitor’s brand. They are only interested in growing sales volume in each product category.
Brands that can show retailers how they can help them grow a category will always find a home on shelf. You need to find new occasions for your product to grow total sales for retailers, not just your own sales.
Private label brands are thriving in product categories where there is very little consumer-perceived difference between branded products. The most dangerous place for your brand is to be in the middle of your category.
I call bullshit. Home brands are not ‘good news.’ Kudos to Tim for disclosing he is working on defending Woolworths as a client but this is simply bullshit.
What this article fails to address completely is pricing, and more important the customer. This is good news for Woolworths and Coles, but it is bad news for the customer. Countless studies will back this up. Home brands are used for leverage as part of a broader strategy to reduce choice and then manipulate pricing. It is great news for our supermarket duopoly, but bad news for customers.
“Private label brands are thriving in product categories where there is very little consumer-perceived difference between branded products. ”
Isn’t this because the private label brands have been deliberately designed to mirror the look of the established brand’s products?
This should belong in the sponsored post not guest post section.
What a load. The only reason the big UK and US supermarkets have a bigger percentage of home-brand products on their shelves than their Australian equivalents is that Woolies and Coles get better value simply by screwing their existing suppliers hard. The percentage that won’t bend over and take it are the ones replaced by homebrands. This is their only true “key to survival”.
After watching that video all we need is for Coles to take over Government and we’ll be like a ‘Coles’ branded U.S.S.R.!
…on hold on, Coles are already in the pockets of the Liberal Party, oh well, welcome to Communist Australia 😛
What a lot of twaddle.
In really simple terms, this is how I see it.
Supermarkets charge exhorbitant fees for shelf space to stock any product that is not home branded.
Companies cannot compete price-wise and are either being economically forced out of the market or they have to produce home branded products to survive.
They are then reliant on producing homebranded products until Coles or Woolworths decide they can get the product made more cheaply overseas.
The future? Australians are left with no locally produced products, no choice, and Coles and Woolworths can set their own prices.
Where are our politicians on this matter?
Good on you Tim. “The most dangerous place for your brand is to be in the middle of your category.” is very true and happening in every category. fact is it’s not a fact people (agencies) want to acknowledge or address with their clients.
… and I thought I was stoned…
😉
For the record, and in response to any suggestion of pushing an agenda on this issue, The Leading Edge is not in fact defending our position on the Woolworths roster.
On the matter of price raised by The Accoutant, at the heart of this piece is the principle that price in some categoryiesis being stratified into clear good and best – with “the middle” either squeezed out, or subject to effective control of price by the retailer.
In terms of the point about regulatory intervention, it’s naive to expect this until a clear consumer “problem” is demonstrable – and I don’t think that it has been. There’s a soft point about less choice and traditional brands disappearing, but where’s the evidence that people are concerned about this to the point where they vote with their wallets?
This article doesn’t make sense….
Actually… I really agree with this bit:
“The most dangerous place for your brand is to be in the middle of your category.”
And in that sense, private labels mean established brands can no longer rest on their laurels. But in many categories they have a distinct – and arguably unfair – advantage.
Tim, you might want to explain to me again why the rise of own-lable foodstuffs from low-cost suppliers from places like China, forcing brands from supermarket shelves, reducing choice and competition, and ultimately resulting in the Big2 supermarkets not only having a duopoly on retail, but also on the entire supply-chain from the farm to the plate…
is good for me.
Because anyone who applies even a smidge of critical thinking can see how this is going to play out. And the average Australian will be the loser.
People will always choose brands when they act as a short cut to the best decision, especially when people are not deeply ‘involved’ in that decision.
On the other hand, supermarkets are taking advantage of the fact they they too are brands (the so-called home brands ARE brands and do get actively chosen – they are not a default option).
What these home brands (and the retailers behind them) are forcing manufacturers to do is innovate. Because if they don’t innovate their brand identity alone is not enough to overcome the commodity effect. Good, Better, Best only works if there is a difference between them.
So as a forcing function, Tim’s argument is correct. Home brands are good for established brands in that they force manufacturers to innovate format, product and marketing to create real differentiation and a reason to be chosen.
Well I was about to launch into a Kyle style rant on Mr. Riches ( very apt name if you do work for the cozy supermarket duopoly ! ). But let’s just stick to the facts of the chart presented to me TODAY !
We tell Supermarket x we are about to spend 2 Million on TV for my product Y. We show them the schedule. Book in store display and buy catalogue space. They ask us to fund a part discount to them as an incentive for a reduction in their RRP.We invest the money in said flights…..They pocket the bulk of the discount…. pass on hardly a dime to the consumer……….AND THEN WAIT FOR IT…. DRUM ROLL PLEASE….Slash their knock off copy of our product by 60%!!!!.on the day our schedule launches. WE drive the people into their store and the pocket all the riches…
Dear MR RICHES the U.K model being adopted in the supermarkets allows a customer who has access to sensitive information to be a ruthless competitor with no recourse. In the U.K they have laws that prevent this. We have vague references to unconscionable conduct….
“What this article fails to address completely is pricing, and more important the customer. This is good news for Woolworths and Coles, but it is bad news for the customer”
As a customer – I can’t see the logic here. (I’m probably wrong, BTW, but I can’t see the logic)
Look at milk for example.
The big milk distributors were paying 40-50c per litre at the farm gate and selling it to their customers (like small shops etc) for $1.50 to $2 a litre. The shops then had to add their margin and sell it to me at a profit.
Now Woollies & Coles have changed things. They are still paying about 40-50c per litre at the farm gate .. but they are now selling it to me for $1 a litre. Yes – that cuts out the distributor in the middle and it sucks for the small shops who can’t match the price … but as a consumer why should that bother me?
Yes – I’ll assume that after a year there will be only 5 brands of milk available instead of 20. So what? As you notice when there is a product recall … the cheap brand gets recalled as well as the expensive ones because they come out of the same machines and the milk came out of the same cows.
Worse case scenario – the 20 brands of milk has reduced to 5 and the supermarkets put the price back up.
Am I any worse off? At the end of the day I’ll be paying the same price as before but for exactly the same product. I’ll have had a year or so of cheap milk, sure, but after the honeymoon period the price goes back up.
So what? I’m making Coles shareholders rich instead of ‘Kirin Group of Japan’.. the company that now owns 100% of Dairy Farmers (the milk distributor that can’t compete)
Tim. You said “There’s a soft point about less choice and traditional brands disappearing, but where’s the evidence that people are concerned about this to the point where they vote with their wallets?”
It is a regular topic of discussion on talkback radio here in Melbourne, perhaps not in prime time but certainly in the evenings and overnight when the older demographic are talking.
You also said “In terms of the point about regulatory intervention, it’s naive to expect this until a clear consumer “problem” is demonstrable ”
No I’m not naive, I don’t expect it. I simply wish it were the case.
Here’s hoping that Woolworths don’t establish a home brand research consultancy business and take away your clients because they can charge less in the short term and drive you out of business.
Yet, Coles are into insurance now so perhaps your business will be next.
I will continue my little argument until they launch their home brand radio stations.
Dear Client. Sounds like you got screwed here. Was there no contract with the retailer? Yikes – I feel for you.
Look at what Coles and Woolies have done to petrol.
All their small competitors have been run out of business (over 4c per litre FFS! — which they then claw back when you buy a Mars bar or a Coke), and now they control the industry.
Now you can look forward to them doing the same to every other product/sector they deal with.
In Britain, the big supermarkets have pretty much destroyed the dairy industry this way.
It’s unconscionable. Where are the pollies? Fiddling while Rome burns.
in reply to “It Must Be True”.
You are quite correct, as a consumer you will still get milk.
But the 15 businesses who have closed down out of the 20 no longer have office staff, contracts with printers who make the cartons or labels, contracts with advertising agencies to promote their flavoured milk brands. So it’s even tougher for your children to get a job in those fields.
As a consumer in the short term you are no worse off unless all products are replaced with inferior ones from offshore and you no longer have the choice, but for every product that leaves our shelves, jobs go with it. That can’t be good for the country long term.
It may be a simplistic view on my part, but that’s how I see it.
Simon, the last time I looked, retailers were in the business of selling stuff, and it’s hard to criticize them for doing it – but I doubt our clients (or Client for that matter) would buy research from the company that they believe is screwing them…
On a different note, personally, between Aussie Farmers Direct (one of the fastest growing franchises in Australia I believe, with price parity on the muesli, milk, juice and eggs that I buy), a good local fruit & veg (I’m lucky to have one nearby, and it’s cheaper than the supermarket), bread shops, butchers and so on, it’s not impossible to opt out, largely, and pay less. Especially on the categories that drive frequency. Actually, when I last bought tinned tomatoes, I got 24 from the Fruit & veg and it was way cheaper. For people who make this stuff a priority, it’s possible to avoid industrialised food – and its distribution. There is a choice.
There’s a great saying – let every dollar you spend be a vote for the kind of world you want! But people do have to care, and change their behaviour accordingly.
Internet guy:
You actually believe that the Big2 aren’t screwing their suppliers almost to breaking point?
Incredible.
I’m happy to be a conscientious objector to Coles and Woolworths and ALL their subsidiary businesses. I DO vote with my wallet (actually, purse). I shop at IGA for standard grocery, I have my fruit & veg delivered to my door by Aussie Farmers Direct, I buy alcohol requirements from a local independent, and it’s EASY to avoid Kmart, Big W, Target, Officeworks and Bunnings. That’s my vote.
I agree with JA. I find the local guys cheaper AND better. Frozen bananas? no thanks!
@ “Hmmm…” (#21)
“You actually believe that the Big2 aren’t screwing their suppliers almost to breaking point? ”
I’m sure they are screwing their suppliers. But why do you feel that the Kirin Group of Japan (aka ‘Dairy Farmers’) aren’t also screwing their suppliers to the same degree?
We can have a look at average prices for Milk for the suppliers here: http://www.dairyaustralia.com......rices.aspx
The aggregated data for 2011 isn’t available yet – but look at the announcements of some Australian milk producers since the price war began:
“Australia’s farmer-owned dairy company – Murray Goulburn today advised the co-operative’s dairy farmer – shareholders of an increase in the farmgate milk price for the current season.
In his statement to suppliers Managing Director Mr Gary Helou advised of a price increase of $0.20/kg protein and $0.08/kg butterfat for milk supplied across the 2011/12 season.” (Ref: http://www.mgc.com.au/index.ph.....for-201112)
So the reality is that the price of milk at the farmgate is going UP. This seems to contradict the prevailing idea that this price war should leading to prices at the farm gate going DOWN.
it’s lucky TLE wasn’t using this as a sucking-up exercise to defend its position on the Woolies roster, otherwise they’d have suffered the double ignominy of being punted off the roster as well as the rescue plan failing…
Why are you only focusing on milk?
@Hmmm.. (@26)
I’m focusing on milk because it is the big example where Coles & Woolies really went against ‘brand’ names in a major way – pricing their products well below the others.
It’s also a recent change, which makes it easier to determine what the effects on the industry was. We can talk about canned peaches if you like – but the price differential for that probably hasn’t changed much .. so it is difficult to look at the data and see what the effects are.
Feel free to review the recent data and give counter examples outside of milk.