The Evolution of Private Labels

Private labels were traditionally defined as generic product offerings that completed with their national brand counterparts by means of a price value proposition. Often, the lower priced alternative to the real thing, private label or store brands carried the stigma of inferior quality and therefore, inspired less trust and confidence.

While store brands offer a choice to the end consumer, for the retailer, they serve as a tool for increasing business and winning customer loyalty. Retailers have realized that while consumers can buy a national brand anywhere; they and only their store brand at their store.

In the developed markets, private labels started out of economic necessity – for providing a cheap alternative for low emotion involvement goods such as butter, eggs, flour, and sugar. Generics, which were products distinguishable by their plain and basic packaging were the first type of private labels to appear on the horizon, largely associated with a low price and low quality.

Throughout the world, the private label is winning acceptability and the loyalty of customers. Private labels posted market share gains in 15 countries tracked by Nielsen for PLMA’s 2007 international Private Label Year Book. The Year Book further states that in Central and Eastern Europe, where modern retailing is rapidly taking root, retailing brands are making their biggest market share increases. This change reflects in a shift in shopper attitudes, where a private label is no longer sought out only for reasons of price and economic conditions.

The data also shows substantial growth for retailer brands in Western Europe. The share increase in the United Kingdom, up by more than a point to 43%. In France, the A-brand competition has not been able to stop the powerful trend towards private label in recent years. Market share in the country has climbed to 34% and would surely be higher if sales data from discounters were included. Even so, the private label’s high market share contrasts sharply with the situation in 1997, when it stood at only 21%.

Spain continues to be one of the biggest success stories for retailer brands. Market share there has surpassed the 35% mark for the first time ever and seems destined to reach 40% in the next few years. Private label maintains its significant position in Germany and Belgium. Market share in Germany approaches the 40% level, while it is over 42% in Belgium. In Austria, retail brands climbed more than one point and now account for one of every five products sold.

Switzerland again had the highest volume share of any of the countries surveyed by Nielsen. Retailer brands now account for 53% of all products sold in the country an their markets share is still climbing.

In Scandinavia, private label’s share is at least 20% in each of the countries Denmark, Finland, Norway and Sweden. The biggest increase was posted in Denmark, where the share for retailer brands climbed more to points to 27%. Market share has been climbing steadily in Sweden up from 22% in 2003 to more than 28% in 2006.

In the Netherlands, the share for retailer brands has now climbed to 22%. Private label continued its growth in Italy, making substantial gains over the past eight years. Market share for private label in Portugal climbed more than two points, reaching 27%.

In India too, the rise of retailer’s own brand has been significant. Most of the large department stores have their own private labels, which cater to a specific audience and rely on in store advertising. In order to compete with the national brands, private labels need to focus on quality.