Why home label brands are good news
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.
Without a clear product focus and competitive advantage, your brand has a very limited life.
We see this move away from the middle in almost every category. Just look at Australia’s automotive market. Sales of middle market brands like Commodore and Falcon are fading fast. The same thing is happening in nearly every other category from airlines to beer.
The rush from the middle to the top or the bottom is best illustrated by the daily fight between one of our most basic consumer good – bread.
At the bottom of the category are the supermarket private bread brands like Coles Smart Buy and Woolworth Homebrand. Brands like Helgas and Abbotts are stuck in the “two for six dollars” cycle. While this gives shoppers an incentive to swap between these brands, it also sets the so-called “normal” price in peoples’ minds at $3.00 dollars for a loaf.
Towards the top are brands like Burgen, arguably one of the more distinctive and premium on offer in Australian supermarkets. It continues to do quite well and commands loyalty and price stability from a core of customers who value its point of difference. Plus, notice how many supermarkets have a Baker’s Delight shop nearby?
At the very top end of the bread brand market is a small number of super premium so-called ‘artisan’ products like Sonoma who sell small amounts at a premium price.
Conventional wisdom, backed up by the research we do, shows nearly all Australian consumers rank their consumer goods into three categories of value – good, better and best.
In the bread brand category, ‘better’ and ‘best’ are dominated by national brands such as Tip Top and Helgas while the supermarket private labels like Coles Smartbuy dominate the ‘good’ category.
Copy-cat private labels are now aggressively targeting the ‘better’ category with new products and branding characteristics that mimic the current leading brands in this sector.
The challenge for these brands in the ‘better’ tier is that for an accessible price they need to stay ahead of the private labels by offering customers more distinctive and valued brands, through tangible product benefits. They need to keep innovating and maintain their clear point of difference to avoid becoming part of the ‘good’ tier.
While manufacturers will bemoan the growing imbalance in their relationship with the retail giants, it’s important to recognise both have very different views of what market success looks like.
Retailers are really only interested in category growth – selling more of every kind of product and taking better margins where they can with private label options and maintaining a position of power with the manufacturer by not letting them dominate and drive the category.
Manufacturers tend to focus on their brands and the competitive share of market that arises from consumer preference.
What manufacturers and retailers both share is a need to understand the consumer – the behaviours people exhibit when choosing in the complex and confusing store environment.
Manufacturers, with their traditionally more detailed understanding of consumer behaviour, brand specific marketing budgets and multinational intellectual property are still best placed to drive innovation in products and marketing. Their challenge is to translate this advantage into tangible benefits for the customer.
Great brands are more significant to customers than private labels and their key to survival is to maintain an intensity of energy and innovation in their relationship with their customers – whether in the ‘better’ or ‘best’ tiers.
A strong brand, a clear pricing strategy and smart merchandising will keep them one step ahead of the copy-cats.
Strong national brands will always excel at creating innovation and excitement while growing new product categories. They will continue to influence the supermarket landscape and product innovation and remain the engine driving the retail market.
These trends show no sign of reversing and consumers will continue to be more selective about what they purchase. The message is clear — companies with strong brands will do best.
Tim Riches is the MD of research consultancy The Leading Edge, which worked with Woolworths until a review was called in November.