Page 181 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes Private labelling emerged visibly in the 1980s and, in those days, ranged from versions carrying
store labels to so-called “generics” which came in bland, usually white packaging—including
canned goods bearing the product identification and labelling, but no brand whatsoever, on
white wrappers. The recession of the late 1980s helped to establish this new category. It continued
to thrive even as the economy rebounded in the 1990s and proceeded to finish the 20th century
with a great spurt of growth.
The situation in the mid-2000s is summed up by Private Label Buyer succinctly as follows: “Store
brands have evolved from merely the generic low-priced product to a wide selection of items
that have a brand identity of their own. Today, a store brand can be a premium, high-quality
item that competes with national brands on image. Consumers have changed into value seekers—
even those at the higher end of the economic scale consider themselves savvy shoppers looking
for the best value.” Trade statistics bear out the fact. Store brands slightly outpace the growth of
branded products. This is not surprising in that PL products tend to be lower priced; but it
testifies at least to the adequacy and possibly to the increasing quality of private-label goods.
Quality is important, but, as Jill Rivkin pointed out, also writing for Private Label Buyer, price
remains the most important factor. “When asked to rank the private label attributes of price,
quality and package design in order of importance,” Rivkin wrote, “about 60 percent of primary
grocery shoppers surveyed put quality in the top spot. But just moments later, when asked if
they would purchase a private label item only if there is a significant price difference between
it and the comparable national brand item, 64.7 percent agreed.”
Although private labelling is widespread and can be found in most consumer categories (ranging
quite widely from plastics sacks on up to lawnmowers), it tends to dominate in the grocery and
in the drugs and sundries categories. Major retailers in these categories are most active in
exploiting the possibilities of private label by fusing low-price store-branding and store-identity
into a promotional approach intended to build store loyalty. Thus in advertising and in issuing
coupons, higher discounts are offered for store-branded items in order to attract and to keep the
clientele.

PL and Small Business

Producing for the private label market has been a valued strategy by small business in the
middling-size category, especially those that have established recognized brands of their own
in grocery categories (e.g., preserves, sauces, condiments, etc.). Plant expansions can be
rationalized by adding a substantial private-label production run. A certain size is necessary
because private label distribution must satisfy a mass market. Distributing privately labeled
product to many small stores, each requiring its own unique labeling and packaging—combined
with the need for low pricing—makes the approach less than cost-effective.
Some small businesses look for opportunities exclusively to satisfy a large private-label market
by producing for it a regional supply of some product the specifications for which are set for all
participating manufacturers by the buying retailer.

Private Labels and E-Commerce

A still emerging trend in private labels is the rapid adoption of these brands by firms involved
in Internet commerce. “While supermarkets and department stores in the brick-and-mortar
world can take years before they venture into private label merchandise, e-tailers—in a
development that echoes the rapid emergence of the medium itself—are developing private
label programs as they approach the starting gate,” Elaine Underwood wrote in Brandweek.
According to Underwood, some electronic retailers are attracted by the higher margins typically
offered by private-label merchandise. Others see it as a way to offer unique merchandise that
helps differentiate them from competitors.

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