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Fighting to Win - National and Retail Brands

04 Jul 2007

Retail brands have become a worldwide marketing trend.

Retail brands were first introduced surrounded by skepticism about whether they would survive. National brands were expected to fight back and not let retail brands gain any market advantage. But they did. And retail brands continue to grow. The consensus nowadays is there is room for both. Is this correct?

What is a retail brand?
A retail brand is a brand owned by a retailer or a wholesaler rather than the manufacturer. Retail brands are also called private labels.

Retail brands can be divided into several groups:

• store brands – where the retailer’s name is obvious on the packaging
• store sub brands – where the retailer’s name appears in a low key way on the packaging
• umbrella branding – where a generic brand is used independently of the retailer’s name
• individual branding – where a name is used in one product category to promote a ‘real’ discount product line
• exclusive brands – where a name is used in one product category, to promote ‘added value’ products within the category.

In New Zealand, the most common retail brand is the umbrella brand.

Who has a retail brand?
Food and beverage retailers dominate the retail brand market.  In New Zealand, all three major grocery retailers use retail brands.  The Foodstuffs group has BUDGET, PAM’S, and FRESH EXPRESS, Progressive has BASICS and SIGNATURE and Woolworths has NO FRILLS and FIRST CHOICE. 

But the use of retail brands is not limited to the grocery trade.  Other retailers also see the benefits of having their own brand.  Dick Smith Electronics, The Warehouse and Hannahs are strong retail brand players.  Retail brands are also used by several businesses in the clothing industry.

Why are retail brands developed?
Retailers develop retail brands because it helps them gain control in their power struggle with manufacturers.

By developing a retail brand, retailers create a bargaining tool to help them negotiate lower prices for consumers.   Retail brands are also useful to negotiate quicker deliveries and gain promotional items to promote sales.

Retailers often say they look to retail brands to fill gaps in product ranges. This is particularly useful for grocery traders who want to promote themselves as a one-stop shop for all food and beverage products.
 
For many retailers, a strong retail brand is the key to retail consolidation opportunities and increased profitability.
 
The role of retail brands
As retailers become more sophisticated, the role of retail brands in their stores changes. Instead of vindictive price-fighters, retail brands have become value-added marketing differentiators.

Retail brand owners have adopted national brand tactics to improve product penetration and quality. Although retail brands originally emerged to attract customers through lower prices, they are now seen by consumers as a real alternative to national brands. At one time retail brands were only used on low-volume products - but that is no longer the case.

One-size retail brand fits all?
Retail brands are strongest in low emotional involvement goods.  Many consumers have set ideas about what goods can wear retail brands.  Often these are undifferentiated commodity products or products where there is no perceived performance difference between brands. 

For example, retail brands work well for food staples like tomato sauce, flour, and toilet paper, but less so for differentiated goods or innovative or complex products or for luxury goods.  National brands are the preferred source for goods like chocolate biscuits. However, as the retail brand market matures, it takes on more diverse products and services. 

The changing face of retail brands
There are many consumer advantages to retail brands.  The mistrust of bygone years has lessened, as has the view that retail brand products are lower quality goods. 

Early retail brand ventures tarnished the overall image of retail brands and fuelled consumer skepticism by positioning their products as low cost alternatives.  But now retail brands have closed the gap with national brands by successfully balancing the price, quality and the uniqueness of the product. 

Although consumers of national brands are prepared to pay higher prices for certain goods the chasm between retail and national brands is dwindling.  Manufacturers of retail brand products will no longer sacrifice performance for price.  The product must perform in the same way as any other branded product. 

Is a retail brand a brand at all?
Retail brands may have started out as second tier price alternatives but many have now emerged into powerful, authoritative and well-recognised brands and trade marks.

BASICS, BUDGET, and NO FRILLS would not usually be distinctive enough on their own to be registered as trade marks. A trade mark is distinctive if it can set apart the goods and services of one trader from another. But a brand can be registered as a trade mark if it has become distinctive through use. This is where retail brands have triumphed.

New Zealand’s grocery retail brands are symbolic of good value.  Their influence over consumers has led to an increased market share in the grocery trade.  Persistent marketing, consumer awareness and aggressive positioning by the relevant supermarkets have made their retail brands successful. These brands now set apart the goods of each retailer so they are distinctive enough to be registered as trade marks. 

Is there room for both national and retail brands?
The short answer is yes. Gone are the days when stigma attached to retail brands.  But the increased strength of retail brands does not mean we should write an obituary for national brands.

Each has a distinct role to play and both have challenges to face.

If you are a manufacturer of a national brand that does not hold a lead market position then potentially, you face competition from a retail brand.  Retail brands are constantly looking to improve the quality of their products, introduce premium labels, open new channels and create new categories of goods and services. 

To ensure quality, retail brand owners analyse the contents of national brand products and recreate those products step-by-step.  Most leading retail brand retailers now take an active role in product manufacture and no longer simply slap their brand on whatever comes off the assembly line. 

Product performance is often the key for a retail brand.  For when there is no advertising or marketing spin, the product must do all the talking.  The result is that often the only thing separating one product from the other is the brand on the label.

For national branded products, innovation and differentiation are key to retaining consumer loyalty and staving off retail brand competition.  This is a challenge since national brands are never going to meet retail brands on price. Also consumers are now more aware that retail brand products are made in virtually the same way as national branded products and often off the same production line.

But national brands retain an advantage because consumers still need an assurance of quality when they do not have the time, opportunity or ability to inspect alternative products.  Often consumers default to national brands to simplify the selection process in cluttered product categories. 

As the quality of retail brand products increases, consumer base across economic classes grows.  Retail brands appeal to well educated high earners as much as low earners.  Just like for national brands, once a consumer develops a relationship with a retail brand, they will continue to buy as long as it continues to perform well.

The expectation is that retail brands will continue to grow in the food and beverage arena with one in three consumers likely to buy a retail brand product at the supermarket.  Although retail brands have a way to go to leverage the power of national brands, they are growing steadily. This poses a real threat to national brands.

Brand strength favours national brands and gives them a running start to keep ahead of retail brands. But national brands competing with retail brands need to differentiate themselves by offering value through combined quality and price. 

Retailers cannot afford to cast off national brands that consumers expect to find widely distributed.  Retailers must not only stock but also promote popular national brands that consumers use to gauge overall store prices. 

Excessive emphasis on retail brands in stores dilutes their strength.  Many consumers believe that a single retail brand cannot provide the same quality for diverse products.

Food for thought
The message for owners of national brands is to treat private brands seriously.  Ninety percent of manufacturers expect kiwi consumers to buy retail brands so clearly, the threat of retail brands weighs heavily on the minds of manufacturers and suppliers.  National brand manufacturers need to leverage their knowledge of consumers and categories to benefit from their market share.

The reality is there is room and a need for both.  The national brand needs the retailer to carry the product and the retail brand needs a product to emulate. The result is an unlikely but symbiotic relationship between the two.

The time for simply selling product has gone; it’s now a brand issue.

Corinne Blumsky
Partner, A J Park Wellington
corinne.blumsky@ajpark.com
DDI +64 4 498 3445

An edited version of this article was published in NZ Retail magazine July 2007