Retailer and supplier collaboration drive private label growth

 

Private lable and brand building

At first, retailers did not possess a great deal of knowledge or experience in the field of packaging and product quality. However, as they acknowledged its strategic value, they started to invest heavily in building their stores into strong brands and placed private label at the centre of their strategy. Retail concentration fuelled competition and private label was assigned a pivotal role in driving shopper loyalty and improving profit.

Retailer consolidation

Phenomenal success has taken retailer brands to maturity over the decades. Manufacturers and retailers have made an effort to market good-quality products in attractive packaging. This has resulted in consumer acceptance and trust. In Europe and North America, the market share of retailer brands in the pet food and pet accessories category has even exceed market averages. An important driver of this growth has been retailer consolidation, notably in Europe. In a more concentrated landscape, retailers use private label to differentiate themselves from the competition, while customer loyalty can be built by offering a unique and attractive product range. In addition, the role of discount retailers in driving private label growth should not be underestimated.

Retailer and supplier collaboration

Retail brand manufacturers operate in an extremely competitive environment and the balance of power has shifted in favour of retailers. For a supplier, the retailer may represent a significant proportion of overall sales. For the retailer, on the other hand, this proportion may represent only a fraction of turnover. In fact, the private label market could be described as a quasi-monopsony: a market form in which a few very powerful buyers interface with many suppliers. Retailers can exploit their bargaining power as they face overcapacity in retail brand manufacturing. To survive in this fiercely competitive market, best-in-class suppliers excel in adding value to their overall offering by means of superior collaboration and innovation.

A necessary vision and strategy

Retail brand manufacturers do not get away with inefficiencies, and resources like labour and capital must be allocated with extreme care. For this reason, they must have a clear vision and strategy: no resources should be wasted on projects that do not fit. Manufacturers have to manage complexity in production. Supplying a range of retailers with a multitude of products is a challenge and can easily conflict with the necessity of producing at low cost. At the same time, they have to continuously drive-down costs to remain competitive. Successfully adding value to the overall offering may make manufacturers the retailer’s supplier of choice. It boils down to understanding their role as a partner in driving category growth and profitability with private label innovation, and thus become a best-in-class player.