The rise of private label

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More and more retailers in the pet industry are choosing private labels to foster customer loyalty. The latest Nielsen market share statistics show that consumers recognise this and are putting more retailer brand products in their shopping baskets. Private label market share has climbed to all-time highs in ten European countries: Germany, Spain, Italy, The Netherlands, Belgium, Poland, Austria, Sweden, Norway and Denmark.

Natural extension

“More retailers are using their private label programmes as a marketing strategy for their companies and, in so doing, expanding assortment and tiers to meet consumer expectations,” says Brian Sharoff. Under his dynamic leadership, membership of the PLMA has steadily grown from 200 companies in 1979 to more than 4,000 today.

The growth of private labels could affect the relationship between private labels and A-brands. “The relationship between retailers and suppliers is always subject to tension as both sides in the equation promote and protect themselves. I don’t see any reason to think that this will change,” says Brian. Neither does he see the growth of private labels as a threat to large A-brands since their role in the marketplace is based on their own advertising and product development. 

“I think premium private label and A-brands complement one another and give consumers greater choice when they shop. Premium private labels are a natural extension of the concept of retailer brands.”

Differentiation

A private label is a good way for retailers to differentiate themselves from their competitors. “Historically, the reasons why a retailer chooses to develop their own private label are higher profit margins and a way to compete with other retailers,” says Brian. 

“The logic is simple: if all retailers carry the same A-brands, then the only way to differentiate is on price. With their own brand, not only can retailers achieve better profits, they can also build customer loyalty.”

According to Brian, the idea that the strength of private labels generally varies with economic conditions is something of a myth. “It is true that during economic hard times, those consumers who are feeling the pinch in their wallets may seek alternatives to A-brands as a way to save money. But the fact is that the market share for private labels across Europe has been extraordinarily high for more than two decades and does not rely on bad economic times for growth.”

Continually expanding

Another illusion is that there is a distinct gap in the level of quality between private label and brand name products. “As a general rule, private label quality continues to grow and has become extremely high as retailers recognize that their consumers expect high quality. Are there some retailers who rely on low prices rather than quality to attract customers? Yes, but they are not representative of today’s major retailers.”

To keep private labels attractive to consumers, retailers need to constantly extend them into new areas. “Retailers expand into new and diverse categories to satisfy consumers and reflect new trends in products, tastes and performance. There is no textbook to help retailers introduce private labels. The simple answer is to commit to quality that is as good as or better than the A-brand, create attractive packaging, position the products at eye-level, and instruct employees about the quality and benefits of own brands so that they can convey that message to consumers.” 

The need to innovate

Brian believes that a private label is important to pet retailers in the same way as it is important to supermarkets and hypermarkets in general. “Private labels allow the retailer to develop their own assortment, demonstrate to consumers that this is the place for them to shop, and build customer loyalty. Reliance on A-brands in pet products simply doesn’t accomplish that.”

In the pet trade, big retailers such as Fressnapf and Petsmart have driven private labels to high levels. They are in an extremely competitive environment where they compete with huge grocery stores and the fast-growing world of e-commerce. To keep up the pace, they need to innovate. “Every retailer is the best judge of their customer base and marketing strategy, so one cannot generalize,” says Brian. “High quality, creative assortment and responsiveness to consumers are the best methods to achieve success.”

Benefits and pitfalls

Brian has a clear opinion on the main benefits of private labels. “Here the textbook is very clear – higher margins, differentiation from competitors, consumer loyalty. On the other hand, the biggest pitfalls are the laziness of retailers with regard to quality, and a mistaken belief that consumers want a low price. A retailer that falls into these two traps almost guarantees that their private label will not succeed.”

The future

Brian thinks that the future of private label is clearly linked to the future of retailing. “As retailing evolves into a greater degree of e-commerce, private label will be reflected in the mix of products offered online. E-commerce is still in its infancy in grocery retailing. While Amazon has heralded a new era in shopping, the vast majority of shopping is still done at bricks-and-mortar. Clearly, retailers who operate stores will have to adapt to e-commerce as it grows more popular but it is still at the experimental stage. As bricks-and-mortar retailing evolves into stronger and larger mega retailers, private label will be an integral part of their offering to consumers.”