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Private Label Brands are the biggest threat to FMCG companies

Aperio FMCG ConsultingPrivate Label Brands are the biggest threat to FMCG companies

By Michael Wood, Director of Aperio, a business consulting company focused on accelerating growth of FMCG brands in South Africa and Sub-Saharan Africa.

Private label brands are no longer a cheap alternative to the FMCG category, they have evolved into exclusive trusted brands that retailers have created, which keep consumers returning to their stores. As a result private labelling has become a major threat to FMCG brands that now have to differentiate their brand benefits even more strongly.

According to Dina Myers, director and co-founder of Aperio, a business consulting company focused on accelerating growth of FMCG brands in South Africa and Sub-Saharan Africa, “Retailers used to offer private label brands as a cheap offering to increase their margins. While they increased their margins, the overall value of the category shrunk.”

“Retailers moved away from providing only private label products that are cheap and created or partnered to provide brands that stand for something unique,” says Myers.

Many retailers have developed tiered brands catering to different consumer’s needs. For example in South Africa Pick n Pay offers a variety of private label brands including No Name, a basic range for those on a budget; Finest, a premium range carefully selected at the most authentic sources; Organic, a range that is certified organic and food safe; and Green, an environmentally responsible alternative to chemical cleaning products.

Retailers including forecourts have also entered into partnerships to build their overall brand. Myers cites Caltex locally with Seattle coffee shops and their partnership with Food Lover’s Market for the Fresh Stop range; and Sainsbury’s in the UK with Jamie Oliver. These unique product offerings build loyalty and ensure consumers come to the store to buy their products, and whilst they are there, consumers often complete their shop. Woolworths SA has many great examples and the exclusive and unique Chuckles range is just one example of where consumers say they often enter a store to purchase this product.

Some retailers are going even further and are buying companies and brands that they own, for example in Australia Woolworths bought out the organic brand Macro which has now become the retailer’s biggest margin maker.

One of the biggest trends is for private label brands to become indistinguishable from traditional brands, for example Reflets de France from the retailer Carrefour. It looks like a brand, offers a quality product and at much better value. Retail brands are so sophisticated you think they are an actual brand. Terre Di Italia is another brand which is locally positioned and there is now a store that only sells that label.

“The danger for FMCG brands is that consumers originally saw private label brands as cheap, but now they are trusting retailers to bring them quality brands,” explains Myers. “Retailers are actually building trust better than FMCG brands can because they get higher visibility in store, more shelf space, knowledge of promotional programmes, which means they can be more competitive. This is a major threat to other FMCG brands.”

According to Myers what this means for FMCG brands is that marketers have to provide a more relevant benefit and differentiate this benefit very strongly in their communications if they are to compete. Brands have also reacted by increasing their product offering in by introducing basic ranges to cater for all consumers. There are some good examples from Pampers, Huggies, and Danone, who have created a value yoghurt range in collaboration with Shoprite.

Myers offers some tips for FMCG brands to compete:

Innovation. Brands must continually innovate based on their consumer needs to build trust and keep their consumers loyal. Brands that bring news about innovation will retain their base.

Value for money. You have to offer value for money to compete against private label brands. Brands also need to ask how they can add real value to the shopper.

Own consumer insights. If you understand your consumers you can target them in store more powerfully. This includes cross purchasing opportunities derived by analysing in-store consumer data; understand what is in the consideration set of a consumer and find ways to get into their consideration set. Marketers must answer the questions ‘How can I find opportunities to sample? What do consumers like me do? How can I win them over?’ to strongly differentiate themselves to win in store.

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