Industry Focus – Food Grocery Retail Market
Private labels vs National Brands – Skinning the Cat!
Even authorities in Europe and USA are more and more inclined to agree – Retailers are winning the century long sparring match between larger distributors and large retailers. In fact, the concept of inhouse retailer brands, or Private Labels, as they are sometimes called, were created initially partly to counter the power of national brands and their power in negotiations against retailers at the time.
Over time, and even more so recently, private brands have flourished and even taken over many national brands in their capacity to make a profit, being given the automatic advantage they get at the point of sale. One the one hand, consumer protection authorities looked at private labels as a good thing, since it countered the power of national brand and their power to raise prices indiscriminately, and on the other hand, it provided consumers with more choice.
Without the cost of research and advertising associated with creation of a new national brand, private labels were by definition cheaper to produce, and therefore valuable alternatives to the consumer.
With time, however, the power of retailers themselves has increased, and their power to fix all prices within their shelf space, and make sure that no product was normally every sold at a lower price than their private label which was normally strategically always placed close to the market leading product or at least between the leader and the second one, and the private label also having guaranteed prime shelf space area given to it – its climb into contributing a substantial part into the overall profit of retailers becomes obvious.
So much so, that consumer protection and competition authorities are slowly moving to reconsider their position on private labels, and more specially, based on manufacturer notifications, have been requested to consider the following concerns over time:
- Private labels are believed to increase buyer power of already powerful retailers;
- Private labels are believed to benefit unfairly Retailers perceived position as distributors and customers of branded goods;
- Private Labels are believed to give Supermarkets and retailers incentives to delist certain goods to limit competition;
- Private labels may reduce consumer welfare by limiting reduction in national brand prices and maintaining profits unrelated to the cost of the product;
To close if off, there is one fundamental issue with private labels – it shifts the position of supermarkets and retailers from one of retailer to one of competitor to the otherwise distributor or supplier of another product. Their relation, therefore becomes more complex as there is a risk of two competitors falling fowl of the competition legislation or exchanging sensitive information. In the European Union, there are exemptions which provide that if a party is a competitor as well as a downstream buyer, the relationship is considered a vertical one, and therefore the risk of a cartel is mitigated. In Mauritius it is a live one!!
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