Death of the brand?

The private label market in the GCC is still in its infancy but the signs are that it will grow significantly over the next few years. Key retailers like Spinneys (Home Choice) and Carrefour (Carrefour/ No 1) have already demonstrated that private labels have a significant role to play in the development of their business. The month that sees Dubai host a major private label trade show is an opportune moment to ask whether the creeping progress of the private label phenomena in the region spells trouble ahead for big brands.

What words spring to mind when one hears the words ‘private label'? How about ‘cheap', ‘low quality' and ‘inferior'? Not any more. These comments may have been appropriate when the private label concept first emerged but in today's cut-throat retail environment the game has changed dramatically.

For a start, the term ‘private label' no longer exists in the dictionary of many retailers who prefer to talk about ‘retailer brands'. With the battle for the hearts and minds of consumers becoming more challenging and costly retailers are increasingly seeing their own brand offerings as a key weapon and a critical part of their marketing mix to tempt consumers into their stores.

In the old days private label products were all about price with retailers offering their customers reasonable quality at low prices - the ‘value for money' platform. Private label also helped keep branded suppliers on their toes ensuring that pricing remained competitive while the threat of de-listings and reduced shelf space was used to secure better trading terms.

Today, retailers like the UK's Tesco have evolved their own brands to such an extent that it now offers different propositions including organic, healthy living and kids ranges, and a price segmentation strategy designed to appeal to all of its customers; Tesco Value is the no-frills, low cost proposition, Tesco is the mainstream range to compete with the brand leaders and Tesco Finest offers upmarket, best quality products priced at a premium to the leading brands.

The growth of private label can be directly linked to an increased concentration in the retail sector. As the biggest retailers become more dominant they exert greater influence on consumers using an own brand strategy as one way of differentiating themselves from their competition. This concentration is exactly what is happening in this region in key markets like the UAE and Saudi Arabia, so is this the beginning of the end for the mega brand?

The good news for brand owners and manufacturers' is that the answer to this question is almost certainly "no". However, the arrival of a significant private label sector will change the rules of the game and manufacturers who fail to adapt to the changing environment will almost certainly suffer declining profits or market share or, worse still, both.

The key to the ongoing, profitable existence of brands lies in the ability of brand owners to understand why consumers buy their products and also why they reject them in favour of private label. Despite the efforts of retailers to position their in-house offerings as having benefits beyond just price, the fact remains that most consumers, particularly in developing markets, see price as the main attraction (on average private label offerings are 31% cheaper than branded equivalents according to a global AC Nielsen survey).

The message to brand owners, therefore, is to focus their message on all the non-price related elements. Brands have heritage, offer comfort and reassurance where private label has more of a commodity image. Store brand tomato ketchup might be of high quality, but most people would probably see Heinz as the ketchup experts rather than their local grocery chain.

So the battle lines are drawn. Retailers in the region will do everything in their power to push private label as a driver of increased profit. Manufacturers will focus on brand equity and expertise to maintain and grow market share. And the good news for consumers is that this battle should give them more choice and better value for money.

Nick Pearson is managing director of Pearson Consulting.

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