Private Label the journey so far

By Rose Swingler

Over the past decade, the UK has seen private label develop into an established and trusted entity. This market (including retailers own brand, private brand, own brand, retailer or store brand) is now one of the most developed examples in the world.
This piece tracks this phenomenon and considers retailing in other regions, North America in particular, which are seeking to emulate the trend. As is often the case, growth has not been, nor will be, without challenges. A range of industry experts have contributed an insight into the role and influence that data solutions have had on this growth and how they can help overcome the challenges and take advantage of the opportunities the market will inevitably be faced with.

Origins of private label To consider private label products as they are now in the UK is to think of extensive ranges of attractively packaged quality items, endorsed by enthusiastic celebrity chefs in expensive televised advertising campaigns. This is a far cry from the humble beginnings of the market. Tescos website suggests that the very first private label item to appear on their shelves was Tesco Tea which debuted in 1924. Subsequently, plainly packaged value private label items began appearing in stores countrywide. Generally these were basic commodities, such as paper products and household cleaners. This led to a perception that private label represented items which were cheaper and of a lower quality than the national branded alternative, a position happily maintained for decades. Following its appearance, private label share of UK supermarket sales remained relatively flat until the late 1970s and saw minor developments leading up to the early 1990s, before a period of rapid growth. Within Tesco, for example, private label held steady shares of 34% between 1984 and 1988, increasing to over 50% before the end of the century. As Dr Graham Swingler, industry consultant, recounted Around this time, in order to truly define the product, it seemed that there was exponential growth in the volume and level of the technical detail collected from the supply chain and assembled into finished specifications.

A safe business is also likely to be a profitable one. The growth of the UK private label market coincided with advancements in IT solutions, designed to simplify these demands on suppliers. As well as reacting to these needs, data solutions sought to offer retailers new technology to facilitate product development and simplify processes. More importantly, they provided due diligence to ensure the safety of products which bore the corporate name and identity. Geoff Brown, Technical Services Director at NSF-CMi Retail & Supply Chain pointed out, "Today's food businesses cannot afford to take risks in food safety. It is not surprising that identifying hazards and managing significant risks continues to be a priority. Food business managers are responsible for ensuring that standards are maintained, that their establishments meet legal requirements and that they pass local authority and/or government compliance inspections. Ultimately, a safe business is also likely to be a profitable one".

The UK private label supply chain requires a sophisticated framework of two-way communication and understanding between retailer and supplier. The leading product used by the majority of UK retailers is Creations, the brainchild of the team at MICROS Retail Supply Chain. These specialised applications are used by many of the worlds leading retail, food-service, wholesale and manufacturing businesses to bring their products to market quickly and safely. Nottingham based MICROS RSC, previously operating under the guises of Ramesys and later RedSky IT, have a heritage in enterprise management systems within the manufacturing community. They initiated the development of supply chain information management solutions in 1997. After two years of research and development, the first generation "ProdSpec" solution was launched. A reaction to the increasing demand for information relating to private label items, the solution allowed technical teams across the industry to build and submit specifications in a consistent and easily managed way.

The benefits of the supply chain solutions MICROS were offering did not go unrecognised by major UK retailers. Tesco approached MICROS and in 2001, following two years of research, the first collaborative retailer portal was released. The Creations brand has since grown and flourished. This second generation was well received, collecting awards and accolades whilst receiving 90% adoption, with an estimated 25,000 users worldwide.

Higher quality tiers Whereas household basics and cleaning products may have characterised the formative years of private label, many consumers associate the notion of private label with food, although there are now a vast number of non-food categories where private label is represented. Cosmetics, apparel and toys have seen extensive private label growth in recent years. Products in the private label market appear in one of three tiers which have developed chronologically in the UK, from basic or economy lines, through to better quality products, comparable to national brands and, ultimately, to a best or premium quality. These have contributed to the progressive growth of private label share and over time, their growth and development have become intertwined, which begs the question, did market growth demand tiers or conversely was it that the introduction of higher quality tiers pushed the sales of private label? The 1990s saw the private label market shift away from basic, economy or white label products, which represented cheaper purchases, typically discounted by 50-60% compared to the branded alternative. There was now a move towards a second phase, based initially on imitation.

The second phase, the better tier, heralded the introduction of private label ranges which, rather than aggressively under cutting their national brand peers, aimed to compete with them. The focus moved away from price, towards quality and value for money; the retail goal indicated here was to make private label items a competitive choice rather than a penny saver. This tier was typically offered at a 15% discount compared to their branded counter parts, the notion being to make them just as good. A major challenge for retailers launching better ranges within their private label brand is altering the perception of such ranges. In the UK, for example, the maturity of the market accounts for the fact that private label items are seen as a good alternative to established brand equivalents. The same is true in Latin America but less so elsewhere. The emergence of the better range was gradual and achieved by a number of methods: in essence, steps were taken to create a range of products priced competitively with the branded alternative but were of similar quality. Initially, there was a culture of imitation, whereby items were packaged in the same way as their branded competition. This positioning strategy initiated a change in the perception of private label products as consumers began to see them as a good choice rather than a cheaper alternative.

..... managed in the same way as a national brand As the tiers became established, the need for imitation was reduced and retailers promoted private label as a robust brand in its own right. One of the key aspects, highlighted by an observer from the North American food industry, was that private label in the UK is managed in the same way as a national brand and thereby allows retailers freedom for innovation and means that the brand, or the range of products, does not have a chance to become stagnant. The fact that retailers are not found to be resting on their laurels in the UK creates an exciting and competitive environment. The responsibility of having your name on an entire range means that knowing whos who within the supply chain is imperative. Increasingly there was recognition that internally developed systems were no longer fit-for-purpose UK adopters of tailor-made private label solutions such as Creations cited the ability to deliver high quality and freshness, through better product propositions. Moreover, the implementation of fully integrated product lifecycle management systems, presents the opportunity for administratively simple and efficient interaction with suppliers, whilst ensuring that product quality was not compromised. Retailers were now in a position to manage their brands and resources, thereby achieving clear visibility, ownership and accountability However, in a social climate where a single newspaper headline can manipulate and transform a minor event to a national crisis, it is important to be in control. The role of IT solutions in some retailers rapid response to the Sudan I scare of 2005 is a perfect example, which will be covered in more detail later. This was no longer a price issue but a quality one, the aim being to persuade consumers to choose private label items with a lower price and retain them on the merit of product quality.

Innovative product and package development Retailers using Creations are able to interrogate information gathered from suppliers and manufacturers; users have commented on the benefit of being able to identify sites with the capacity to realise new product innovation. The ability to identify suppliers with the capacity to give us unique products and be able to do it well rapidly and effectively is one which should not be underestimated in an industry as aggressive as food manufacture. This enabled the latest phase in the private label market development, which saw private label products, through innovative product and package development, move to a position superior to the national brand. The sourcing challenge, particularly for American retailers, is that once a manufacturer is working with one retailer they may be apprehensive about changing their methods to provide original items for a private label initiative with a different retailer. While the established retailer brand continues to provide ranges comparable to national brands, a move into premium items was the next initiative. Throughout the past decade, these ranges have seen strong growth and have aided market expansion, through diversification and brand segmentation into areas such as Fairtrade, organic, baby/children or healthy eating. The higher cost and quality allows retailers to create premium items for the more discerning customer. While product endorsement of celebrity chefs looks like an expensive marketing ploy, it has proved an important turning point for private label. If a popular television chef, such as Jamie Oliver, whose opinions on the virtues of organic or free range are well known, is using private label products, it must follow that the quality is high and consistently so. A lesson for Lloyd Grossman who was "devastated" after two children from the same family were treated in hospital for botulism poisoning from one of his Branded sauces, showing the risks associated with this strategy.

As trends come and go, equivalent and premium ranges have the flexibility to react, for example, products can boast reduced salt or fat. This diversification allows retailers to attract the more socially aware customer and respond to public demand for the next big thing. However, while it is clear that the private label market in the UK will grow and develop, the belief of those in the industry is that you cannot get to a position where the consumer is only faced with one private label option. North American retailers have also advocated this way of thinking. It has been suggested that gaining confidence in a private label brand must be gradual, as the customer does not like to feel like they do not have a choice. Pushing private label with too much zeal will give the customer the perception that they are having a range forced on them. After five years of measured growth, the Chinese private label market is now looking for acceleration. The intention, however, is not to follow the model of gaining trust slowly, as in Europe and North America. The Nielsen 2010 global online survey showed that the UK is one of five European countries where private label takes over 40% of the market share. This is estimated to be worth around $57billion (36bn), with the rest of the continent levelling around the 20% mark. Nor, it seems, has private label reached its peak; the market continues to flourish in the UK as retailers devise more innovative strategies for continued growth. The story in North America is very different, with an average US market share of 22%, worth $86.4billion (54.4bn), with Canada at 18% market share, valued at $11.4billion ($7bn). However, the range of penetration figures for different products is vast. Private label dairy products take a huge 40% market share, whilst alcoholic beverages struggle to reach 1%.

Private label growth a high priority The general consensus among those interviewed was that the United States market was light years behind the UK and the Canadian market held a middle ground between the two. With a high adoption rate for Creations in the UK and with US retailers starting to take private label seriously, MICROS RSC software caught the attention of retailers stateside. In North America, as previously mentioned, retailers are treating private label growth as a high priority. Tailored or customisable solutions, like Creations from MICROS RSC were selected because as slow as we are, we are still rather unique. Using a data solution grown in such an established market as the UK brings the additional benefit of painstakingly earned industry expertise. This level of experience is invaluable and a factor which has been crucial in the decision of North American retailers to choose Creations software over other solutions. Retailers also cited that their choice of provider was also dictated by fact that other solutions were just not as powerful on the development and design side. Installing a product suited to a developed market offers benefits but presents a challenge. It was made clear that the implementation of the product was not without difficulty, as the supply chain came to terms with retailers who required controlled and systematic information about the product which bears their name; although the outcome was a great reward. While it is clear that customer choices are paramount in terms of grocery shopping, brand loyalty is not always achieved by national brands. Quality and value for money remain central factors; a customer will pay more for something if they feel that it is worth it. One industry insider suggested that consumers will react to quality, both positively and negatively, particularly in the current economic climate. Shoppers are looking for a bargain; supermarkets react with offers and promotions.

It was suggested by a UK expert during an interview that during the recession retailers became even more aggressive in their use of private label against manufacturers. Simply consider the plethora of comparison baskets which sprang up in the foyers of supermarkets up and down the British Isles. This tactic was adopted brazenly by Publix in Florida leading with the line buy theirs, get ours free, daring their customers to take the test: we are as good as or better than the national brand. The inference being were cheaper. Regardless of price, if the item is not good quality, it offers no value. For the North American market, reliable quality products are the key to winning over the consumer. Customers are smart, they will try new things but it has to be good is the general consensus among North American retailers. The recession has offered private label an interesting opportunity with retailers worldwide. In the interest of saving money, many customers have turned to private label. China, for example, has seen a 25% growth in private label sales. Where the products bought are of a consistently high quality, there is every reason for consumers to continue choosing these items after the recession. In Europe, this quality is recognised; other regions have yet to reach a point of consolidation. Quality must be measured across the supply chain, whilst in the UK, systems are in place that allow retailers to monitor suppliers, the relationship in North America is not as established. To secure a private brand contact with a large retailer in the UK is desirable and lucrative, however this could become the golden handcuffs category. The power wielded by UK retailers means that they are in a position to demand exclusivity. In North America manufacturers are more concerned with establishing their own brand rather than wishing to operate under a retailers brand. This argument serves to highlight a darker side of the private label contract, where smaller manufacturers, especially, become reliant on their retail orders; and are exposed to the loss of business.

Brand protection Proudly emblazoning products with your name is fantastic for creating a brand identity until, unfortunately, it goes wrong. While private label was being channelled through stores under pseudo-brands it was very easy to deal with a contamination issue by just simply making the brand disappear. This is not so easy when it is a store brand. The retailer name implies endorsement of the item and assurances of its quality. In the race to secure customer loyalty brand protection is vital. In the UK, the publics willingness to believe anything it sees or hears in the media can be just as damaging to a brand. The effects of scaremongering can be devastating for the target. Paul Woodward, MD at MICROS RSC makes the point that the media has become fully aware that retailers world-wide are making millions out of private label. Because of this, it certainly makes sense to protect the brand as much as you can. The previously mentioned Sudan I episode is a particularly good example of the power of the media and also of the importance of having a system in place to guard against the consequences of such contamination. Leading up to the major recall in 2005, adulterated chilli powder found its way into the EU, in spite of restrictions on the use of the Sudan I dye.

chain; items with potential contamination were quickly singled out for recall. The cost of damage limitation following an incident involving a product extends much further than the financial repercussions of compensation. The 2008 USA peanut butter salmonella contamination, which affected over 3,900 products and caused illness in about 700 people, with 9 possibly related deaths, resulted in bankruptcy proceedings against the manufacturer. However, even when financial equilibrium is re-established, brand reputation and consumer confidence are much harder to rebuild. For a single product, this may be damaging; for an entire brand and by extension the retailer, losses could prove catastrophic. It is estimated that it takes between five and ten years to regain lost consumer trust.

The UK Food Standards agency issued a statement immediately, reassuring the public that, although Sudan I could contribute to an increased risk of cancer and it is not possible to identify a safe level or to quantify the risk, at the levels present in these food products the risk is likely to be very small. In spite of this, headlines regarding the cancer causing contaminant raged. One newspaper very quickly published the complete updated danger list. The only option was for retailers to react in a rapid and decisive way, by recalling hundreds of products. This was possibly an overreaction but as a PR exercise, something which was absolutely necessary. Those best equipped to respond to the Sudan I contaminations were the retailers with IT solutions in place. Computer Weekly commented, Wal-Mart owned Asda used a collaborative product tracking system it codeveloped with IT services firm [MICROS RSC] in 2001 to speedily withdraw products. The collaborative data system in place allowed ingredients to be tracked through the supply

Reliable data Unfortunately this kind of incident is not always preventable, customers may accept this but expect measures to be taken to mitigate the risk and crises are managed rapidly and effectively. One of the added benefits of collaborative IT solutions is that products with mislabelled allergens, or similar, can be quickly and quietly recalled, before they reach the customer. Appropriate preventative measures implemented throughout the supply chain can then be monitored by retailers. With the use of IT trace and tracking systems, recall can be achieved before product reaches the shelf. In the US, a branded, or private label, food product recall is almost a daily occurrence; due primarily to either microbiological contamination or the presence of undeclared (allergenic) ingredients. USDA Food Safety & Inspection Service notice 35-11 identified In many of these cases, the recalls were a result of a change in product formulation by an establishment or a change in a suppliers ingredients that had gone unnoticed on its labels.

This reinforces the need for a reliable, IT based, system for the collection, validation and generation of label information. UK retailers had long recognised the need to eliminate challenges generated by uncontrolled product changes (either intentional, or otherwise) and consequent errors in artwork management. The latest version of myCreations is described by MD Paul Woodward as a comprehensive and integrated suite of applications designed specifically for retail, food service and manufacturing businesses to develop and protect their brands, manage their suppliers and ensure full end to end product lifecycle management. MICROS is planning to launch further modules into the range, covering the management of artwork / digital assets, quality tests, formulation, market analysis, customer interaction, sourcing, consumer care and consumer product catalogues. A major issue for retailers and, by association, manufacturers, is the increasing drive for more exotic and unusual food, which is fast, foreign and fun. This falls under the remit of product

development and innovation and presents a risk for retailers operating in the age of health and safety first. Advances in technology and travel mean that you can immediately contact colleagues on the other side of the world and physically be there within a day. The fact that a curry is now considered a traditional British dish is an illustration of how diverse tastes have become. Customers want food from the outer reaches of the globe but still need to feel confident that what they are eating is high quality and safe. A huge benefit of IT solutions has been to allow an infrastructure to be in place, without stifling creativity. Retailers may use their systems to maintain constant vigilance on more high risk ingredients.

Working collaboratively IT solutions have been fundamental in supporting the growth of private label product ranges, from collaboration on product specifications and supplier audits through to linking creative design and artwork submission and approvals. One UK retailer has achieved control of their own digital assets through the implementation of the Creations integrated project management tool and artwork system provided by Micros. Ron Malloy, founder of the Design2Launch (D2L), collaborative digital workflow solution noted that, in addition to the underpinning accuracy of product information, more than ever, corporations are feeling the pressure to increase profitability through improved efficiencies, accuracy and increased speed-tomarket. Identifying the need for IT systems to provide the flexibility and control needed to implement efficient processes that improve brand consistency, visibility, speed and enhance communications for all marketing and packaging projects. Digital asset management solutions such as D2L provide a comprehensive portfolio to the packaging market. Working with private label brands, retailers and their providers can enhance brand value and drive shelf impact to help increase consumer lift.

Having a data system in place setting the standards that are expected, as well as logging the outcome of any audits, addresses many of the issues surrounding suppliers. The aim is to understand fully the supply chain. This is exactly what a system like MICROS RSC does. As put by an industry observer on American TV channel ABC7 News, Tescos Fresh and Easy has a computer system in Europe which tracks the who, what, when, where are why of every product in store. The understanding is that this system has the ability to prevent food borne outbreaks. If something does slip past the defences it is easy to pinpoint where and deal with it quickly. In North America, the implementation of data systems is, as stated previously, in its infancy. Users are reaping the benefit of a system which provides vital information across the whole spectrum of private label product development, which UK based companies have been able to utilise for a while. Having myCreations installed served to reveal flaws in the old system, with the added benefit of actually knowing who our suppliers are and where their sites are as more than one industry expert confirmed.

Furthermore, as one North American MICROS RSC user pointed out, once you can hold your folks accountable for the metrics, rugged individualism falls away. Essentially, when you know who is meant to be doing what, it is very easy to pinpoint the individuals who arent and deal with them accordingly. This could be something which helps North American retailers and, indeed, those in other growing markets, to develop the right relationships across the extended supply chain. It has been made clear by the contributors that private label will not and should not, for the sake of consumer choice, fully control the market. It is fair to say that private label could not exist without the competition of national brand Marks and Spencer are the only UK retailer to have returned from the point of being a purely own label organisation to make room on their shelves for established brand competition. So, as we reach a point of saturation in the UK, what is next for private label? Innovation will remain the key to keeping private label strong; development within the depth of product ranges and moving to a position of rapid response to new and emerging trends will be crucial.

Missed opportunity Due to its high level of development the UK market it is interesting to compare its attitude towards private label, with that held in growing regions, aiming to achieve European levels of penetration. Not only in North America, where it has been suggested that private label is one of the biggest missed opportunities but also in emerging economies. In contrast to the situation in North America, private label in Asia are a growth opportunity retailers cannot afford to ignore. In the case of China, set to become the worlds largest economy within the next twenty years, private label has had an understated history. While the potential of private label grocery is being recognised in North America, it is clear that reaching a strong position will take time. Following the announcement of Delhaize Group 4th Quarter 2010 results, CEO Pierre-Olivier Beckers, indicated, by the end of 2013 we plan that 35% of revenues will be generated from private brands. With the share currently around the 25% mark, just above the national average of 22%, this is quite a challenge. The company has a number of strategies to achieve its goal. One of these initiatives is the introduction of a new range of value line products. Not strictly following the trend in the UK of adopting the basic, better, best by focussing on establishing, what was in the UK, the first tier. If the customer base in North America is not ready to alter their perceptions on own label products, flooding a store with them would be pointless. Regardless of the desire of the retailer, it is clear that ultimately, both producers of private label and national brand are accountable to the consumer. Mintels research into private label food and drink consumers in the US (December 2010), suggested that 42% of consumers say private label is better than it was five years ago. This is reflected in the sales increase seen over the same time period, where the US market saw almost 14% growth to $86.4billion (54.4Bn) This is not the only strategy. According to others in the North American market, who have a similar goal in growing private label market share, it was suggested that the way forward would be to focus on creating products with consistent quality, a move towards the better tier. Another described innovation as an important factor in the reach for that illusive 35-40% point. This may not necessarily mean bringing exotic and new products to the consumer but rather doing something innovative with flavour or packaging. This sort of innovation is important during a recession, working for the customer without a lot of money. Essentially, the North American market has a clean slate from which to grow their private label market. It has also had the opportunity to watch the UK market strengthen and develop. One issue facing private label development throughout Asia has been consumer loyalty to the established national brands, which retailers must combat in order to build a strong private label brand. Nielsen global online survey indicated Asia Pacific as having the lowest overall perception rating for Private Label it was cited as being a poor alternative, having cheap looking packaging and not being suitable where quality matters.

Growth opportunity Nevertheless, the Asia-Pacific region is set to be the biggest growth region for private label. The tide is changing for the Asian market, as it is estimated 60% of consumers believe that private label is as good, if not better than the branded alternative. It should be noted that these figures include Australia and New Zealand, both of whom have a successful private label industry, with about a quarter market share and considerable brand loyalty. In other Asian areas, shoppers are starting to see the quality and value of private label, to such an extent that it is becoming a factor in choosing a supermarket. India, notoriously value conscious, looks to be another area for private label to flourish. The intention is to increase the offers provided to customers and push the visibility of private label items in store. However, in countries such as China and Thailand, where private label is less well established, products are being packaged as closely to the national brand as possible. This initiative was explored in the UK before private label was strong enough to compete as a brand. It attempts to reassure the consumer of a products quality by association or comparison to the national brand. While private label will surely succeed in China, there are a few fundamental issues to be dealt with. The sheer size of the country means that industry cannot work in the same way as it does in a small nation such as the UK. There are 236 million people in Northern China alone. In such a vast country where the top 5 retailers account for just 5% of the total market share, creating a robust private label across the whole of the country threatens to be problematic. From 2002 until now, for example, the number of convenience stores has increased by 2,300%. It is thought that modernisation and unification of stores will happen simultaneously, as stores react to consumer demands that many retailers may not be able to accommodate. At this point, it is probable that independent stores will start to decrease. In conclusion, as private label continues to grow and develop worldwide, industry experts acknowledge the positive role IT solutions have had and will continue to play in assisting retailers to locate suitable manufacturing partners and quickly and efficiently create appealing new products.

Contributors The author gratefully acknowledges the contribution made to this article, including: Geoff Brown Martin Hall Paul Heritage Derek Kirchner Ron Malloy Dr Molly McAdams Julie Powell Dr Graham Swingler Paul Woodward

Rose Swingler Rose Swingler is a London based writer, currently contributing to IDOL magazine and freelancing for other fashion based websites. Having graduated in English Literature from Royal Holloway, University of London she is now spending a semester of her Masters studying International Marketing Communications at the ESCEM Business School, Poitiers, France. Currently engaged in writing a thesis on the subject of the globalisation of brands, Rose's experience in retail and fashion has led to her interest in brand leadership and development.

Other sources of information include: A Global Guide to the Rise of Private Label brands, Interbrand Nielsen Global Private Label Report 2010 PLMAs 2010 Private Label Yearbook, (based on data from The Nielsen Company) Research and Markets: Private Label In China 2010 The Co-operative Select Creations to Support Growth of Private Label Brands Micros Success Story Waitrose Selects Micros for Integrated Supplier Collaboration Portal