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PRIVATE LABELS AND ITS IMPACT

It can be clearly seen that the entire 20th century belonged to the manufacturers of some of the branded items whereas the next decade (i.e. 21st century) is completely dominated by the products of private label brand. The customers in the present century have switched over to merchandises manufactured by the retailers which are known as private label products and more reluctant to buy branded products. In the present scenario the branded products are used by the people as a symbol of attraction, their look and style rather a necessary thing. Before a few years majority of the private label manufacturers were not so popular like the manufacturers of branded goods. This favored the makers of branded products to create an impact and this enabled them to rein supremacy in various channels. Because of this reason the retailers had no other option and were forced to accept the prices given by the customers. Things slowly started to change towards the end of the 20th century. Even though this was a slow transition, most of the private retailers were prepared to grow up in a better way. After this, the sellers have developed in a rapid way than their counterparts (i.e. branded manufacturers). Seeing the above situation, most of the retailers in the recent past pay more attention on labels which are made by private brands. According to the current stats, in the United States, private products occupy twenty percentages of the gross sales in the departmental stores and wholesale market. The sale of Private label products has increased considerably (from 12 percent to 34 percent) in all spheres like food also in non food products in Germany. In addition to the above, evolution of modern technologies have made the retailers to enhance the quality of their manufactured products, as a result of this these products can be found everywhere. The acceptance of these products can be seen evidently from the increasing market share of private food products which had less response in the previous years. This shows us that the retailers of private label brand products are developing than the overall market and in the near future the rising economy will turn into a war field for private label and branded manufacturers.

We cannot conclude that people do not like their favorite brands, but the main thing to consider is that their convenience in using these brands. In the current century which has witnessed series of recession, people are more concerned about their money and its value. Purchasing products of private label manufacturers is a perfect to save their money. This factor has paved for drastic development in this industry for the previous ten years. This kind of extraordinary developments of private label products in every aspect of our life is really laudable. These products have made the makers of branded items to reduce their costs, be creative and it can be known from the above facts that products of private label have a huge impact on the current trend.

rivate label describes products manufactured for sale under a specific retailers brand. They are often designed to compete against branded products, offering customers a cheaper alternative to national brands. Though the public generally used to see them as low-cost imitations of branded products, private labels have overcome this reputation and achieved significant growth in recent years. The most commonly known private label goods are the store brands sold by food retailers, though this is just one example of many. Department stores, electronics stores, and office supply retailers all offer private label products or services. Private labels offer several benefits to both retailers and customers, driving the segment's rising popularity. For retailers, margins on private label goods are an average of 10% higher than those on similar branded products. Customers benefit from private labels' lower prices, which are often significantly less than those of national brands. This combination, while beneficial to retailers and consumers, can put substantial pressure on the manufacturers of branded goods, who have to compete against their own customers (the retailers) for market share.

At Wal-Mart, brand name products share shelf space with pivate label products belonging to the retailer itself.

Impact of Private Label


Brand Loyalty

National brands are sold all over, so there's no real sense of brand loyalty in terms of where consumers buy them. Because private labels are unique to one retail chain, there is the possibility for retailers to cultivate a sense of brand loyalty. Though they used to be seen as knock-offs of "name brands", private labels have become increasingly more accepted by the public as quality has increased and retailers have expanded their offerings of private label goods. Many consumers now seriously consider private labels as acceptable alternatives to national brands. Retailers can capitalize on this shift in public perception by offering quality private label products, which can foster a feeling of brand loyalty. This can give retailers a significant advantage over competitors.

Largest private label categories, by % of 2006 volume share

Lower Prices/Higher Margins

Private label goods are generally much cheaper to produce than branded goods, due to the lack of advertising and marketing expenses. As such, retailers are able to purchase private label goods for much less than they would have to pay for comparable branded products. The cost difference is usually large enough that retailers

can offer customers lower prices while still making higher profit margins themselves. Lower prices can be enticing to customers and increase a stop on a product's way from the manufacturer to the consumer. Retailers are now becoming increasingly established as brands themselves, marketing their private label products as alternatives to national brands. This has resulted in a growing shift in the balance of power between retailers and manufacturers, with retailers not only becoming less dependent on manufacturers for product offerings but actually making manufacturers dependent on them for sales volume.

Who benefits from an increase in private label?

Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Costco (NYSE:COST), and other retailers for whom private label goods constitute a significant percentage of total sales. Stores such as these would benefit from the higher margins that private labels provide.

Whole Foods (NASDAQ:WFMI), Kroger (NYSE:KR), and other supermarkets with strong private labels could benefit from the further penetration of private label into the food retail industry.

Cott Corporation (NYSE:COT) is the largest manufacturer of retail-branded carbonated soft drinks in the U.S., producing 68% of all private label soda sold by U.S. retailers. Cott's largest customer is Wal-Mart, who accounted for 38% of total revenue in 2006. An increase in demand for private label soda could benefit Cott greatly, as its entire business is focused on this segment.

Who benefits from a decrease in private label?

The Coca-Cola Company (NYSE:KO), PepsiCo (NYSE:PEP), Procter and Gamble (NYSE:PG), and numerous other manufacturers of branded products could be harmed by a rise in private label's popularity. Some manufacturers have hedged their bets somewhat by beginning to produce private label goods as well as branded products. Examples include: Kraft Foods (NYSE:KFT), Nestle (VTX:NESN), Kimberly-Clark (NYSE:KMB), H.J. Heinz (NYSE:HNZ), Del Monte Foods (NYSE:DLM), and Unilever (NYSE:UL). By producing private label goods,

these companies would be somewhat less impacted by a decrease in demand for their branded products. Private labels, however, provide much lower margins than branded products, especially since these companies already cover R&D and marketing expenses for their existing products.