The last year has changed the behavior of the consumer, who increasingly weighs the cost-benefit ratio in purchases. With quality equal to or even superior to the main brands and acquisition value up to 30% lower, private label products gain space in the American home. Yesterday was the best time to invest in your own brand, today we are going to explain why and show you why this is still the best time.
Why is private labeling the next step to grow?
Private label products are increasingly taking space in consumers’ shopping baskets. Products that were previously recognized only for low prices, today reach or exceed the quality of the main brands.
Since 2015, sales of private label products within the fast-moving consumer goods (FMCG) categories have grown by 14.3% in value and 15.8% in volume, outperforming the performance of branded products, which have grown by only 3.5% in volume and decreased by 3.7% in terms of value *.
Consumers are increasingly open to purchasing private label products. This is no accident. The economic downturn is one of the great drivers of the private label, since consumers start to weigh more the cost-benefit ratio.
For retailers already investing in private label products, the year was one of growth. Sales in dollars of own brands grew 12.7% and 9.7% in unit volume. National brands increased by 15% and 11.4%, respectively **. For those who do not yet invest, calm down! There is still time to surf the wave that is helping to stabilize and grow retail chains – from small to large ones.
What are the advantages of private label?
Competitive prices compared to major brands
What sets off the private label in relation to the main brands is profitability. This is by far the first and main factor. Private label products can cost up to 30% less than main brand products *** without losing the quality factor. This is possible because:
- The supermarket does not need to pay for advertising or the point of sale;
- There are no intermediaries in the purchase and sale relationship, and the supermarket owner deals directly with the supplier;
- Payment is only for the product and not for the combo; product + known brand.
This relationship is not a gain for the retail chain alone. Suppliers have their gain in establishing long-lasting relationships, with guaranteed increase in demand over time. And the supermarket also has its gain, by purchasing and reselling products with low prices and good profit margins.
Brand differentiation
When starting a private label relationship with a supplier, it is understood that the construction of that brand is only for the supermarket chain that made the acquisition. This relationship is signed with a confidentiality agreement, which will guarantee the differentiation of the brand.
An important tip from our experts is the choice of brands that can be easily linked to the product being sold. Don’t just focus on putting the retailer’s logo on all products. Create visual identities and brands for each of the products; this will bring the feeling of buying different and new products.
For this to work, it is necessary to choose the right supplier who will be able to meet all the prerequisites. See what the chosen supplier needs to offer:
- Capable of providing cost-effective quality;
- Team of designers who will be able to identify market need and relationship with the brand.
Customer loyalty
Customer loyalty is the combination of two benefits: Brand differentiation and price competitiveness. If the correct choice of supplier, brand and product has been made, the customer’s return to the supermarket is part of the process. Carrefour is one of the large retail chains that we can take as a base – today 44% of customers buy any of the eight thousand products with the supermarket’s brand. The network’s commercial director made the following statement ****:
“The idea is to always evolve on this issue and that the packaging of the private label passes to the consumer what we have as a differential for the consumer, what are the differentials. The ideal is to make sure that we are able to retain this customer, and that he does not go to another retailer.”
But remember! When choosing a private label, the first challenge is to overcome the initial distrust of the consumer. During economic downturns, the acquisition of private labels is a natural process. Outside these periods, a strategy is needed to convince the customer that it is a good choice, despite the low price. The advantage of the private label is that it is only necessary to cross this barrier once. After the first purchase, the process of purchasing from your own brand becomes automatic due to the cost benefit.
Increased profit margin
Last but not least, one of the immediate benefits of the private label is in increasing the profit margin of the product being sold under that brand. By investing in its own brand, the retailer manages to invest in the manufacture of this product without having to hire a specialized team and pay for the machinery. Leaving the concern for quality to specialist companies and enjoying all the advantages listed at low cost.
Step-by-step: What it takes to start your own brand
To start your own brand, you must first look inside: Is my supermarket today organized enough to deal with suppliers of this size and to manage my own brand? If the answer is yes, check in step by step how to start your own brand.
- Internal control;
First and foremost, it is necessary to have your feet on the ground when defining the ability to handle the management of your own brand. Usually, your supplier will be in another country. Is your business prepared to deal with this relationship?
Stay tuned! This is the most important part. The choice of the supplier is what will define the greatest part of the success of this endeavor. Benchmark, talk to other entrepreneurs in the retail chain industry, search for referrals, see websites of trusted suppliers. The important thing is not to rush this decision and choose the ambitious price and quality.
- Choosing a brand that is understood and accepted by customers;
Above we recommend how to choose a supplier with a team of designers, don’t you? And this is where that choice is useful to us. You understand the market, they understand how to embellish it in a package. The important thing is that the end result is easy to be identified and accepted by customers.
- Strategy to add value to products.
All this effort is of no use if, in the end, there is no strategy to add value and overcome the initial barrier of mistrust. Some strategy tips are: discounts, strategic locations within the store, gifts… The important thing is to boost the first purchase.
Is private label the only possible path?
The future seems as clear as a summer sky for those looking to invest in their own brand, there’s no doubt in that. But would that be the only way? We mentioned above the retail chain Carrefour, and if we went to the letter, Carrefour works with two forms of its own brand: the one that takes the name of the company (the one with the highest value) and the one that is “unknown” (the one with the lowest value). And in both cases they are successful!
So, if your goal is to consolidate the brand of your supermarket chain and bring your customers’ loyalty to another level – beyond the price, see this golden tip:
Are you ready to start your brand? Here's our bonus tip!
- References in the market;
- Free samples;
- Support throughout the process.
Contact our consultants and learn more about our private label options!
Check our sources:
– Kantar, Worldpanel FMCG & NIELSEN
- April 5, 2021
- 9:00 am
- 2 Comments
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