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The suggestion that Sainsbury’s is preparing to give greater emphasis to secondary branded products on its shelves (MW May 19) may well be evidence that it has reached saturation point in some of the categories where its own-label products dominate.
But more importantly, it is evidence of a thaw in relations between the supermarket chain and some of its suppliers 12 months after the civil war over copycat products ended in a fragile ceasefire. The arguments are still continuing behind closed doors but Sainsbury’s has been the last retailer to repair bridges with many of its suppliers.
Some argue that as a result, the retailer has been a significant loser despite returning group pre-tax profits of 808m in the year to March 11.
“Because of some of its senior managers, Sainsbury’s has alienated some suppliers in the past 18 months,” says one City retail analyst. “As a result, its rivals are in a better information stream and are being made aware of changes much earlier than Sainsbury’s and can therefore react much more quickly.
“There is reason to believe, from research provided by suppliers, that people are going to Sainsbury’s with the intention of buying a brand, have not been able to find it and have gone elsewhere to buy all their shopping. But the information has not been available to Sainsbury’s or has been slow in coming because of poor relations with the suppliers.”
This interpretation of events goes some way to explaining why Tesco has stolen a march on its main rival with its Clubcard loyalty scheme and other marketing-led initiatives. The key figure among the “senior managers” is Sainsbury deputy chairman and managing director Tom Vyner who has, in the eyes of some brand owners, taken on the form of devil incarnate as a result of his singleminded approach to the own-label crusade.
But in some categories, including detergents, penetration by own-label is estimated to be as high as 75 per cent, raising doubts about whether own-label has reached saturation point. That is why the idea that secondary brands such as Daz, Radion and Surf in the laundry detergents sector will be given more prominence at the expense of the blanket promotional activity given to the own-label Novon, which has absorbed 7m of investment in the past year.
The suggestion that Sainsbury’s will shift the promotional emphasis from own-label to secondary brands, in selected categories, came in a briefing note from the influential NatWest Securities analyst Tony MacNeary. He argues that the chain’s 55 per cent own-label penetration is becoming a problem because it reduces choice and alienates consumers faced with buying a premium-priced brand leader or an own-label alternative when they want something in-between.
“By restricting choice in big-brand categories including laundry detergent and almost eliminating second-line brands, consumers may possibly have been prompted to shop elsewhere,” said MacNeary’s note. “However, recent tests on ‘new low prices’ for brands could be the first signs that management recognises that own-label share may have gone a little too far.”
It is a view echoed by other retail analysts. “In some categories, own-label accounts for as much as 75 per cent. How far can the company push it before it runs the risk of alienating shoppers who have brand loyalty to Daz or Surf or a similar product?” enquires a Sainsbury’s watcher.
“One way is to get secondary brands on to the shelves. The big retailers are thinking of growing own-label in non-food areas where the margins are higher and it is logical to make this shift.”
But Sainsbury’s move should not be misinterpreted as a withdrawal from own-label. The retailer has more than 1,000 own-label products on the starting blocks either to regenerate existing own-label lines or enter new categories.
But that such a move is even being considered is an acceptance that Sainsbury’s has to redress the balance on its shelves. It is also the latest realisation that Sainsbury’s is losing its pre-eminent position and reputation for innovative marketing to Tesco.
Sainsbury’s denies that it is considering any shift in its strategy. Its only response to last week’s story was to reiterate that it is not withdrawing from its strategy of developing own-label.
If it takes the option of reintroducing some secondary brands in prominent positions to spice up its offer to consumers it will be the clearest sign yet that the residues of last summer’s bitter copycat war are finally being eradicated.