Own label versus brands war moves to new terrain

When Sainsbury’s first announced its plan to offer own-label products through village corner shops, it was quick to deny any intention to extend the scheme elsewhere.

But after being pressed repeatedly by the British Brands Group’s John Noble at Marketing Week’s recent conference on own label, David McNair, director of brand marketing at Sainsbury Supermarkets told a different story.

Noble asked if it was likely that own-label products would ever be sold widely outside Sainsbury’s stores? McNair’s eventual reply was a simple yes. Somerfield chocolate chip cookies are now sold in Amsterdam, he pointed out. Tesco peanut butter is available on the Costa Del Sol. “We have built brands that do not need to be confined to the four walls of a piece of property with the same name,” he added.

McNair’s statement confirmed Noble’s worst fears. The two main sources of competitive advantage manufacturer brands have against own label – universal availability and innovation – are now both under fire, he notes. Sainsbury’s statement tackles the first, and as the conference heard, retailers are also tackling the second. Thus, Smith & Nephew’s Duccio Baldi and Asda buyer Max Costantini argued that launching a retail brand is no different to launching a traditional brand, while Richard Stride, one of a growing number of product development managers at Tesco, waxed lyrical about its burgeoning new product development efforts. “Own label is moving into a completely new sphere,” says Noble. “Retailers are stepping up competition to an extra new level.”

Yet, at the same conference, we heard Taylor Nelson Sofres’ Stephan Buck declare confidently that own-label penetration has peaked. Retailers’ strategic hopes for own label – that it would marginalise the leading premium brands and generate store loyalty – had failed to materialise, he argued. Total own-label penetration has only been rising because of the late conversion of Asda and Kwik-Save. But in own-label pioneers, like Sainsbury’s, it is actually falling.

Sainsbury’s new attitude to own label was stunningly confirmed by a revelation from McNair. Remember the confrontation between Coca-Cola and Sainsbury’s Classic when the ownlabel upstart decimated Coke’s market share and triggered a huge lookalike row? It was a pyrrhic victory. “Classic Cola was a watershed for Sainsbury’s,” admits McNair. “It did significantly bite into Coke’s market share, but Sainsbury’s lost share of the total cola market. So now we sit down with Coca-Cola to design our cola, so that it is complementary, and not cannibalistic to leading brands.”

What should we make of these contradictory signals? There is a simple explanation, and it has profound consequences for all retail suppliers, branded or own label, food or non-food. The retailers have discovered marketing and branding. Before, they saw own label as a means of grabbing a greater share of the supply chain. Their eyes were mainly directed backwards, up the supply chain, towards suppliers. Now, they’re firmly focused on their own customers, and building – and differentiating – their own overall brands.

Where manufacturer brands are able and willing to help them in this task, they will be embraced as partners. Where they cannot – or are unwilling – they will be brushed aside. This creates a new situation for suppliers. For a start, as Noble notes, it confirms own label as most manufacturers’ biggest competitor. But it also changes the form of the competition. Until recently, retailers had been making a major mistake about own label, says McNair. “It has taken a long time for us to realise that the role of own label is not just to offer the same quality at lower prices, but to give a choice of different qualities at different prices.” So complete own-label ranges, encompassing discount, standard and super premium variants, now fill the roles once taken by different manufacturer brands. And unless manufacturers can add something extra, they will have a struggle staying listed.

But, as Coke taught Sainsbury’s, they can add quite a lot. Consumers still look for powerful manufacturer brands. In instant coffees, for example, own label’s market share is declining as Nescafé expands across every possible variant. At the same time, however, the test of manufacturer added value is broadening out. What retailers really want is assistance in winning their own brand battles: Tesco versus Sainsbury’s versus Asda.

How on earth can a supplier that supplies all three help each one beat the hell out of the other? And why should it? One answer is that this is simply untenable. As BBG’s Noble argues, manufacturers cannot customise their offers for retailers without compromising their cost structures and their brands.

But there is another answer, as put forward by John McCracken of Price Waterhouse Cooper’s ECR centre of excellence in Utrecht. McCracken admits there is an “inherent conflict between manufacturers’ desire to simplify and consolidate and retailers’ demands that suppliers help them differentiate. But the conflict can be resolved if they work together in the right ways”, he insists. Manufacturers can align their assortments, promotions, new product development plans and distribution strategies “to the strategic vision of each retail customer”, by focusing on each retailer’s unique customer base and marketing strategy.

What’s more, the two sides can work together on a lot more than product offerings and category management. Manufacturers must understand how their particular brands and marketing initiatives can be tailored to help retailers differentiate shopping environments, customer service and marketing communications. By taking this much broader perspective, both sides can help each other enhance the value of their shared customers: “Customer value management is the opportunity and the challenge of the next decade.”

We are thus left contemplating a world where manufacturer brands increasingly tailor their appeal to Tesco or Sainsbury’s customers, depending on which store they’re in, while retail brands are increasingly sold outside their original retail stores. In other words, once-clear boundaries between the two beasts are blurring.

But then, as McNair remarked: “The brand distinction between manufacturers and retailers is not really a customer concept.”

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