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Opportunities for Action

C O N S U M E R M A R K E T S

The Relentless Advance of sonal care. Within these categories, private label
has ventured into both the mass-market and pre-
Private Label: Strategies to mium-price segments, which were once the
Compete exclusive domain of manufacturer brands. Now
retailers, along with their ROBs, are expanding
into convenience and online stores—formats that
previously were havens for manufacturer
Consumer goods companies face a challenge brands.
that is getting bigger every year. In grocery mar-
kets around the world, private-label products As the shelf space devoted to manufacturer
continue to g ain share of shelf space and brands continues to decline and as the introduc-
consumption. In the face of this persistent tion of lower-priced private-label alternatives
advance, the retreat of manufacturer brands reduces prices within categories, manufacturers
seems inevitable. But it isn’t. The growth of are now arguing that such competition may not
private label has served as a catalyst for con- be fair. That debate misses the point. Retailers
sumer goods companies to reevaluate how and are expanding their own brands and will contin-
where they compete. Many are fighting back— ue to do so for two good reasons: they have the
and winning. capabilities, and they have the incentives.

The Progress of Private Label Retailers’ Capabilities. Private label offers eco-
nomic advantages over manufacturer brands
Branded consumer-goods companies have long that large retailers can exploit to provide more
recognized private-label products as a potential value to customers. Private-label products typi-
threat. Most now view them as serious competi- cally require less than 2 percent of sales to be
tors, particularly when they take the form of spent on marketing, whereas manufacturer
retailer own brands (ROBs): private-label products brands spend 10 to 40 percent of sales. Lower
marketed under the brand names of retailers. costs allow for lower prices on products of simi-
Nonetheless, the increasing pace, scope, and lar quality. Large retailers are also able to access
depth of private-label growth have surprised
many industry players.
Private Label Continues to Develop as Retailers
Grow in Scale and Sophistication
Virtually every household in Europe and North
America purchases ROBs and other private-label Increase in Private Label and
Retailer Concentration, 1990–2005
products. In the most developed markets for
Private 50
ROBs—the United Kingdom, for example—pri- label’s
vate lab el now accounts for more than 4 0 share of United Kingdom
grocery 40 Switzerland
percent of total grocery sales. Private-label pene- sales (%)
Netherlands
30
tration in other countries is climbing to similar Germany Belgium
levels as retailers gain scale and sophistication. 20 United States
France
(See the exhibit at right.) In many countries, this 10 Italy Spain
growth is increasingly broad based. Over the
0
past few years, private-label brands have entered 20 40 60 80 100
and won share in more and more grocery cate- Top five retailers’ share of grocery sales (%)

gories, advancing from fresh foods to packaged SOURCES: IRI Europe/Europanel; M&M; Euromonitor; ACNielsen;
foods and beverages to household goods to per- PLMA; BCG analysis.

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Opportunities for Action
C O N S U M E R M A R K E T S

T H E R E L E N T L E S S A D V A N C E O F P R I V A T E L A B E L : S T R A T E G I E S T O C O M P E T E

a well-developed manufacturing supply base for momentum in terms of increased scale and capa-
private-label products—one that is increasingly bilities. And third, as national retail markets con-
competitive with brand manufacturers in scale, tinue to consolidate and the competition among
technology, innovation, and overhead. them intensifies, retailers have an even greater
incentive to develop ROBs.
In addition, large retailers have learned to create
trusted ROBs, which serve as umbrella brands All this points to a challenging future for manu-
for their private-label offerings. The most sophis- facturer brands. Private-label penetration in less
ticated ROB players are beginning to use two developed ROB markets will reach levels seen
capabilities to out-innovate branded manufactur- today in the most developed markets. Likewise,
ers. The first is their understanding of con- market share in less penetrated categories will
sumers. Many retailers’ research and loyalty pro- grow to levels seen in today’s more penetrated
grams match those of branded manufacturers in ones. And private label will continue to encroach
generating insights into consumers and cus- on higher-price segments and extend into more
tomers. The second is agility. More and more and more channels.
retailers use their store networks and real-time
sales data to test and adapt innovations from The Resistance of Manufacturer Brands
their private-label suppliers faster than branded
manufacturers can. Most consumers would be hard-pressed to tell
you how manufacturer brands, as a group, differ
Retailers’ Incentives. In a maturing, consolidat- from ROBs. From a shopper’s perspective, they
ing market, retailers have strong incentives to are simply competing brands on a shelf. To halt
use RO Bs to compete. Not only do RO Bs the growth of private label, therefore, consumer
improve their price competitiveness, they also goods companies must compete more effectively
allow retailers to differentiate themselves for total category leadership. Some companies
from their rivals—in ways that go beyond lower- are recognizing this challenge as an opportunity
ing prices on branded goods that are identical to reconsider how they can create and sustain
across stores. What’s more, as opportunities for competitive advantage over private-label and
growth through store expansion and share gain other brands.
diminish because of consolidation, ROBs can
generate continued marg in g rowth—either There are almost as many strategies for compet-
through sales of ROB products themselves or ing in groceries as there are product categories.
from manufacturer brands’ competition for However, companies that are sustaining category
reduced shelf space. leadership and keeping private label at bay share
three approaches. First, they explicitly manage
The conditions that encourage private-label for leadership of the total —broadly defined—cat-
growth are intensifying on a number of fronts. egory, covering all major segments in terms of
First, the ability of retailers to market ROBs is demographics, usage, occasion, benefits, and
rapidly improving as they learn about market price with their portfolio of brands. Second, they
segmentation and branding from their more create brand advantage by investing in genuinely
sophisticated competitors. Second, as suppliers superior product performance, a continuous
of private-label products consolidate—either stream of innovations, sustained marketing sup-
through acquisitions or under ownership by pri- port, and pricing that is aligned with consumer
vate-equity houses—they are gaining their own value. Third, they create a business-system

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Opportunities for Action
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T H E R E L E N T L E S S A D V A N C E O F P R I V A T E L A B E L : S T R A T E G I E S T O C O M P E T E

advantage over ROBs by using their continental Creating Competitive Advantage for the
and global supply-chain scale to provide more Brands in the Category
SKU variety at lower cost for local consumers
and by extending their brands into nongrocery
channels. 1. Do consumers believe that the products and
innovations supporting our brands offer better
functional performance than those of our com-
Meeting the Challenge petitors? Do we have a technology advantage?
If we do, are we using it to deliver genuinely
In the past, most manufacturer brands were able superior products? If not, can we create such
to survive and grow by being competitive in one an advantage?
or two of the dimensions described above. As
ROBs intensify the challenge, that is no longer
sufficient. For branded companies to succeed, 2. Do we lead in bringing a continual stream of
they will need to have an advantage in all of the innovations to market? Are we creating excite-
dimensions. ment in the category and authority for our
brands—or are our competitors?
In working with many consumer-goods compa-
nies to achieve this goal, we have found it useful 3. Do consumers think that our prices align with
to pose three sets of questions regarding each product performance and brand strength?
category in each country market in order
to understand how competitive the business is
and where it should focus its efforts and invest- 4. Are we sustaining a competitive level of mar-
ments. Answering these questions has helped keting and promotional support for our brands
our clients assess their ability to manage for total given our relative share position, brand
category leadership, create advantage for their strength, and new-product launches in the
brands, and leverage their business-system capa- category?
bilities.
Leveraging Business-System Advantage
Managing for Total Category Leadership Across the Category

1. Do our brands and products cover all major


1. Do our SKUs offer consumers more relevant
usage and occasion segments in the consumer
choices than those of our competitors? Are our
repertoire? What is our share in those seg-
SKUs harder for private-label suppliers to imi-
ments? What is the share of private-label and
tate profitably? Do we offer profitable niches
brand competitors in those segments? How can
we fill the gaps? that increase the attractiveness of the category
for retailers?

2. Does our brand portfolio cover all major con-


sumer benefits and associated price segments in 2. Are we managing the scale of our continental
the category? What is our share in those seg- and global supply chains across countries to
ments? What is the share of our private-label provide greater in-country product and SKU
and brand competitors in those segments? variety at lower costs than ROBs and other
How can we fill the gaps? branded competitors can?

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Opportunities for Action
C O N S U M E R M A R K E T S

T H E R E L E N T L E S S A D V A N C E O F P R I V A T E L A B E L : S T R A T E G I E S T O C O M P E T E

3. Are we extending and deepening the coverage consumers. The momentum from that winning
of our major brands outside of the grocery proposition is draining sales and profits from
channels where ROBs are absent or weak, branded consumer-goods companies. But brand-
such as food-service, pharmacy, or impulse
ed companies have many weapons in their
channels?
arsenal. They have the freedom of strategy.
For the categories and countries in which a com-
pany is able to answer those questions with a Marcus Bokkerink
clear yes, the result is a low share of the market
Emile Gostelie
for private label and a high share for the compa-
ny relative to other branded manufacturers. For Sharon Marcil
categories and countries in which the company Eduard Ruijs
answers no to several of those questions, the Wouter-Jan Schouten
result is an increasing share for private label and
a low or declining one for the company.
Marcus Bokkerink is a vice president and director in the
We have found that a rigorous, fact-based review London office of The Boston Consulting Group. Emile
of the questions with top management produces Gostelie is a senior vice president and director in the
two opportunities to act. First, it creates a shared firm’s Amsterdam office. Sharon Marcil is a vice president
understanding of how and where in the portfolio and director in BCG’s Washington office. Eduard Ruijs
managers need to intervene—to increase competi-
is a manager in the firm’s London office. Wouter-Jan
tiveness against ROBs and other branded com-
petitors or to prevent rivals from encroaching. Schouten is a manager in the Amsterdam office.
Second, it shines a light on the company’s over-
all portfolio. It identifies those categories and
You may contact the authors by e-mail at:
countries in which the company is likely to
bokkerink.marcus@bcg.com
remain highly uncompetitive and vulnerable
against ROBs and other players—and those in gostelie.emile@bcg.com

which the company has a real advantage to build marcil.sharon@bcg.com


on. This understanding then becomes the basis ruijs.eduard@bcg.com
for a refocused portfolio strategy that specifies schouten.wouter-jan@bcg.com
where to invest from a position of advantage,
where to invest to build advantage, and where to
divest. To receive future publications in electronic form about this topic or
others, please visit our subscription Web site at www.bcg.com/subscribe.
* * *

Without a doubt, private label in general and © The Boston Consulting Group, Inc. 2007. All rights reserved. 4/07
ROBs in particular are generating attractive
revenues for retailers and added value for

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