Spying on the Neighbors

May 14, 2009
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U.S. retailers of private label goods could stay comfortable during this stormy recession by hopping across the pond and learning a thing or two from what retailers overseas are doing with their private label programs.

Much like hopping across puddles on a dreary day, U.S. retailers of private label goods could stay comfortable during this stormy recession by hopping across the pond and learning a thing or two from what retailers overseas are doing with their private label programs. In fact, Thom Blischok, president of Consulting & Innovation for Chicago-based Information Resources Inc. (IRI), wrote in IRI’s “Times & Trends Special Report: U.S. & Europe Private Label 2008” that U.S. retailers historically have looked at European programs for inspiration in developing their own private label programs.

According to the Nielsen Co.’s (of New York) market share statistics from the Private Label Manufacturer Association’s (PLMA) PLMA 2008 International Private Label Yearbook, the European country enjoying the largest private label share is Switzerland, at 54 percent. The United Kingdom, Belgium, Germany, Spain and France followed, at 43 percent, 42 percent, 40 percent, 34 percent and 32 percent, respectively. The report says private label’s market share increased in each of the 11 countries Nielsen audited during that period compared to five years ago. Back then, private label volume had a share of 30 percent or more in only four countries.

Canada, too, has been a private label hot spot for some time. That’s no surprise - Canadian retailers learned a lot from European private label programs.

That ‘70s Scene

According to Tom Stephens, founder of the Canadian consulting firm Brand Strategy Consultants, modern private label traces its European roots to 1970s' France, where it was started on the basis of good-quality product in inexpensive packaging for consumers facing economic hardships. Hits pretty close to home today, doesn’t it? While the concept spread throughout other areas of Europe and was copied by Brampton, Ontario-based Canadian retailer Loblaws with its No Name brand concept, the United States chose to go a different route. (Although some early 20th century U.S. private label efforts were admirable - such as A&P's Eight O'Clock coffee.)

“They copied the packaging concept, but they went for a much lower-quality product, which meant the customers were getting upset with the product right from the get-go,” Stephens says. “Whereas in Canada, it followed the European trend, which was good quality - and of course, the customers were happy with that.”

Brian Sharoff, president of the New York-based PLMA, gets even more specific. He says Canada’s English-speaking retailers such as Loblaws modeled themselves after UK retailers such as Tesco and Sainsbury’s. Likewise, Canada’s French-speaking retailers modeled themselves after French retailers such as Carrefour and Casino to try to give themselves more of a French environment.

Same Game, Different Leagues

That said, Sharoff claims there is no such thing as “private label in Europe” - one must look at each country separately. And even though Canada might not stand on as high a pedestal as many European countries in terms of private label volume sales, the country is still far ahead of the United States’ private label game.

“I don’t put Canada in the same league with Europe,” Sharoff says. “If you’re talking about French Canada, and if you’re talking about Ontario, you do have some very important differences between the U.S. market and the Canadian market, which would explain [why Canada is] at 29 percent and [the United States is] at 22 percent.”

Sharoff explains that a major reason private label does so well in Canada and European countries is because unlike the United States, where consumers can choose among many shopping destinations, those countries generally have two or three dominant retail chains where consumers shop. The three top retailers in the UK - Tesco, Sainsbury’s and Asda - have more than 50 percent of the market.

“[In the United States,] people shop in big stores and small stores,” he points out. “They shop in chains; they shop at the local store where they buy their gasoline - it’s all over the lot. Nobody really has that kind of dominant situation.”

Koen de Jong, founder and director of the International Private Label Consult (IPLC) and author of the book Private Labels in Europe, views the situations in Europe and Canada in a similar manner.

He believes Canadian - and particularly European - retailers make a more serious effort to build the store as a brand.

“Unlike the situation in the U.S., retailers like Sobeys and Loblaws in Canada, Carrefour in France or Sainsbury’s in the UK have a nationwide presence, enabling the retailer to set up more sophisticated advertising and TV campaigns,” de Jong says.

And Stephens believes there’s no question this advertising is being driven by volume. The more you make from your store brands, the more you have to spend on advertising.

“That’s why Loblaw’s had an approach that said: ‘We’re going to market this stuff like crazy. We’re going to be on television every day,’” he says. “And they built the model with an inherent marketing cost built into it. But it required volume to do it - you cannot do this without volume because you just don’t have the money to spend.

This is something Stevens thinks the United States will see over the coming years as volumes build.

Get the Ball Rolling

Advertising is one way of getting one’s brand in front of consumers - brand expansion is another. As the economy soured during this recent downturn, European and Canadian retailers sweetened their private label offerings. They were quick to the punch in seeing where consumers were moving as their pocketbooks lightened, expanding store brands across the gamut - especially in the value tier.

Stephens sees incredible strength in this expansion. He believes it all is occurring out of an economic necessity that communicates a key message for the value tier: Retailers should not spend as much time on expanding the luxury end of their private label programs - they have to get their customers to realize that even at the value end, retailers can offer incredible savings.

For example: Last year, Tesco launched its new Discount Brands line - consisting of 350 products - and then expanded the line in February by adding 95 new products, saying it was looking to become “Britain’s biggest discounter.” According to PlanetRetail.net, the product line is the first Tesco line to be labeled without the Tesco brand name. The offerings compete against those from German discounters ALDI and Lidl.

de Jong says this value trend is a big deal overseas, where consumers place strong trust in a retailer’s brand.

“In Europe, almost without exception, retailers use the store banner to endorse their private labels,” he says. “They actually print the name of the store on the pack. This is clearly different from the situation in North America where private labels are, in many cases, fancy labels that are owned by the retailer, but do not refer to the retailers’ branded store name.”

Strong potential exists for U.S. retailers in further expanding their private label market share by endorsing their products with their retail banner, according to de Jong. He thinks it would help retailers better connect with their shoppers. It also would leverage on the store brand image.

A 'Lidl Bit' Goes a Long Way

Other European and Canadian retailers also appear to be learning from German discounters such as ALDI and Lidl:

• In September 2008, Sainsbury’s launched its Switch & Save campaign, which encourages shoppers to switch from national brands to the store’s brand (which offers 15,000 products). In March, the company reported its fastest quarterly sales growth in two years after the retailer added products under its store brand.

• Also in March, UK retailer Waitrose launched essential Waitrose, a range of more than 1,400 products comprising staple grocery items with both high quality and lower prices.

• Carrefour says it will launch its Carrefour Discount product line at the end of this month. The line will consist of more than 400 food and non-food items, including household goods and personal care products. The retailer guarantees the products will be sold at competitive prices without sacrificing quality standards.

Canada’s Financial Post says Toronto-based Canadian retailer Shoppers Drug Mart, Canada’s leading drug chain, posted 19 consecutive quarters of profit. CEO Jurgen Schreiber told the publication that it has been using a two-pronged strategy to keep revenue increasing and margins intact - introducing new private label brands and holding fewer, but more dramatic promotions with big savings for wary customers.

“We certainly said that the low tier has seen a lot of expansion in the last couple of months across Europe,” Stephens says.

Stephens also says the low tier is seeing plenty of expansion in Canada, too - Loblaws revamped No Name’s packaging and is massively promoting the brand, and Metro just announced that 1,500 SKUs were added to its new programs, and 3,000 more will be launched before the end of 2009.

Can't Condone Value Alone

Although the breadth of these value line launches makes the Ride of the Valkyries look like a raid of paper airplanes, it takes more than value and size to sell a store brand. These retailers must differentiate their value tier store brands from the national brand, especially since consumers aren’t just looking for the cheaper alternative sitting next to the pricier national brand. According to de Jong, they’re looking for innovation, not a copycat.

“It should no longer be ‘me too,’ but ‘me first,’” he says.

In his book Private Labels in Europe, de Jong says private label products simply were cheap imitations of leading brands in their early days in Europe. And apart from offering a lower price, value imitations don’t add to consumer choice.

Doron Levy, president of Toronto-based Captus Business Consulting, agrees. Although in the early days of private label it was common to imitate the product and packaging of the national brands, he argues that this should be avoided today.

“In the past, [Canadian] private label products - especially in health and beauty - would often have the same color or similar design to their national brand equivalent,” he says. “Nowadays, house brands are taking on their own presence.”

He holds up Shoppers Drug Mart’s Life and Loblaws’ No Name brands - which have color schemes and packaging that don’t resemble national brand counter parts - as examples. Still, Levy argues, the product must be much more than affordable and nicely packaged.

“Customers are looking for much more than ‘alternate packaging’ - there has to be something more to get them to buy,” he says.

Venturing into the Unknown

Levy says Canadian retailers are offering this “something more” by boldly going where private label hasn’t gone before - into categories such as organics, clothing, furniture and more.

“Retailers are moving into categories that never had any private label presence,” he says. “Loblaws has brought in its own line of clothing and seasonal products such as patio furniture and barbecues. Shoppers Drug Mart created a national brand for organics with its Nativa line.”

Shoppers Drug Mart says the Nativa store brand launch is the largest in the company’s history, and one of the most comprehensive in Canadian history, consisting of 170 products.

European retailers also are differentiating their brands with sub-brands. According to IRI’s “Times & Trends Special Report: U.S. & Europe Private Label 2008,” sub-branding has strongly boosted private label’s position in European markets.

The report lists three categories and each one’s subcategories (adapted from de Jong’s Private Label in Europe): Quality, under which fall Value, Regular and Premium; Health and Wellness, under which fall Health Claims, Free From, Functional Foods and Children’s Healthy Products; and Ethical, under which fall Organic and Fair Trade.

These sub-brands actually exist on shelves across Western Europe and Canada. On the organic side, for example, you’ll find sub-brands such as Sainsbury’s So Organic, Carrefour’s Bio U, Loblaws’ President’s Choice Organics and Lidl’s Bioness. For value, consumers have Asda’s Smart Price, Netherlands-based Albert Heijn’s Euroshopper and Belgium-based Delhaize’s 365. And health claims get attention with Tesco’s Wholefoods, Casino’s Ondilège and Canada-based Sobeys’ Compliments Balance, to name a few.

“These brands have become an everyday feature of consumers’ lives and, as a result, have earned loyalty,” de Jong says.

They Might Not Like Bush, But ...

Along with sub-branding, Sharoff also notes that positioning cuisine according to region is a popular European retailer practice. For example, French retailers like to show that private label entrees come from various regions of the country. One might come from the Normandy region, another from Alsace-Lorraine, and so on.

UK retailers also might market a regional product such as Yorkshire pudding. Sharoff also points out that there’s a little “Yankee flavor” showing up in some European store brands.

“A lot of Europeans, especially the young people, want to eat American,” he says. “So you might go into the retailer, and what you’re going to find is real American salad dressing. Or you might see American hamburgers. They may not like George Bush, but they like [American-style] pizza!”

This phenomenon is especially true with UK retailer sub-brands such as Asda American, which offers products such as potato wedges and jambalaya, and Tesco American Style, which offers products such as blueberry muffins, chocolate chip cookies and New York-style onion relish. Several individual products released around Europe show this “Western obsession,” both in pizza and beyond:

• Mintel’s Global New Products Database (GNPD)* reported that Spanish retailer El Corte Inglés released its Pizza Americana de Carne (American Meat Pizza), a frozen, pre-cooked pizza.

• GNPD also said Lidl released an American Caesar Dressing under its Mcennedy American Way brand. According to the manufacturer, it is made with buttermilk and grated hard cheese. It also is free from preservatives and colorings.

Finally, retailers are trying to convince customers they can “go green” and still save money with their store brands. Levy singles out Loblaws’ President’s Choice’s green line of household detergents, cleaners and disposable products - as well as Shoppers Drug Mart’s Bio-Life line of environmentally safe household products.

“Consumers are looking to help with environmental responsibility, but not at an increased cost,” he says. “[They] will make faster buying decisions when the green product is under the value house brand.”

IRI's Blischok also points out Tesco’s idea of labeling 20 of its own brand products with its Carbon Reduction Label. The label tells customers the amount of carbon dioxide and other greenhouse gases produced during the life of each product, including use and disposal.

“And you’re [also] seeing some of that in Canada with Loblaws,” he says. “They’re also doing a very good job [with] the packaging of products and positioning of products in the marketplace.”

He concludes that the reason private label in Europe and Canada outperforms the United States in terms of penetration is largely a matter of history - the European and Canadian programs are just much more mature. But he has high hopes for the future.

After all, a statement from the mother of ALDI founders Karl and Theo Albrecht - "The worse off the people are, the better off we are" - may have been aimed at the German brothers, but it resonates universally. PLB

Sidebar: Turn on the TV!

Canadian and European retailers don’t just settle for the Sunday paper to promote their goods - they come up with clever television commercials, too. According to Tom Stephens, founder of the Canadian consulting firm Brand Strategy Consultants, this isn’t something as commonly done by U.S. retailers.

“[This is] because [U.S. retailers] haven’t had the penetration to throw off the money,” he says. “You need the money. It’s marketing 101 in terms of if you want to be in the media, you’ve got to have money.”

Brian Sharoff, president of the Private Label Manufacturer’s Association, also believes the money these retailers are making from their private label stretches a little further in Canadian television advertising than it would in the United States.

“You can buy Montreal television for a fraction of what it costs to advertise in Chicago,” he says. “So it’s affordable.”

Sharoff also is quick to comment on how clever Canadian and European retailers’ store brand advertising is.

Does this prove that it is important to get excellent marketing personnel in one’s private label program? Quite possibly. According to Stephens, marketing is just as important as sourcing. And one thing European and Canadian retailers have done to position their store brands well is to bring in classically trained marketing professionals.

“You know, the [U.S.] private label buying department was not a place where you would put your highest-flying people into,” Stevens says.” “Private label is a combination of sourcing, quality assurance and branding and marketing. And you don’t find these people at the back of a grocery store unpacking the boxes in the receiving environment.”

Sainsbury’s and Tesco have been very active in advertising their store brands, especially on the food side, Sharoff adds. They’ve put a lot of money into clever advertising that even features celebrity chefs and famous actors.

If you don’t believe Sharoff, check out these YouTube.com videos to see some excellent marketing examples: 

• British celebrity chef Jamie Oliver teams up with UK retailer Sainsbury’s to show how you can “Feed Your Family for a Fiver” with the retailer’s store brand foods (www.youtube.com/watch?v=nqmnlHlxqD8).

 • A quiet office turns into a makeup party/parade for women with UK pharmaceutical retailer Boots’ No 7-brand makeup (www.youtube.com/watch?v=jfsaOEDXxUM).

 • An elegant woman doesn’t let a tossed cocktail on her F&F Affordable Elegance dress - exclusive to UK retailer Tesco - keep her from getting the last laugh after catching her guy cheating on her at a party (www.youtube.com/watch?v=9IxhtaGmRbA).

Sidebar: Can U.S. Retailers Go Small, Too?

The traditional U.S. supermarket has been admired as a place where consumers can find virtually anything and everything they need for their household. But with the economy suffering and consumers trying to save money and buy only necessary items, retailers are starting to realize that having the widest selection is not as important as having the right selection.

Can the European model - the small footprint store - be the answer? The concept already is picking up steam in the United States, notes Brian Sharoff, president of the New York-based Private Label Manufacturer’s Association - especially with retailers such as El-Segundo, Calif.-headquartered Fresh & Easy Neighborhood Market (from Tesco), Batavia, Ill.-based ALDI Inc., Rochester, N.Y.-based Wegmans and Cincinnati-headquartered Kroger.

“What do you think is all over the place in Europe?” Sharoff asks. “Delhaize has their small marketplace store, [and] the Germans are playing around with smaller stores.”

And although open, suburban areas can accommodate larger supermarkets, it’s not so easy to fit one in a smaller urban area, let alone on a nearby street corner.

“Everybody’s looking at the other, saying, ‘You know, we’ve been building up our retailing in the suburbs. We’ve got to find some way to make known who we are in the center city,’” Sharoff says. “And whether that center city is Düsseldorf or Portland doesn’t make any difference.”

But it might not be that simple. Tom Stephens, founder of the Canadian consulting firm Brand Strategy Consultants, believes it might take some time for U.S. consumers to turn toward this store model.

“Tesco’s Fresh & Easy has tried to achieve that, and most people seem to be observing that it’s not yet succeeded,” he says. “You know, it’s a pretty odd format for the U.S. customer to get their head around. It’s a very odd format - the packaging, the product mix, the look of the store - all of that is pretty foreign to the U.S. customer.”

Thom Blischok, president of Consulting & Innovation for the Chicago-based market research firm Information Resources Inc., believes Fresh & Easy’s European concept will catch on in the United States, though, much like the German ALDI concept is catching on.

“What could be applied differently?” he asks. “Probably [that] the American shopper needs to have a little more diversity that’s in those stores, but I believe Tesco will get it right as they move forward.”

And what if smaller-footprint U.S. retailers such as Fresh & Easy or ALDI were to market themselves as a “healthier alternative” to the traditional 120,000-square foot store?

According to an article in the March 2009 issue of Today’s Dietician, it’s not uncommon for European consumers to go grocery shopping almost every day - especially since it’s easy to find a smaller retailer in walking distance of one’s home. And since the consumer more likely will buy only what he needs for a meal, or for the next day or two, the “gluttony factor” no longer becomes an issue.

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