In the fifth Retail Times and Euromonitor International Retail Spotlight, Jon Wright, head of retailing research at Euromonitor International, considers how the evolution in private label development will fuel growth in so-called venture brands in future
The continued development of private label has been taken a step further with the emergence of a growing number of venture brands (ie brands owned by retailers but which do not carry their name) at some of the world’s largest grocery retailers.
From private label to ‘private brand’
The rise of venture brands underlines grocers’ increasing belief they can establish and then build market leading brands, a point highlighted by Tesco’s chief executive, Phil Clarke, when he said: “With F&F clothing, Technika electricals, Go Cook kitchenware, Lighter Choices foods – we’ve shown we can build brands consumers trust. Now we are going to do more.”
The temptation for Tesco to develop venture brands derived initially from the fact, in certain product categories, consumers do not believe private label products offer the same quality as brands, even in a market like the UK where private label is generally well-liked. In categories such as ready meals, where product development has been driven by retailers, private label accounts for over 70% of value sales.
However, in other categories where brands have historically dominated or quality is a priority for consumers, like ice cream or baby food, private label has yet to account for the same high share of value sales.
A similar trend can be seen in other categories in which Tesco is introducing venture brands – Lathams and Nutricat in pet food, where private label accounted for 16% of value sales in 2010; and Halo in feminine hygiene, where private label held a 19% share in 2010. Removing the retailer’s name will give such ranges the opportunity to operate as brands and potentially attract consumers who would previously have been put off by these being private label products.
Venture brands also give grocers a point of difference from their competitors in they can build brands only they can market and sell. In an increasingly homogenised shopping environment, where price is becoming the only differentiating factor between retailers, the development of venture brands could give retailers an edge, making their store the only one where a consumer can purchase specific brands. In addition, if they are successful, given the lack of labelling, grocers could extend a brand’s presence into other retailers’ stores or geographies, as UK-based Waitrose has done with Duchy Originals and US-based Safeway with O Organics.
While there are opportunities grocers can exploit through the use of venture brands, such a strategy will force them to become brand owners and managers. This is a new skill set in some ways. Despite the steps they have taken in developing private label ranges, given the competitive pressures within grocery retailing in 2012, such as fragmented shopping patterns, internet retailing, the shrinking importance of hypermarkets in developed countries etc, many will question whether investing time and money in venture brands is a sensible strategy.
However, grocers’ desire and need to maintain loyalty and drive footfall is likely to trump any concerns that may exist in the short to medium term. As such, the increasingly competitive environment is likely to encourage retailers to investigate the opportunities provided by venture brands. As such, in future, consumers are likely to see the emergence of more, rather than fewer, new brands on grocers’ shelves.