Is the consumer shifting to private brands? What is driving growth in the FMCG sector national brands or private brands?
No matter your philosophical views, capitalism rules the modern economy. Just as individual business owners enter the market with the aim of generating the greatest profit possible, consumers hope to maximize their spending power as well. This dynamic is most clearly seen in the fast-moving consumer goods sector, regarding the growing competition between national and private brands.
Any analysis of the growing competition between national brands and private brands must begin with defining these categories.
A national brand refers to a well-known label that is regularly carried in all/most retailers; examples of national brands include Pepsi for soft drinks and Charmin for toiletries. These brands are presumed to be of a higher quality, thus slightly more expensive.
A private brand refers to generic brands of products. Many store labels fall into this category, such as Safeway’s Town House labels. Consumers typically are hesitant of the quality of these lesser known commodities; therefore, these private brands must take measures such as offering the products at reduced costs compared to the national brands to attract consumers.
Recent events, such as raising food prices and the global economic downturn, have been significant influences in driving growth in private brands. When consumers are more conscious of their spending, they are more likely to try private brands.
Private label products have grown steadily in sales, and are even directly competing with national brands for market share. According to accounts from The Food Institute Report, total private brand sales have grown at an annual rate of 4.5 percent per year from 2003 through 2008. Much of this growth comes at the direct detriment to national brand sales, asserts the Food Industry Review.
Another factor driving growth for private brands lies in the changing attitudes and business tactics of individual retailers. Private brand sales have been found to often be more profitable than those of national brands; as a result, major chains have been putting more of an emphasis into bringing these brands to the marketplace. It has been reported that the growth of private brand purchases at Safeway has been outpacing national brands by a staggering ratio of three to one; similarly, one-third of the new items introduced at Kroger stores are private brand goods.
Retail vendors are increasingly using private brands as an approach to differentiate themselves from their direct competitors; by strengthening the quality and prestige of their private labels, these groups hope to gain a competitive advantage over other stores. In addition to the traditional flagship private brand names, i.e. generic store labels, many retailers and supermarkets are offering more premium brands, including organic products. These private label products, which are one time were considered inferior to national brands, are becoming more recognized as equals.
This increase in competitiveness between national and private brands appears to be leading toward greater market equilibrium. By this, this refers to greater equality in terms of quality and cost between national and private brands. While food prices are generally increasing across all sectors, the gap between the cost of national and private brands is diminishing. This will also lead to increases in advertising and promotional interaction for private brands.
National brands are not in dire straits. They will continue to be the leaders in the fast-moving consumer goods sector. However, their heights of supremacy have certainly taken a hit with the growth of private brand popularity. Look for this trend to continue for the next several years.
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