Private Label -The Customer influence

Feb 1, 2005

By Allan Breese

allan.breese@europanel.com

Private Label shares are very variable depending on a number of factors – for example, by category, by country and by retailer, there are some very good reasons for this:

l In some categories there is the presence of a very strong & well known brand, such as Coca Cola which can limit the private Label share

l The high customer acceptability of Private Label in countries such as the UK, resulting in one of the highest shares in Europe (second only to Switzerland)

l The focus of some retailers on selling only, or mainly, Private Label lines, for example Aldi and Marks & Spencer.

Of course this is as true in Pet Foods as in other categories. Not only are the absolute levels of Private Label highly variable, but the trends are markedly different too. A quick examination of the Europanel Pet Foods databases in the major western European countries over the past two years shows some very wide differences:

A significantly higher Private Label share in Germany – far greater than in the UK.

Private Label is increasing its share in almost all countries and yet is declining in Italy, where levels are lower than anywhere else.

So why do we see such huge differentials across countries? One of the major factors is the consumers and their perceptions of categories and Private Labels, as these too are very variable by country. For example, in Italy a key factor is new product innovation – the greater the level of genuine new product launches, the lower Private Label is likely to be. In Spain Germany, France and Belgium, brand trust is very important, whereas in Great Britain it is the perceived level of advertising.

Although the above are some of the most important factors, there are a wide range that ultimately determine the level of Private Label in a category. For example, although new product innovation is important in Italy, brand trust, price difference, advertising intensity etc will all also play a part to differing degrees. The Private Label share of a category in a country will depend on combinations of these key factors.

Private Label shares in Italy

Private Label shares in Spain

Private Label: The Customer influence

In Italy the Pet Food categories rank as average on the key new product innovation perception. Based on an analysis of 60 categories covering groceries and toiletries, the four Pet Foods categories ranked between 30th and 40th, and yet the table below shows that Private Label shares vary considerably.

Hence the interaction of the other factors – brand trust, advertising, quality, value and so on – is also important by category. So, Private Label levels of Pet Foods in Italy are low but if brand manufacturers wish to keep it that way it is important that they actively innovate in order to maintain this position. At the same time this needs to be combined with activity on the other key drivers mentioned above, all with effective communication to the customer.

The picture In Great Britain is quite different. The perception of the intensity of brand advertising is very important, and there is a considerable difference in the ranking of the four categories and in Private Label shares:

On advertising intensity, the ranking of Wet Cat Food is very high, but the other Pet Foods categories fare much worse with not much better than average ratings. Again the Private Label shares vary considerably and so the other factors are at work. Ratings across all important drivers must be used to combat Private Label development.

Finally, why is Private Label so high in Germany and what can the brand manufacturer do about this? Cat Foods and Dog Foods are quite different. Cat Foods have very low ratings on brand trust, whereas for Dog Food store loyalty is a key issue and far exceeds brand loyalty. Hence customers are more likely to switch to an available brand in their preferred store rather than going elsewhere to but their preferred brand.

Further examination of other countries would highlight very different situations, all of which need specific activity at a local country level. In summary, consumer perceptions of categories and brands are major drivers in determining the share of Private Label in a category and a country. Understanding these is key to appropriate business development.