Premium and Value-Added Private Labels: The Case of Private Labels in Sustainable FMCG Markets

Introduction

Private labels (PLs) have changed significantly the competitive scene of the retail market, particularly as far as fast moving consumer goods markets (FMCG) are concerned. In the battle on the shelves, retailers compete against national brands (NBs) with their own brands that in the first instance were born as a generic low-cost alternative aimed at price-sensitive-customers. The need to improve general perception of these brands led retailers to invest more both, in quality and marketing efforts. This enabled them to compete against the leading brands by using the so-called “me too” strategy and, at the same time, exploiting the advantage of low-cost prices.

Furthermore, aware of the growing PL potential - in terms of generating a differential brand positioning, increasing profitability, developing new consumer segments and reinforcing customer loyalty - some of the more experienced retailers opted for a more sophisticated strategy based on segmented portfolios.

This new positioning of “premium” PL is revolutionizing the retail landscape. On one hand, sophisticated retailers are positioning to differentiate on quality vis-a-vis the manufacturer brands. On the other hand, as consumers believe private labels are a good alternative to manufacturer brands especially from a quality perspective, many of them can be persuaded to pay more for top quality private labels. The introduction in mainstream channels of “organic”, “fair trade”, “green” or other ethical or sustainable claims via PL represents the attempt of leader retailers to develop such premium brands, and permits retailers’ response to new market requirements through new values, thus improving their own image in comparison with that of the producers.

The main objectives of this chapter can be defined as following:

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  Provide an overview of the current situation in terms of PLs and own brand strategy development stages reached in different countries; draw on the initiatives of premium PLs that are currently carried out by a number of significant retailers in the scene of international FMCG markets and identify trends that could provide a glimpse into the future development of PLs.

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  Cover the issue of ethical and sustainable brands, as an example of premium PLs strategies. For this purpose, three main consumer concerns are addressed: care for the environment as closely linked to health, respect for human and social rights, development of communities and animal welfare.

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  Assess the positive impact of sustainable PLs in the portfolio of retailers’ own brands. Address different approaches to the issue by drawing on both academia findings and a number of reports issued by a range of entities. Likewise, provide examples illustrating the implementation of such activities carried out by some retailers.

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  Illustrate the issue of sustainable PLs in addition to the role adapted by retailers in respect of the latter through a research case, developed in the Spanish FMCG market, which refers to the brands granted with sustainable labels by an independent body: Organic, Fair Trade, FSC, MSC, Rainforest Alliance, Ecolabel and Leaping Bunny. To assess the role of PLs against NBs in these premium segments within a set of representative categories, this paper bases on information provided by the Panel Nielsen Retail ScanTrack delimited by the metropolitan area of Madrid in the year 2012 - 2013.

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  And, finally, provide a diagnosis of the current status of these growing high-value niche markets and draw on the consequent implications for the leader retailers operating in Spain, as key actors in the development of sustainable market.