Private brands, or Private Labels, of retail chains are a topic that is as interesting as it is little touched upon in our country. Despite the significant prospects in this area, it is rare to see effective use of all the capabilities of private labels. However, the reasons are clear and fairly standard. This is a lack of knowledge and desire to think and learn, which is typical of marketers, general managers, and the owners themselves in particular. Otherwise, there would be no stupid experiments with private labels in areas where this is contraindicated. And, of course, the number of private labels in the “right” categories would have to increase.

We have already written about private labels more than once. But since our concepts do not stand still, but develop, specific additions appear, which, as we would like to believe, will help those specialists who are still thinking about effective use brand equity and the development of such areas of brand monetization as the creation of private brands.

Strategies for creating private labels

1. Dumping strategy

This is the simplest solution that does not require special analytics. Any product can be replaced with a cheaper analogue if the economics of the process allow it. There will always be a consumer who wants the same thing, only cheaper. However, calling the private label of the cheapest products by the name that is associated with the retail chain itself makes sense only in the case of promoting discounters. In other cases, this is probably not worth doing. Especially if you intend to exploit the potential of other private labeling strategies that don't involve being cheap. Well, as a “foolproof”, the obvious should be said: the product itself should not be of frankly low quality. Cheapness is cheap, but the consumer still has to eat, drink or use it in some other way. And if he is very dissatisfied with the product, then at least he will stop buying it.

2. Strategy for replacing a competitor.

This option also does not rely on the brand of the retail chain itself, but uses the features of consumer choice. There are product categories where the consumer has developed a certain habit towards specific products and brands. Different product categories vary in the strength of this habit and the degree of its influence on choice. The essence of the replacement strategy is to physically replace the leading product in a category where this consumer habit is not important in the choice. We can say that these are those categories in which the brand factor is not important, partially or completely. In the case of such a category, the leading product is physically removed from the shelves or pushed onto a less successful shelf, and its place is taken by a completely similar product under a private label. At the same time, the entire “brand markup” falls into the retailer’s pocket - the product itself is no longer the cheapest in the category, but may well be at a level even above average. At the same time, advertising costs tend to zero. The option looks advantageous, but the most difficult thing here is the mechanism for correct choice product category, in which it is permissible to carry out such manipulations without a negative response from the mass consumer.

In order to understand this issue, you first need to understand which of the categories are branded (that is, those where you can’t count on luck without a strong brand). In our opinion, the area of ​​greatest relevance of branding is:

A) goods with unique (and tangible) consumer properties;

B) conspicuous consumption goods;

B) goods of hedonic consumption.

The first category is products whose differences from analogues are seriously noticeable. This is primarily relevant for goods with a fairly narrow, niche purpose: kefir for strengthening the immune system, washing powder for black clothes, medicinal mineral water and etc.

The second category is the so-called. image products that participate in the process of interaction with other people. In such cases, others can evaluate the consumer based on the level of consumption, which is extremely important for a person: in order not to damage his reputation, the consumer is ready to incur additional expenses. This category includes, for example, vodka and beer. In such categories, brand loyalty is very high, and the consumer may even refuse to consume if he does not have enough choice.

The third category is products consumed for personal pleasure, not necessary for daily activities. This is alcohol (except vodka), confectionery, delicacies. In these categories, the brand loyalty factor is also quite high; the consumer may feel serious dissatisfaction if their favorite brands are not available for sale. Therefore, the replacement strategy in these categories cannot work and is even harmful. But there remains one more category where the replacement strategy works with a bang. These are utilitarian products.

Utilitarian products are goods with a familiar and understandable purpose, consumed due to perceived necessity. This includes almost all groceries (except for exotics), bakery products, freezing, canning, etc. In this category, branding in the sense that we (consulting bureau Tamberg & Badin) puts into it is almost impossible. There is no need for a complex ideology of consumption and adjustment to secret motives. Consumer choice is quite primitive, and loyalty to existing brands is low. A consumer can quite easily switch to an analog product if the level of perceived quality seems similar to him, and even more so, higher. Therefore, the leaders in these product categories can either be removed from the assortment altogether, or “promoted” with the help of similar products. In this case, you should already use the network’s trademark itself, since a recognizable name increases the level of perceived quality. However, we should not forget that the “quality” purchased by the consumer, although it is a very subjective concept, still implies quality of workmanship as well. Therefore, if you are replacing a leading product with your own brand, the quality of the product should be at least no lower.

3. Brand extension strategy.

This is the most interesting option, as it involves real synergy between the chain brand and the private label. The chain's brand will work to sell its own brand, and its own brand will strengthen the chain's brand. It is typical that over time, this private label can go beyond the boundaries of the retail chain itself and become a real brand at the local or federal level, further promoting the brand of the retail chain. Sounds good? However, this option is also the most complex, with its own rather confusing logic. Therefore, in order to successfully apply it, you will have to seriously delve into the motives of the consumer and the chain’s own brand.

The question is complicated by the fact that the management of every self-respecting retail chain is convinced that they definitely have a brand. Unfortunately, this is a standard mistake that we, as consultants, encounter very often. Every manager or marketer calls his brand a “brand,” but no one can formulate what it is. Don’t get your hopes up: if you don’t know why the consumer chooses your network, then it’s not known what your brand is or whether it exists at all. We will assume that if the network is still alive and developing successfully, then there is still some kind of brand. You just need to formulate his ideology from the consumer’s point of view and then act based on it.

Brand ideology

Brand ideology is a clearly formalized idea of ​​why a consumer needs a product under a specific brand (a supermarket or chain is also a market product), why this consumer should want to purchase this product and who this consumer is. Most likely, the chain brand does not have such a clear-cut ideology, however, it is never too late to formulate it, which is, in general, not difficult to do. For our tasks of selecting categories for creating our own brand, the most relevant block of brand ideology is needs.

According to our scheme, needs are a situational model, a role model and a cultural factor. A situational model is a complete, averaged model of a situation in a consumer’s life, within which the brand is intended to successfully solve problems. In other words - “what is it for?” Each trading format also has its own situational models (we described this principle in more detail in the book “Branding in retail trade. Full cycle of creation from scratch"). Let’s say a convenience store is based on the situational “daily food” model, and a hypermarket is already based on the “household” model. For some reason, the visitor chooses this network. This needs to be indicated.

The next term is the role model. This is a standard image inherent in a person of a certain type and includes a set of behavioral characteristics. Every self-respecting brand must correspond to a clear stereotype in the consumer’s mind: “who is it for?”, what type of person? For a poor Housewife, a Mother of many children, or a successful Careerist?

Trying to work with all consumers en masse is no longer just a mistake, but downright bad form in marketing. However, let's not talk about the obvious. In any case, a collective image, a portrait of the target consumer is necessary at least for the competent use of the relevant persons in advertising. So finding it is not an unnecessary question.

The third component is the cultural factor, which is to determine “for which cultural group” the brand is intended. What cultural group does the consumer belong to? This is probably the most difficult question. In this case, the cultural factor will have to be collected from various cubes - urban culture, territorial culture, ethnic culture, etc. (more detailed information on the topic - on the website newbranding.ru). However, it is advisable to do this. When the cultures of the brand and the consumer coincide, the consumer begins to consider this brand “their own,” which inevitably affects loyalty. If a retail chain has a department for kosher products, then adherents of Judaism will consider this network “theirs,” or if this chain has a department for products from Japan, for example, then it will be “theirs” for another cultural group. We must understand that cultures can be antagonistic, and their adherents can be in direct confrontation with each other. Therefore, it is impossible to adapt to the special needs of all cultural groups. It is necessary to formulate the cultural core of the brand and develop based on it, without making unnecessary gestures.

All these three components are present in any brand in any case. If the network has a target consumer, this three-level stereotype is present in his mind. You need to figure it out, and then turn to three options for expanding the brand of a retail chain, each of which can be used independently of each other using sub-brands. At the level of the situational model, you need to find out the difference between the situational model of your brand and your competitors. Let's say your supermarket is more for household, and the competitor has a gravitation towards the economy of a country house. In this case, you need to focus on the differences in running a household in an urban environment and build your sub-brand in the categories of relevant products.

The level of a role model sets a certain average consumer, a personality type. A role model always has some stereotypical images of activity (and does not have others). This is not a living person, but only an average template of a certain type of person. And a role model is also characterized by a certain set of situational models that reveal what this model does. For example, the Mother role model focuses on caring for children (and feeding them naturally), while the Careerist does not feed anyone but herself, but feeds herself strictly with dietary or hedonic foods. The brand of a retail chain can expand into these categories, which are, as it were, intended for a role model, take place on shelves and in the minds of the consumer, strengthening the position of the retail chain.

The third option is the cultural factor. Each culture presupposes its own consumer lifestyle. And a sub-brand, a supermarket's private label, can become part of this lifestyle. If the cultural factor of a retail chain brand includes a component of ethnic Russian culture, then vodka, kvass, and a number of others can be represented here. traditional products Russian cuisine. If it is a more cosmopolitan, Europeanized culture, then the sub-brand can spread into the segment of “European” products. In general, a brand can be expanded very strongly, and these sub-brands must have a connection with the parent brand of the retail chain. In fact, they will be its advertising, conveying its ideology.

It may not be very easy to use an expansion strategy. Indeed, in this case we have to deal with such a delicate matter as the psychological reality of the consumer. In addition, you will have to consider in detail something that few people think about - the retail chain’s own brand. Yes. This is hard. But if it were easy, a lot of stupid books would have been written about it and it would become commonplace. In the meantime, those wishing to successfully expand their retail business have some head start. However, the strategies of substitution and dumping, I would like to believe, are much simpler and do not require such a deep understanding of the behavior of the person consuming. At the same time, they also allow you to make money from private labels. It’s possible to earn quite a lot. The main thing is to start thinking and asking the right questions. And there will be answers.

A private label (private label) in retail is a store brand that is developed and promoted by retail chains. Private label is sold only in one network and is its unique advantage.

Private label allows you to get out of the competition between stores for the best prices. It is difficult for the buyer to compare it and understand that a similar product is cheaper in one place than in another.

At the same time, retail earns more from private labels than from the main assortment by forcing the supplier to give minimum prices. Due to a discount from the supplier, the buyer receives a product 20% - 30% cheaper than its analogue.

Retail gets everything - minimal competition for its product, a loyal customer and maximum income.

What products are hidden behind your own brand?

Initially, the goal of our own brand was a reasonable price-quality ratio. In an effort to get the best deals, chains set the characteristics that a product must meet. (Example of characteristics in “Dixie”). The supplier who offers the lowest price wins the tender and gets the opportunity to supply for a certain period. In an effort to win the tender, the supplier sets a ceiling price. As a result, the slightest unplanned increase in expenses can be critical. And production is a risky process: either the packer breaks down or the refrigerator overheats.

As a result, the bulk of private label products are cheap goods at the borderline of quality. How do you feel about “Red Price” in “Pyaterochka” or “Every Day” in “Auchan”? Do you add them to your cart because it's the best deal, or because it doesn't matter what the item is? Or don't put it in at all? Own brand has established itself in the minds of customers as “cheap”, but not always “high quality”.

But for retail, private label has a lot of advantages. Chains are interested in developing not only low, but also higher price segments. And so that the buyer does not associate them with a cheap range, they are promoted under other brands.

Auchan has 2,651 products of its own brand, of which 72% are “Every Day” and 28% are under other brands. We think that Pyaterochka's own brand is "Red Price", but if we look behind the scenes, we find out that the network has great amount brands.

Very often, when filling our cart, we don’t even realize that we are taking a private label. We receive a unique product at a favorable price, which is not sold anywhere else.

Private label examples

Dixie Auchan Pyaterochka ABC of Taste Magnet Tape Metro Okay Crossroads Carousel

Strategies for developing your own brand

Advantages and disadvantages of own brand for retail

Advantages

1. A private label creates a distinctive advantage over competitors by offering consumers a unique range of products at the best prices. The more private labels in the cart, the higher the loyalty.
2. Reduced dependence on suppliers. Private label helps reduce the influence of brands and fill the missing assortment with your own brand.
3. Reducing customer dependence on . The share of promotions is growing every year. Private label offers an advantageous offer without a promotional price.
4. With low production costs, the profitability of private label is often above average. Average level frontal private label margin – 35–40%.
5. Formation of loyalty due to advantages in the price-quality ratio.
6. Providing the population with socially significant products.

Flaws

1. High costs for product quality control. Chains monitor compliance with standards at all stages - from the production of goods to their receipt in stores. This requires additional costs for personnel and organization of business processes.
2. IN large networks suppliers cannot provide sufficient volume, as a result one item is carried by completely different suppliers. This leads to complex process organization and increased operating costs.
3. Positioning risk. The discrepancy between the positioning of the private label and the store brand can lead to misunderstanding. If Azbuka Vkusa develops low-price segment products with the AB logo, it may confuse the buyer. The premium perception of “Azbuka Vkusa” will be compared with the cheap “AB” product, which will lead to confusion.
4. Loss of turnover due to loss in value. Replacing an expensive product with a cheap one leads to a loss in turnover. If previously a buyer purchased cottage cheese for 100 rubles, and now takes an analogue for 70 rubles, then sales will decrease by 30 rubles. Despite the fact that retail maintains a higher margin (%) of its own brand, it may suffer losses in turnover (RUB) and even in gross income (RUB).

Advantages and disadvantages of private labeling for suppliers

Advantages

1. Formation of a loyal relationship between the network and the supplier. Retail is interested in its own brand, therefore, when choosing between two suppliers, it will give preference to a company that, in addition to its brand, will also produce private label. This is an opportunity for closer cooperation with retail.

2. Savings on logistics. Typically, manufacturers make almost no money on their own brand, but save money by reducing logistics costs.
For example, we produced 100 units of products under our own brand and delivered them by car for 5,000 rubles. This means that delivery of one unit will cost 5,000 rubles/100 units = 50 rubles/product. If we supply another 400 units of our own brand, which fit into the same car, then the delivery cost will be reduced to 5,000 rubles / (100 + 400) = 10 rubles / product. This way, delivery costs will be reduced from 50 rubles. up to 10 rub. per unit of production.

Flaws

1. If the supplier does not business processes have been established and the operational work in the company is not structured, then participation in the production of your own brand is risky. Production must be streamlined and run like clockwork.
2. The network can change the supplier at any time. When participating in the production of our own brand, we always remember that the owner of the brand is the network. The supplier bears the risk that at any moment the retailer will switch to another with more favorable conditions. The question is often not whether to replace it or not, but when it will be replaced. It is impossible to stay on top of the Olympus in a highly competitive market.

3. Low margins for the supplier.

High competition in the market forces suppliers to reduce costs to the maximum level. Typically, they do not make money from their own brand, but use it to form loyal cooperation with retail. The supplier produces private labels for the network, and the network allows him to make money on another assortment.
4. Risk of long-term planning. In an effort to reduce costs, the supplier purchases raw materials and equipment with long-term payback. For example, in order to reduce the cost of packaging, the manufacturer will be forced to purchase it in volumes for years, rather than months of sales. And if you fail to win subsequent tenders, what will happen to this packaging? Frozen money for an indefinite period. Purchasing additional equipment and hiring personnel carry no less risks.
5. The need for strict control over all stages of production. Production must meet all requirements and standards. Network employees check for compliance with production standards.

6. “Bottlenecks” in production are unacceptable. For example, there is only one packaging machine and it breaks down. What happens if by the end of the day it is necessary to deliver goods to the store's distribution center, but production has stopped? Lost goods and the highest fines for non-compliance with the terms of the contract. The manufacturer has to purchase additional equipment for production.
7. Retail chains can remove small and medium-sized brands from their product range in favor of their own brand. As a rule, strong market players do not suffer. But as we said earlier, even Coca-Cola may lose its leading position.

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Having weighed all the pros and cons, let's summarize. Own branding provides networks with positioning opportunities and additional revenue, but it carries high risks for suppliers. He must assess the readiness of his business for maximum loads and minimum profits. For him, his own brand is an opportunity for closer agreements with the network and the formation of trusting relationships.

Thanks to its own brand, retail ceases to be an intermediate link between the consumer and the manufacturer. It already resembles a vertically integrated holding, controlling production and sales - from raw materials to the buyer.

Stores strive to increase the share of private labels and go through all stages of strategies. From cheap goods to profitable ones, from profitable ones to those that form loyalty, from a loyal group to a store in which the private label occupies a leading position in sales. And maybe the day will come when private label will push all brands out of the store. You say: “Hardly.” Let's see what awaits us ahead.

STM or Private Label - a brand owned by a retail chain(super or hypermarket). In Ukraine and Russia, sales of private labels have shown stable growth over the past few years. This process is especially accelerated after the 2014 crisis.

In July 2016, the share of private labels in the discount supermarket chain "ATB" amounted to 24.9% in the assortment list and 24% in turnover. And she continues to grow. In 2016, Retail Group (Velmart, Velika Kishenya, VK SELECT, VK Express and the Moldovan chain Green Hills Market) reported that the share of private labels amounted to 6.2% in their turnover. Eco Market has a similar figure - 7.5%.

All private labels are divided into 3 main price categories:

• discounters or low-price product segment;
• mid-price segment;
• premium brands(in Ukraine they are less common than discounters, but they are the most promising in terms of profit).

In Eastern Europe, the share of private labels in the total turnover of chains is still low. Today in Ukraine, private labels collectively account for no more than 10% of sales. IN Western Europe the figure reaches 30% . home opportunity for retailers - development of premium private label direction. Further growth of the Private Label category will occur precisely due to elite private labels. At the beginning of 2016, 6% of the Ukrainian population purchased private labels once a week or more often. Already today, according to Nielsen Ukraine surveys, more than 50% of Ukrainian buyers are ready to switch to private labels. However range, which is available at retailers for now, not ready to meet their needs.

Another feature of the Ukrainian market is growth of private labels in 2016 occurred mainly due to unproductive categories. This includes detergents, household goods, care and decorative cosmetics and pharmacy private labels (for example, vitamins).

Local private label retailer Watsons - M.A.G.

Private label promotion strategies

1. Creation of private label discounters and price dumping.
2. Expanding the supermarket brand and spreading its reputation to private labels.
3. Displacement of competitors. the most complex strategy that requires the most effort, but also brings significant profit. The point is to replace the product of a well-known brand in the consumer’s mind and persuade him to choose a private label. To do this, you need to create a mystified image of the product. This can be achieved through design.

If you want to create an umbrella private label or revise the design of an existing Private Label, contact KOLORO. We will develop a corporate identity that will increase sales and expand the category range.

Private label design: the situation in Ukraine and in the world

Discounters differ as much as possible simple packaging. Often in her network design use flashy colors, to attract more attention to the product. This technique achieves the goal, but repels some potential consumers who are ready to buy private labels, but the eye-catching design makes them wary. Subconsciously they associated with flashy contrasting colors and big logos with a low-quality product inside.

The fact that many manufacturers choose trash design does not mean that this is the only right solution. For example, Private label of the Novus network, Promo Marka, made in a minimalist style. She belongs to the low-price private label category. However, brand managers decided to do accent not on cheap design, but at an honest product presentation. They're at their maximum use the capabilities of viewing windows, demonstrating products (cereals, cookies) and neat food illustrations(canned food, dairy products). Even low price is not a reason to abandon the emotional message. Promo Marka has it. This cleanliness and freshness- sensations that are achieved thanks to the correct using white color and subtle details like fonts or floral illustrations.

Promo Marka, Novus - laconic private label design

Among private labels in the mid-price category, I would like to note the design of some products of our own brand "Prize" which belongs to the Fozzy Group of companies (Silpo supermarkets, Le Silpo delicatessen markets, Fozzy wholesale hypermarkets, Fora convenience stores and the Bumi-market chain). For example, juices (with images of fruits and vegetables around the entire perimeter of the package), tea, processed cheese and children's line "Riki Tiki Prize".

However, there is also a minus. Quite a lot of products are produced under the Premiya brand. They were launched for sale at different times, and, apparently, more than one agency was involved in the design. That's why Apart from the logo, the products have nothing in common. Strategically this damages the brand, as it blurs its image in the eyes of consumers. After all, one of key positive qualities of private labels- the ability to quickly find all the products of one brand that the consumer needs. And in this A unified packaging design style helps.

Premium brands retail chains - relatively new and the most promising category for private labels. Packaging design is the main thing that can attract consumers to such a product. His task is to bewitch a person. Packaging for the premium private label category should not be associated with negativity. Its goal is to create the impression that the consumer is facing a full-fledged brand. Private label Fozzy Group, Premiya Select coped with this task.

Private label development: 2 main rules

1. Think about it in advance that the line will expand. You need to choose a corporate style that will leave room for maneuver and can be adapted to new product categories. It is worth understanding that private label is a giant umbrella under which from 200 to 400 SKUs can be combined (sometimes the number reaches up to 700 units). Therefore, the basis of the design, in addition to the logo, should be common denominator,.
2. Clearly understand in what price segment will the private label be presented? and build on it. More and more Premium category private labels are gaining popularity. When developing a design for them, it is important to create a bright emotional image of the brand that will tell about the quality of the product.

Have you decided on the answers to your questions and are ready to start the project? Connect with our managers right now they will answer all questions and send you an approximate estimate.

Private label design that hits the target: checklist

1. Product comes first

For private label the most important characteristics- price and quality of the product. Therefore, when creating a Private Label packaging design, it is important to focus on the product itself. Help here concise description, transparent inserts or observation windows (if specifications packaging allows the use of this technology), compound, which is specified in capital letters on the front side of the package. The logo fades into the background; it can be very small and unnoticeable. This will be a plus for the product.

An example would be the design of the private label retailer EasyFood. White background, bright pattern, which symbolically demonstrates the contents of cans and packs, as well as prominent category indication, to which the product belongs - 3 secrets of private label success.

EASYFOOD is a perfect example of a simple private label design that is not off-putting

Another example is the private label of the Garant network. Here emphasis is placed on text and recognizable fonts. There are two advantages to this approach. Firstly, the whole line looks very organic, the consumer can easily find brand products in different departments of the supermarket. Secondly , large letters themselves tell about the contents of the packs, which speeds up the shopping process. People will be grateful for the time saved. Also, subconsciously, such font is associated with openness and creates more confidence in the product.

Private label of the Garant network - the category name is brought to the fore, the logo corresponds to the size of the “eco” information label

2. Storm of emotions

Many consumers in Ukraine and Russia associate private labels with cheapness And poor quality goods. However, this negativity is very easy to deal with using smart design. The following two examples are excellent proof of this.

The first is a biscuit packaging design for the Fortnum & Mason chain. The cardboard cylindrical chest with thoughtful illustrations challenges the competition. It would be hard to call this private label “cheap” or of low quality.

Design of private label cookies from Fortnum & Mason network

The second is the umbrella private label ICA Gott liv. She consists of bright geometric patterns, which highlight the essence of each product. The color scheme is distinctly different from most products. This makes the private label noticeable and recognizable. And the brightness puts you in a positive mood.

Private label design ICA Gott liv

3. Not what it seems

Above, we already wrote that the most profitable for a retailer is to create elite products under private label. To do this you need to develop design STM, which will not reveal the brand in the product own production . Examples could be the private label of the retailer Tesco or the Salde Plata seafood line of the Aldi Supermarkets chain.

Private label design: results

Having learned about the statistics of private label consumption in Ukraine and the world, and having seen examples of Private Label design, we can say that this area has great prospects for development. We hope that Ukrainian retailers will follow the example of their European colleagues and continue to expand their private label product lines with high-quality products with attractive designs. And marketers and designers KOLORO is always ready to help!

You can order the development of a private label from the KOLORO branding agency. We will create for you brand in a single corporate style, which will become a leader among consumers.

Ilyukha Sergey Guild of Marketers
The article was first published in the magazine “PROD&PROD Food Promotion” No. 2 for 2014

A private label (private label) is a brand owned by the entity that sells it. They can be created by individual retailers, as well as cooperatives and purchasing unions of chains, regional associations of wholesale and distribution companies, and large importers.

Abroad, private brands appeared as a result of the struggle between large retailers and manufacturers of famous brands. In the case when the market positions of both parties became approximately equal, the networks had to sell “promoted” products, overpaying the manufacturer for a big name and actually shifting advertising costs onto the shoulders of buyers. In the markets of different European countries, private labels account for different shares of turnover, but the trend towards its increase is observed everywhere.

Pricing and popularity among the consumer audience of these goods are largely determined by national characteristics, quality of life, consumption culture, development of national brands and many other reasons. In Europe the most high level private label penetration is observed in Switzerland, the UK, Germany, Spain and the Netherlands, where the market share of such products is in value terms exceeds 30% (Fig. 1). Moreover, in volume terms, their share is even higher, since the difference in price between private labels and analogues of well-known brands in the Western market is 30-40%.

Despite the fact that Russian retail chains declare the development of private brands as one of their priorities from year to year, today, as can be seen from Figure 1, the share of these goods in the revenue of domestic retailers is an order of magnitude lower than in European countries. There are many reasons for this: starting from solving such a difficult problem as producing high-quality products at a low price, and ending with the no less complexity of its promotion. In addition, minimum batch restrictions make such products available mainly to federal chains, purchasing unions or regional associations of small retail chain stores.

According to the InfoLine agency, in Metro C&C the share of private labels in turnover is 11.2%, in Dixy - 10%, in Magnit for 9 months of 2013, sales of goods under its own brand amounted to 13.1% of retail revenue companies.

Part of the low penetration of such products in Russia is due to the fact that private labels here are cheaper than branded goods on average by only 10-20%, while in Europe the price advantage of private labels is on average 25-30%, and in the non-food category the difference can reach 40-50%. This fact significantly reduces their attractiveness for retailers.

Advantages of working with private labels

When deciding to introduce a product under its own brand to the market, the retail chain pursues the following goals:

1. Increasing loyalty to the network.

In this case, the private label product is intended to more fully satisfy the needs of price-sensitive buyers. All economy class brands are focused on this. Branded products are designed to fill niches in the assortment and maintain loyalty regular customers. As a rule, the name of such brands is similar to the name of the chain store. Innovative products are produced in accordance with the latest market trends and trends and are intended for those who like to experiment and try the unusual.

2. Increase in profitability.

As mentioned above, most products produced under private labels, regardless of the price segment, positioning and tasks being solved, allow the network to increase profits. This goal is achieved through high sales volumes and optimization of the production process and logistics on the way from the factory to the end consumer.

3. Guaranteed quality.

As a rule, federal retail chains pay great attention to the issues of quality control of products produced under private labels, starting from the formation technical specifications to the product and packaging and throughout the entire period of production and sale. Compliance with all required measures is a labor-intensive and quite costly process. At the stage of formation of the production of “own” goods, retailers assigned quality control responsibilities to employees of the private label development department, which most often turned out to be ineffective due to the workload and low competence of managers in purely technical matters. Recently, federal and even some regional networks and associations are paying more and more attention to the quality of their products, creating special services for this or attracting highly qualified specialists for outsourcing.

Guaranteed availability of goods.

Control of all stages production process allows you to optimally create a product release schedule and ensure a sufficient quantity of it, taking into account the seasonality of sales and planned promotional activities. This protects the network from possible interruptions that could occur when working with the manufacturer’s brand.

It would seem that the advantages are obvious. However, when drawing up an economic model for working with private label products and comparing it with selling branded goods from the manufacturer, the retailer faces a number of additional costs. In order to estimate these costs, we will consider the full cycle of working with private labels, starting from the development of an idea, naming and ending with the disposal of unused packaging.

Production costs

When working with a manufacturer’s brand, the supplier comes to the retailer’s office, agrees on the price and promotional plan, provides a deferred payment (trade credit), delivers the goods to outlets, provides assistance in merchandising, carries out marketing campaigns at his own expense and on his own, and pays a trade bonus. One drawback is that the products are presented in all competing chains, and the retailer is forced to keep a low markup.

In the case of private labels, the markup can be 15 or even 30 percent higher. But they are successfully “compensated” by additional costs.

The algorithm for working with your own brand is shown in Fig. 2.

The entire process of launching a new private label product takes from six months to a year and includes the following steps:

1. Determining a private label strategy, name, logo Forming a concept, strategy, creating a logo for your own brand is an important and expensive task that a retailer, as a rule, entrusts to a marketing agency. The costs of developing a chain brand are transferred to all goods released under private label.
2. Selecting a product category for product release. As stated above, private labels are designed to best satisfy a particular need. potential audience. Be that as it may, to form the optimal price offer for a non-unique product, it is necessary to obtain the lowest possible cost from the manufacturer, and this is only possible if the product has large sales volumes and the buyer is not sensitive to the brand. In addition, it is desirable that there is no clear leader in the product category. According to research conducted by Nielsen and analysis of private labels of leading retail chains, the most attractive sectors in this regard are dairy products, groceries, confectionery products, juices, water, beer, alcoholic beverages, as well as paper products, personal care products and household chemicals.
   According to the results of a study by PwC in Russia, conducted in 2010, more than 90% of private label turnover in the Russian Federation is accounted for by generic trademarks (the names of which are not associated with the brand of the chain or manufacturer) and imitators (umbrella brands). At the same time, a large share of private brands is concentrated in the “economy” class. IN last years they have begun to actively develop in the middle and high price segments, but their penetration level is still insufficient.
3. Development of a strategy for bringing a product to market. Today, experts identify three main strategies for developing private brands:
   • Dumping. The most common strategy, since in conditions of market stagnation and the expectation of a recession, most consumers remain quite sensitive to the price of a product with acceptable quality.
   • Replacement of a competitor. A more complex approach that focuses on the tastes and established preferences of the buyer. The challenge is to replace leading products in categories where brand habit is not a major consideration. As a rule, this strategy is implemented gradually or in case of significant disagreements during negotiations with the sector leader. The path is quite risky, since it is not possible to avoid a decrease in the level of sales in quantitative terms and a certain loss of loyalty even when achieving complete replacement of a competitor in terms of profitability.
   • Brand extension. A strategy whose essence lies in the fact that buyer loyalty to the name of the retail chain is transferred to products under its own brands. In this case, the private label becomes a full-fledged brand, which allows it to be positioned as a direct competitor to a popular manufacturer in the same price segment, and over time it can go beyond the network.
   Based on the chosen strategy, the remaining requirements for the product are formed.
4. Development of specifications and packaging design. Certain costs are associated with the involvement of specialists in establishing the technical specifications of the product and designing its appearance.
5. Conducting a tender for production. Basically, this stage does not require special costs. Different retail chains hold open or closed tenders. But after agreeing on the terms of price and production volumes, it is necessary to conduct a study of the production capabilities and reliability of the supplier, and this is already associated with business trips, the involvement of specialists and, as a result, additional costs.
6. Purchase of raw materials and components. As a rule, after agreeing on commercial terms of production, the supplier can only compensate for the costs expended. In this case, the costs of purchasing raw materials and packaging fall on the shoulders of the retailer. The main problem of releasing goods under a private label is that in order to obtain a competitive price it is necessary to purchase raw materials and components in large quantities, which leads to large advance payments, storage of containers, and sometimes large quantities products, payment of credit funds (instead of a commodity loan in the case of work under the manufacturer’s trademark).
7. Next come the costs associated with product promotion, merchandising, regular quality control, and possible disposal of leftovers.
8. Another significant expense item is logistics. When producing private label goods, the entire logistics chain from the factory to the store counter is taken over by the retailer, and this, depending on the product category, can be very costly.

Let's estimate the total costs:

• trading premium – up to 10%;
• advertising, on-site placement for additional display, price promotions - up to 15%;
• logistics costs and merchandising – 2-5%;
• funds for launching the project, purchasing raw materials, quality control, disposal of residues - 2-5%.

As you can see, additional network costs can be up to 35%. And this is provided that there is also a 10-15% difference in price on the shelf. Apparently, the manufacturer must give a fifty percent discount on the cost of the main line when releasing a private label...

Hopes and Fears

What does a manufacturer expect and what does he fear when releasing a product under a private label?

There are several logical explanations why an enterprise can begin to produce goods under the private label of a retail chain:

• gaining network loyalty in order to introduce or expand a product line under your own brands;
• advertising of their brands and themselves as a manufacturer by associating in the minds of the consumer with the name of the retail chain;
• optimization of logistics for the supply of its products by increasing supplies to the Customs Union;
• receiving guaranteed and timely payment for goods;
• additional income.

The manufacturer's main concerns are related to the possibility of losses. They are due to the fact that the economic model Russian enterprises significantly different from the West.

In Europe, the production of private labels is carried out by companies that initially built their business on the principle of exclusively working with private labels of the network and were thereby spared from organizing an extensive sales and distribution system, which we see in Russia. They do not need marketing and sales departments, which, by the way, are quite expensive, otherwise these expenses are included in the cost of the goods. Thus, the European manufacturer can ensure the supply of products with acceptable quality at a reasonable cost.

The manufacturer's risks are as follows:

1. Receive a loss from cooperation due to the need to provide the retailer with a price lower than the full cost of production.
2. Become dependent on the seller due to the fact that when production is reoriented to the production of private labels, it will be necessary to reduce commercial divisions and an active sales department, as well as abandon the client base that has been accumulated over the years. If the contract with the network is terminated or expires, it will be impossible to quickly restore sales volume, which will inevitably entail serious financial losses.
3. If commercial network insists on releasing an “umbrella brand” similar to the TOP positions of its own range, there is a danger of substitution and crowding out of its products.

Win-win move

A huge number of manufacturers are seeking to supply retailers with private label products. How to get the contract you want? There is a simple and effective rule: you need to understand what guides the manager of a private label retail chain when making a decision, and make him an offer that you yourself would accept if you were in his place.

1. Assess the retailer's needs:
   • analyze the market and network assortment;
   • evaluate the network strategy when working with private labels;
   • formulate the requirements for the product needed for the network.
2. Weigh own strength and features:
   • check whether you can sell a product with the required characteristics at the required price;
   • objectively assess your production capabilities: can you supply products in the required quantity without compromising existing sales volume;
   • identify the need for project financing and determine sources of raising funds;
   • identify suppliers of raw materials and components and make sure they are reliable and ready to provide everything necessary for the production of private labels;
   • Calculate the cost of production before and after launching a private label project. Track how the increase in volume affected costs. Develop a cost reduction program;
   • compare the economics of the contract when collaborating on your own brand and private label network;
   • formulate what goal you are pursuing;
   • Assess your risks and, if they are significant, draw up a program to reduce them.
3. Make an offer that will benefit both the retailer and you, and make it without waiting for a tender to be announced. Your offer will become much more attractive if you:
   • conduct preliminary research yourself;
   • simplify the quality control procedure or take on part of the costs;
   • minimize network costs for the purchase of raw materials and packaging and storage of finished products;
   • distribute the package of additional services provided to your brands and private label networks.

The proposed operating algorithm can be quite effectively implemented by both domestic manufacturers and importers. The weakening of the ruble exchange rate at the beginning of the year reduced the competitiveness of foreign goods. Nevertheless, the emerging trends towards a fall in the EURO exchange rate, an increase in imports of food products from European countries and the focus of a number of Western enterprises on the production of private labels for European retailers make cooperation with Russian companies promising. retail chains in the production of private labels and own imports.

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