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, private label penetration is highest in Switzerland, the UK, Germany, Spain and the Netherlands, where private label market share exceeds 30% by value (Figure 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 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 the company’s retail revenue .

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 product range and maintain the loyalty of 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 brands, starting from the formation of technical specifications for the product and packaging and throughout the entire period of production and sales. 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 of the production process allows you to optimally create a production 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 a price and promotional plan, provides a deferred payment (trade credit), delivers goods to retail 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 mentioned above, private labels are designed to best satisfy any of the needs of the potential audience. Be that as it may, in order to form an optimal price offer for a non-unique product, it is necessary to obtain its lowest 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 recent 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. In principle, this stage does not require any 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 products manufactured in large quantities, payment of credit funds (instead of a commodity loan in 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 of Russian enterprises differs significantly from the Western one.

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 reorienting production to the production of private labels, you will have to reduce commercial divisions and the active sales department, as well as abandon the customer 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 a retail chain 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 your own strengths and capabilities:
   • 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 retail chains in the production of private brands and their own imports promising.

02.07.2018

A private label (private label) is a brand owned by the entity that implements it, according to the Encyclopedia of Marketing. Private labels first appeared abroad due to the confrontation between large retailers and manufacturers of famous brands in 1869. In Russia, private labels began to develop in 2001. And now companies continue to increase sales of their own brand products.

Private label share in sales

Dixy led the top 10 Russian retailers in terms of the share of its own brand in turnover, which amounted to 25%, Retailer reports. In second place was “Auchan” with a result of 24%, and in third place was “Pyaterochka” with 17%. Also in the top ten were “Azbuka Vkusa” (16%), “Lenta” (13%), Metro (10.9%), “Magnit” (10.3%), Billa (7%), “O’Key” (5.6%) and “Crossroads” (5.4%).

“Every fifth Auchan product sold in Russia is under a private label,” noted Nadezhda Paderina, director of purchasing goods under its own brand at Auchan Retail Russia.

“The share of private label brands in X5’s turnover in 2016-2017 was stable and amounted to about 14%,” said a representative of the X5 Retail Group press service. - Products under our own brand are presented in a large number of categories, more than a thousand items in total. They are produced in different Russian regions, including local enterprises that have established themselves as reliable suppliers.” In particular, Perekrestok has 1,000 items of its own brand, and every third product in the receipt is a private label.

“Lenta is currently developing 13 of its own brands of food and non-food products. The share of private label sales is 13%,” said Maria Filippova, Lenta’s public relations and government relations manager.

“We have more than 600 private label product items, most of which are food products. The share in total revenue is 9%,” said the public relations department of the Magnit retail chain.

In online stores, the number of sales of private label goods is also gaining momentum.

“Our share of sales of our own brand products is growing rapidly, in some categories it has already reached 50%,” said Maria Levina, co-founder and CEO of The Furnish.

“In our company, the share of private label sales is 15% on average throughout the year and 25% during the season,” added Nikolai Belousov, founder of Madrobots.

At the same time, there are organizations whose products consist entirely of private labels, for example, Oriflame, RALF RINGER, Samsonite and many others. The head of the financial department of Samsonite LLC, Vladimir Nesterov, said: “Since we are a 100% subsidiary of the Belgian Samsonite, 100% of our sales are our own brands. There are non-Samsonite brands, such as Lipault, Tumi, but they also belong to Samsonite.”

Not only in Russia, but also in neighboring countries, in particular in Belarus, there are companies that are striving to increase the share of private label products.

Thus, Maxim Tsuran, Vice CEO MotoVeloZavod Ltd. in Minsk, said: “In our company, the share of sales of goods under our own brand is 60%. To further increase this share, we will expand the number of our brands both for our own retail and for other retailers.”

All retailers surveyed by CFO Russia plan to increase sales of private label goods.

What is sold under private label

In order for the share of private label sales to grow, retailers need not only to rely on the greater availability of such products for customers, but also to develop product lines.

The largest retail chains tell you what products they sell under private labels.

“We have set ourselves the goal of developing products with unique characteristics so that our own brands are distinguished not only by favorable prices, but also by better consumer properties,” said Dmitry Medvedev, marketing director of the Perekrestok retail chain. - For example, this year the Perekrestok chain has already launched several of its own brands, including Market. Green Line". It should include about 200 product items of dairy products with an ultra-short shelf life and the Ukhtyshki brand of children's goods. In the future, both brands will become available in other X5 formats: Pyaterochka convenience stores and Karusel hypermarkets.”

“Magnit stores sell under their own brand: dairy products, flour, cereals, soft drinks, tea, coffee, canned meat and vegetables, confectionery and much more,” said the Magnit public relations department.

“The development of private label goods is an important component of the strategy of the Auchan company in all countries of presence,” noted Nadezhda Paderina, director of purchasing goods under its own brand at Auchan Retail Russia. - We rely on private label to meet the basic expectations and needs of our customers. At the same time, putting the customer at the center of our attention, we understand that it is necessary to provide a wide selection of products on the shelf. Accordingly, national brands are also important for us when forming our assortment.

We are implementing a new strategy for the development of private labels in the food sector. AUCHAN's own brand is an example of creating a new product on the market. It has no analogues among other brands. The AUCHAN central office decided to create a single private label for all countries of presence with uniform quality requirements and a single brand book, visualization of the brand in the form of a bird. The image of the bird will also appear on the packaging of private label goods and will denote products of different price categories. “Green Bird” are the cheapest products, “Red Bird” are the middle price segment, “Golden Bird” are premium segment products.

Now the heart of the strategy is the “Red Bird” TM. Also in 2018, we are launching the “Golden Bird” TM. In 2018, we will retain the “Every Day” trademark, but will stop developing it in new categories.

In March 2018, premium chocolate under the updated AUCHAN private label went on sale in AUCHAN Retail Russia stores. The assortment includes three lines of 12 items,” added Nadezhda Paderina.

In May, the leader in private label share, Dixie, released a line of its own brand products dedicated to the FIFA World Cup. Drinking water and chocolate in the shape of soccer balls, peanuts and pistachios, as well as ice cream, plastic and paper cups under private label appeared on the shelves of the Dixie TS.

“We also release new models of goods under our own brand,” said Nikolai Belousov, founder of Madrobots. - For example, new versions of the bivan. Naturally, we are trying to increase sales of such products. And then competition comes into play, the size of the promotion budget and its effectiveness.”

Advantages and disadvantages of private labels

Representatives of companies surveyed by CFO Russia noted many advantages of private labels.

“The Magnit retail chain is actively developing its own brands to provide customers with quality goods at affordable prices. Leading Russian and foreign enterprises develop and produce private label products specifically for the Magnit retail chain. The company guarantees the quality of the goods and provides customers with a wide range of product choices. Products under private labels are in demand among buyers, and the products are trusted by visitors,” said the Magnit public relations department.

“Private label is an opportunity for a manufacturer to increase sales volumes, utilize production capacity and optimize costs for creating, promoting and supporting a brand. For the retailer, this is a chance to differentiate in the market, strengthen customer loyalty through a unique assortment and high quality of goods at attractive prices,” said Maria Filippova, public relations and government relations manager at Lenta.

“For us, private label is, first of all, an increase in competence in the eyes of consumers, when our brand is perceived not only as a specialist in footwear, but also in high-quality related products,” said Igor Kamelkov, commercial director of RALF RINGER. - Moreover, by producing related products under our own brand, we increase the number of communications with the audience in everyday life. For example, a consumer may have several pairs of shoes from different brands in his wardrobe. And if he has related products from our brand (bags, belts, insoles, shoe cosmetics and care products), we increase the frequency of contact, reinforcing positive emotions from our presence in his life.”

Thanks to private labels, Vneshtorg Group, a manufacturer of electrical equipment in the DIY segment, increased the company's revenue 10 times, Dp.ru reports. “In 2017, we created a package of services, which included the development, production, positioning, etc. of our own brand products. As a result, we attracted 40 business partners,” explains the company’s founder.

Top managers of online stores highlighted the following advantages of selling their own branded goods.

1. “Competitive prices for customers, product quality control, unique design.” (Maria Levina, co-founder and CEO of The Furnish).

2. “Reducing dependence on imports and partners’ plans.” (Nikolai Belousov, founder of Madrobots).

3. “Higher margins, marketing support from the parent company, a strong brand and our own strict quality control, which guarantees fulfillment of obligations to customers.” (Vladimir Nesterov, head of the financial department of Samsonite LLC).

4. “Price, independence from sales from competitors, exclusivity, the ability to build a strategy for yourself, your own quality requirements, etc.” (Maxim Tsuran, Vice CEO MotoVeloZavod Ltd. in Minsk).

However, private label products also have disadvantages.

1. “The need to invest in research and development and maintain a staff of engineers and technologists who are engaged in creating new products.” (Nikolai Belousov, founder of Madrobots).

2. “Promotion of brands from scratch.” (Maxim Tsuran, Vice CEO MotoVeloZavod Ltd. in Minsk).

3. “Responsibility for the quality of the product and the need to strictly adhere to production deadlines” (Maria Levina, co-founder and CEO of The Furnish).

“If we talk about shortcomings, I would rather characterize them as features. Indeed, in most categories of related products, the consumer focuses on the market leaders in price and product quality. Therefore, when choosing a private label supplier, we must meet the expectations of our target audience and maintain the existing trust in the brand due to the high quality of the offered related products,” said Igor Kamelkov, commercial director of RALF RINGER

“When selling goods under its own brand, the company builds a direct dialogue with the consumer. In the case of retail chains, when using their own brand, the retailer ceases to be an intermediary. In the eyes of the consumer, he is already a manufacturer, and accordingly, is responsible for the quality and value of the product for the client. There are both risks and opportunities in this. If the company cannot guarantee quality, then there is a risk that customer negativity from the product will spread to the name of the retail chain. At the same time, if the retailer manages to provide value to the customer by offering a quality product at a good price, he will receive a loyal consumer who will buy other products along with the store’s own brand product. Of course, additional investments will be required in promoting private label goods, since customers are accustomed to buying goods from other brands. It is very important to choose the right assortment for sale under a private label, assessing in which product category buyers are ready to change their preferences,” concluded Natalya Saukova, financial director of Oriflame.

The trend towards increasing the share of sales of private label products is evident. Advertology.ru reported: 84% of consumers said that they regularly buy private labels. This means that they are not only beneficial for retailers, but also convenient for customers.

Yulia Silchenko

Creation own brands It’s still not very common in Russia, but everyone has encountered them, one way or another. Most often they are found in hypermarkets and supermarkets, on shelves with familiar brands. Only the price differs: the cost of goods produced under a private chain label is usually 10-15% lower than that of analogues. This does not mean that the product is of worse quality, it’s just that the manufacturer has the opportunity to save on advertising by promoting products directly at points of sale, which significantly reduces the final price. In addition, private labels are created specifically for the audience of a specific trading platform, so manufacturing retailers can respond flexibly and quickly to their needs, which helps increase demand.

The creation of such brands is a requirement of the modern market. With their help, retailers gain control over part of the product, can attract customers and improve the store’s image. How does this happen? Let's find out.

The impact of private labels on store image

In Russia, as mentioned above, private labels are still not very popular. Changes in commodity-market relations originate in Europe and America, where they “settle down” and become commonplace, and only then attract the attention of domestic entrepreneurs. Thus, abroad a 30-40% share of own goods in a supermarket’s assortment is considered the norm. They account for a third of the turnover, two-thirds of the margin, and without these products the retailer can no longer exist.

Domestic retailers are still using simple copying, offering products at low prices from popular categories. In foreign practice, attracting customers with additional benefits is actively developing: for example, the production of organic products that compare favorably in their properties with branded competitors. This does not exist in Russia yet, but everything is striving towards this.

Today, the largest retailers produce almost all products in the food and non-food segments under their own brand: alcohol, tableware, animal feed, dairy products, and much more at medium and low prices. As a rule, their own products are similar in appearance to their branded counterparts, which is logical, since the retailer needs to start from something.

The name of the product must include the name of the manufacturer and a logo. This is where the entire network “goes”: a high-quality product that is cheaper than its analogues creates a positive image for the entire company.

Production of goods under your own brand

Retailers rarely have the opportunity to organize their own production - especially since we are talking about a very wide range of goods from all categories, from household chemicals to food. The purchase of private label goods is carried out from third-party manufacturers interested in creating their own brands and having the relevant experience. Certification for compliance with technical specifications and GOSTs takes place in independent licensed laboratories.

Third-party companies also produce packaging for goods and develop design, which is worth talking about separately.

Features of creating packaging for your own brand

There are two key points in this matter: the packaging should attract attention, but not be incredibly expensive. Therefore, great attention is paid to thinking through the design.

The development of packaging and release of products to shelves is carried out in stages:

1. Competitive products and their packaging designs are analyzed, after which ideas are collected and proposed.
2. The design is developed by our own design studio, branding agency or freelance specialists. The emphasis is on the presence of the chain name in the product name, as well as on a consistent design style: this way buyers can immediately recognize the private label.
3. A trial batch is ordered and tested. If the product is successful, the batch is increased and becomes part of the store’s permanent assortment.

) have long become a tool for retail chains in the fight for customers. At the beginning of 2017, the share of private label goods in certain categories increased by 25%. The share of private labels in the children's goods market is growing rapidly. In particular, according to RBC research, the share of private labels of the Group of Companies "Child's world"(clothing and footwear) already exceeds 70%. Meanwhile, in the last two years there has been a fierce “war” between private labels and branded products for promotions.

The manufacturer benefits from ordering under a private label

Private label products are beneficial for retail chains, he said Andrey Karpov, Chairman of the Board of the Russian Association of Retail Market Experts (RAERR). According to him, the retail chain, when ordering private label products from manufacturers, does not spend money on its promotion or on other costs inherent to the manufacturer. Accordingly, the profit from the sale of such products is higher.

According to Karpov, it is important for the manufacturer to load production at 100%, so orders from private label networks are beneficial to him. At the same time, the manufacturer can simultaneously manufacture products for retail chains, their own brands, as well as for third-party manufacturers.

Brands VS STM

In 2017, a trend emerged when the once-growing private label market gave way to a brand from a manufacturer sold through a promotion, he said Nikolay Moskvitin, senior consultant, consumer panel research department, Gfk Rus. Sales of brands at discounts turned out to be quite strong. This confirms the popularity of mobile applications, with the help of which buyers “hunt” for discounts in different stores.

Nikolay Moskvitin noted the clear leadership in sales of branded products in the canned vegetables category. In particular, at the beginning of 2017, this category grew by 7%. Moreover, the main growth came from branded products at promotional prices. Thus, sales of canned corn from the manufacturer at a promotional price increased by 19%, while sales at a regular price fell. At the same time, private label sales also dropped by 5%. “The reason is the price. For example, canned corn in a private label costs 39 rubles, and branded corn at a discount costs 32 rubles. In this case, the buyer chooses the brand,” he noted.

Reference:

The private label (private label) marketing phenomenon dates back to 1869, when the first Sainsbury’s store opened in London, offering customers bacon labeled with the store’s name. A hundred years later, the French chain Carefour began producing groceries and essential goods without any name. They were cheaper than their analogues.

The history of private labels in Russia goes back about 16 years. Thus, in 2001, for the first time in Russia, Ramstore supermarkets introduced products of their own brand. Later, the Perekrestok retail chain began producing several types of products under the same name brand. Then this trend was supported by Dixie, Lenta, and Pyaterochka.

Demand for private labels is growing - retailers

Retail network "Ribbon" will continue to increase the range of private label goods, as the demand for inexpensive, high-quality goods is constantly growing, the retailer’s press service reported. Today, the retail chain produces more than 2,500 SKUs of food products under the private labels “365 days” and “Lenta”, of which more than 800 were added to the private label portfolio in 2017, as well as more than 2,200 non-food products. The total share of SMT in the company's turnover is at 12%. In 2018, Lenta plans to further expand its range of private labels in various product categories and price segments, the retailer’s press service clarified.

In the briefcase "Ashana" more than 3,300 private label goods that are produced in Russia, she said Nadezhda Paderina, director of purchasing of private label goods "Auchan" during the NRR-2017. According to her, this figure does not include imports of private label products from other countries. Contracts for the production of private labels have been signed with more than 400 domestic manufacturers. Thus, every fourth product in the customer’s basket is a private label. We are talking about both products in the economy segment of private labels and products in the mid-price segment.

According to Paderina, sales of private labels in the categories of poultry, cakes, pastries, stationery, textiles, and culinary products are growing at Auchan. This is due to the fact that in some categories, for example, “poultry”, “cakes and pastries”, the retailer offered customers more economical packaging and changed the format of products. At the same time, product quality is of paramount value for the retailer, Nadezhda Paderina emphasized.

Roskachestvo researched private labels

Positive reviews about the quality of private label products from retailers do not always correspond to independent research and examination. So, in a pre-New Year study Roskachestvo crab sticks, clostridia, which can cause an eating disorder, were found in private label products of four brands of large chain stores. The violators were crab sticks of private brands: “Red Price” (private brand of the “ Pyaterochka"), "First of all" (STM " Dixie"), Aro (private label Metro), Horeca Select (private brand Metro).

Also, after Roskachestvo’s examination of cottage cheese, it turned out that mold, starch, wheat fiber, as well as antibiotic residues were found in the products of the Krasnaya Tsena trademark (private brand of the Pyaterochka chain). Note that this was the only STM representative for the “cottage cheese” position in this study.

According to Andrey Karpov, in Russia the pricing policy for private label products is, as a rule, lower than the analogues of the manufacturer’s products, while there are questions about the quality of the goods. “This is how Russian private labels differ from European ones. There, private labels compete not only and not so much in cost, but in quality. And a European is ready to buy a private label product at a higher price, because this is a guarantee of the quality of the network,” said Karpov. Please note that private label products are divided into classes. In particular, private labels are produced in the economy segment, the mid-price range, and also the premium class.

A private label (store brand) is assigned to goods produced by a manufacturer at the request of a retail chain that promotes them under its own brand.

The history of private labels in our country goes back 10 years - in 2001, private label goods appeared in Ramstore supermarkets in Russia for the first time in Russia. By the end of the same year, the Perekrestok trading house released several items of goods under the Perekrestok brand. This trend was then supported by Dixie, Lenta, Pyaterochka, Kopeika and Auchan, which entered the Russian market in 2002.

At first, the introduction of private labels was carried out by retailers quite haphazardly. Chains tried to cover a wide variety of product categories with private labels, both in the food and non-food segments. However, it quickly became clear that private labels bring the greatest benefits to the group of consumer goods with high turnover. In this regard, there has been a steady tendency to introduce own brands in food categories that form the basis of the consumer basket, in seasonal goods, as well as in that component of the assortment matrix that has the least brand dependence. And individual successes were not long in coming. So, for example, in Perekrestok the total number of items sold under its own brands exceeds 1000 positions (this is Perekrestok and the brands “Red Price” and “Ice Age” common to the X5 Retail Group chains). "Lenta" is also constantly expanding the product line of the private label of the same name and the low-price category brand "365". "Auchan", in addition to pata products, offers customers private brands "Fortress", "Lakomo", "Don Gusto", etc.

The recent financial crisis and the associated hunt for low prices has led to a surge of interest in private labels from retailers and consumers. And when the economic situation stabilized, analysts noted that most buyers remained loyal to retail chains' own brands. And today, chains use private labels not only to increase profits, but also to strengthen customer loyalty. And this, according to analysts, is not a temporary trend.

See: S. Vakhrusheva. Market situation // Trade practice. 2011. No. 7.

In retail trade, the process of creating and developing a retailer's own brands can be classified as innovation. Innovation should be defined as a new benefit. Moreover, the benefits should be mutual. For a company, the benefit is profit, the key to its successful development. This applies to both manufacturers and retailers. For the consumer, innovation is value expressed in solutions that offer not just a product, but new benefits.

The main reason for the emergence of a private label is the concentration of trade and the growth of networks.

The relevance of the production and sale of goods under the retail trade enterprise's own brands is due to the fact that chains want to earn more and at the same time have low prices that are more attractive to consumers. If a store sells only well-known brands of the manufacturer, sooner or later it will either have to negotiate lower prices with its supplier or reduce its own markup, which has a certain limit. To increase profits, it is advisable for a retail trade enterprise to produce goods under its own brand. Since the entire volume of such products is sold through the customer’s network, the manufacturer does not need to widely advertise the product and distribute it. Because of this, the purchase price and, accordingly, the final price of a private label product turns out to be lower than the cost of goods produced by manufacturers under their own trademarks.

The effect of savings on the purchase price can be (depending on the category of goods and terms of the transaction) 5-10% or more, which, of course, is attractive to the buyer who receives a quality product at a lower price.

If we consider global practice, the share of sales of private label goods as a percentage in America and Europe can reach 30-40%, and according to forecasts in some networks it can be increased to 60-80%. The same European buyers want to see more and more private label goods in the networks in which they are accustomed to making purchases. If previously orders for the production of private label products concerned the low segment, today you can increasingly find private label products in the middle and also in the premium segment.

In Wal-Mart stores (the world's largest retail chain; an American company), there are approximately 120,000 different types of products. Of these, private label goods are probably less than 10,000 items. This is a small percentage. They produce them in all Asian countries. In China alone there are 800 enterprises. Private label products are more popular in Europe compared to the USA. But today one of Wal-Mart's goals is to increase the percentage of private label goods.

This is a really important goal. Let me give you an example from the USA, where Tide is one of the most popular brands of washing powder, produced by the Procter and Gamble company. So what is Wal-Mart doing? He creates his own Tide formula and produces it in his own production. This washing powder is no longer called "Tide", it is already a Wal-Mart brand. Wal-Mart's strategy of "same quality at a lower price" works here. The reason they do this is to put pressure on brands to lower their prices. All manufacturers of branded goods are at war with retailers. If Wal-Mart had the option, it would sell only private labels. And all this is due to the price premium, the margin. Retailers make more money from private labels than from branded goods.

See: Today one of Wal-Mart's goals is to increase the percentage of private label goods. Interview with Meikol Bergdahl // RETAIL.RU. April 3, 2007. URL: retail.ru/news/20432/? sphrase_id=303481

Having your own brands allows stores to:

• - fully control the price formation process;
• - reduce costs for promoting goods;
• - offer customers all products without exception, including vegetables and fruits, under their own brand.

Private label development goals:

• - promotion of the brand on the product market;
• - increasing profitability by reducing purchase prices;
• - increasing the competitiveness of the network;
• - creating a tool to increase customer loyalty.

Competitive advantages of private label:

• - The retail trade enterprise itself selects manufacturers based on experience and market analysis and guarantees consumers the quality of goods under its own brand.
• - The manufacturer does not bear the cost of an advertising campaign. A retail enterprise creates an image of goods and guarantees their quality, and also promotes these products through in-store means - special display, information support, etc. This allows us to reduce the cost of a number of goods under our own brand. In accordance with world practice, many private label goods are cheaper than their absolute analogues. According to ACNielsen research across 36 countries and 80 product categories, private label products are on average 31% cheaper than similar manufacturer branded products. In Russia, discounts are not yet so significant, but they exist and range from 5 to 25%.
• - A retail trade enterprise has the opportunity to enter into contracts with manufacturers to supply them with products with unique properties.
• - The presence of goods under your own brand facilitates consumer choice, especially in those product categories where goods of low brand dependence are presented.

Social features of private label:

• - The retail chain assumes responsibility to the buyer for the quality of goods under its own brand. The guarantee of quality is the extensive experience of the company’s buyers in selecting suppliers, as well as the presence of special knowledge about food products among the company’s employees. We can say that in this case the retail chain acts as an expert in the field of food and non-food consumer goods, offering the buyer its experience and knowledge.
• - Private label suppliers often include small regional companies that produce high-quality products from natural ingredients, but for a number of obvious reasons cannot break into the capital market. For such suppliers, this is a serious breakthrough, since cooperation ensures stable production capacity.

When determining product groups, a retail trade enterprise proceeds from the following selection criteria:

• 1) high turnover;
• 2) everyday demand (products that attract consumers to the store more than twice a week and, as a rule, have limited shelf life - perishable goods, meat and dairy gastronomy, etc.);
• 3) socially significant goods of stable demand that form the basis of the population’s consumer basket - cereals, tea, sugar, etc.;
• 4) high-margin goods;
• 5) goods with unique consumer characteristics;
• 6) new products that are promising from a marketing point of view.

Products under their own brand are beneficial to everyone: manufacturers, who receive the opportunity for stable sales without promotion costs, buyers, who purchase goods of guaranteed quality at a lower price, and retail chains, since purchase prices for such products are lower than for brands in which Considerable advertising costs have already been invested.

Manufacturers participating in the private label project also note its promise. Little-known regional companies that produce high-quality products can break into the capital market and ensure stable utilization of their own production.

The release of goods under private labels is of interest not only to chains, but also to manufacturers. The goals of manufacturers in working with private labels look like this: the opportunity to be represented in large retail chains, obtaining additional sales volumes and, as a result, capacity utilization and expansion of the range.

All retailers agree that the combination of quality, reliability and service is a key issue when choosing a supplier of private label products.

It is important that the quality meets retail requirements and remains high throughout the entire period of cooperation. And the price is also important: the quality must match it. The reputation of the supplier also plays a significant role. It is also important that the supplier has the opportunity to fulfill the volume of orders that the retailer needs, and that there are no interruptions in the supply of goods.

Unfortunately, small manufacturers do not always have the opportunity to produce private labels due to various difficulties.

The larger the network, the more difficult it is to saturate it with goods. Therefore, large networks often choose large suppliers for private labels: there is a guarantee that at least they won’t let you down with volume, and they have experience working together (the manufacturer knows the requirements of the network - the network knows that it can be trusted).

Speaking about the choice of private label suppliers, it is necessary to especially say what they are afraid of when working with a private label: suppliers are afraid of the short-term nature of the contract. What if a competitor offers a lower price - and the products of the original supplier will remain unclaimed, perhaps production lines reconfigured for a certain private label product will stop working, and the prepared packaging will turn out to be unnecessary?

None of the buyers are interested in a short-term contract if cooperation with the manufacturer is satisfactory. Who wants to renegotiate contracts, fill out a ton of paperwork, and build business processes? The change of supplier does not happen because the customer suddenly wants it, but, for example, because the control samples were good, and then they began to receive complaints from customers about the product - it became tasteless.

The work on creating private labels should be close, two-way.

See: S. Vakhrusheva. “Selecting a Private Label Supplier” // Trade Practice. 2011. No. 7.

Despite the profitability of private labels, manufacturers of national brands are very concerned about the growth of their popularity and strength. Some analysts predict that private label products will displace all but the largest national brand competitors. The following reasons can be cited: the growing quality of private label products, the emergence of private labels in premium segments, penetration into new product categories (cosmetic products, soft drinks, clothing, beer).

In the past, consumers ranked different brands on a brand ladder, with their favorite brand at the top and the rest ranked in descending order of preference. Today there are signs that brand parity is coming - equal recognition of different brands. A stable preference for a product of a particular brand is being replaced by a choice of goods from several recognized brands, depending on which of them is currently discounted.

The growing power of private labels is by no means the only factor influencing the weakening position of manufacturers' brands. Consumers have become more price sensitive. Due to the reproduction of the qualities of the best branded goods by competing manufacturers and major retailers, they note the great similarity of goods under different brands. Coupons and special offers have taught a generation of consumers to shop primarily during sales. In addition, many manufacturers' reduction of advertising expenditures to up to 30% of their promotional budgets has weakened their brand equity, and the endless expansion of brand families and boundaries has robbed them of their individuality.

According to experts from the Federal Purchasing Union ZLO "Sistema TZS", in the near future, sales volumes of goods under retailers' own brands on the Russian market will increase by 50-70%. Such high growth rates are associated with an unstable economic situation, forcing buyers to save on brands. Retailers are starting to work with private label goods to gain additional margins, and manufacturers are interested in opening new production facilities.

Competition between retail chains in terms of pricing policy is becoming more intense. In this regard, more and more players in the market are paying attention to working with goods under their own brands.

The vast majority of retail chains offer customers private labels, the quality of which is comparable to or superior to the characteristics of branded products. The absence of marketing budgets and a ready-made distribution system reduce the cost of goods by 25-30%.

The Federal Purchasing Union CJSC Sistema TZS, as part of the implementation of strategic objectives for the development of the company in 2012, plans to increase the turnover of goods produced under its own brands by 80-90%. Growth rates exceeding the market average will be achieved due to increased sales volumes, increasing the number of networks participating in the project, as well as by expanding the product line.

See: FZS is authorized to declare: The private label market will grow by 70% // RETAIL.RU. December 29, 2011. URL: retail.ru/news/60387/?sphrase_id=259793

However, despite the tangible benefits, There are a number of disadvantages to using private labels. Firstly, in some cases, huge amounts of money have to be invested in product development, creating a favorable image and informing consumers; secondly, the problem of product quality control is becoming more acute, the solution of which also requires significant additional costs; thirdly, additional training of sales workers is necessary in methods of selling private brands that are less well-known than manufacturers' brands.

In turn, large manufacturing companies with strong brands began to use numerous techniques to counter private brands. Manufacturers of national brands can counter private brands using a number of targeted measures.

• - Manufacturers of national brands are cutting costs and lowering prices to counter private label brands.
• - Manufacturers are continuously improving the characteristics of their products, such as the level of quality, functional properties, and appearance, in order to attract new users and intensify consumption.
• - National brand manufacturers can audit their brand portfolio to focus on the strongest brands to counteract store brands. They can also introduce “brand fighters” into their product range, opposing their own brands in the “acceptable quality - low price” segment.

Companies that own national brands can sell some of their products to retailers by entering into an agreement that they will be sold under a private label. However, not everyone can become a partner of a large retail chain. All chain stores have strict requirements for manufacturers. The main criteria when choosing suppliers are: product quality, the company's production capacity, its financial stability and time of existence on the market. The most important criterion for selecting partners for networks is the quality of goods. Nobody wants to embarrass themselves in front of customers by giving their name to a low-quality product. Therefore, any potential partner of a retail company must prove that there will be no problems with quality.

Guarantees of the quality of goods for a retail trade enterprise can be an independent examination or the reputation of a manufacturer who values ​​​​its image and has its own quality laboratories. The product must comply with the regulatory and technical documentation for a given product group. In addition, the manufacturer must not only initially declare high quality, but also maintain it constantly. If an independent examination shows its deterioration, as a rule, you have to part with such a manufacturer.

Another important issue is the company's production capacity. Only large chains with dozens of stores launch products under their own brands. Accordingly, the manufacturing partner must be able to fulfill a large order. As a rule, retail trade enterprises choose as partners manufacturers who occupy second, third or fourth place in their market segment. They do not work with a leading company for the reason that it is successful in itself and at some point it will face a dilemma: either create its own brands or work for retailers. And such a company itself, if it has powerful marketing and good brand equity, will not cooperate with them.

Very often, negotiations between retailers and manufacturers reach a dead end when discussing the purchase price of a product. The price should arouse interest among buyers, but allow both retailers and manufacturers to make a profit.

Leaders in the development of private brands in Russia have been identified

"Magnit", X5 Retail Group, "Auchan", Metro Cash&Carry, "Lenta", "Dixie" and "Maria-Ra" became leaders in the development of their own brands according to the INFOLine Private Label Profi rating based on the results of 2010 and the first half of the year 2011

For the first time, the INFOLine agency, specially for the forum "Own Brand - 2012", organized by KVK "Imperia", prepared a rating of Russian FMCG chains for the development of their own brands, based on the share of private labels in the chains' revenue in 2010 and 2011. (in %), share of private labels in the total number of SKUs in 2010 and 2011. (in %), total sales volume of goods under private label (in rubles), total number of SKU under private label (in pieces) and a number of other indicators.

See: Private label leaders // RETAIL.RU. November 29, 2011. URL: retail.ru /news/59591/?sphrase_id=259793

According to market participants, amendments to the Code of Administrative Offenses (CAO), adopted at the end of December 2010, will help increase private label sales. The amendments provide for significant fines for violation of contractual relations between suppliers and retail chains. Such accusations could cost the company 5 million rubles. Therefore, federal chains are today noticeably reducing their assortment, and introducing private label products into the vacant spaces. The production of goods under private label allows the network to combine the roles of supplier and trader, eliminating the possibility of claims of unfair contractual practices. According to the established practice in Russia, private labels are positioned by many networks in the lowest price category. This is where, when negotiating with a supplier, the retailer is interested in the lowest possible purchase price in order to offer goods with a very modest margin and attract consumers with price. Now the tough negotiating position of networks can be interpreted by some suppliers as the imposition of conditions. Therefore, it is much easier for a retailer not to purchase goods, but to produce them themselves, placing orders through contract manufacturing, developing packaging.

According to forecasts, by 2012 the share of private labels in the turnover of FMCG retail trade in the Russian Federation will be at least 3~3.2%.

The total volume of private label sales in the world exceeded 380 billion euros. According to INFOLine, the share of private labels in global trade turnover in 2010 was 22%, and by 2020 it could increase to 30%).

The private label business is being developed not only by federal retail chains. Small regional retailers are also actively promoting products under their own brands. There is also a common umbrella brand - the private label "Union Brand", which was launched in May 2009 by the Union of Independent Chains of Russia (the Union of Independent Networks of Russia unites 44 regional grocery chains in 46 regions, more than 1.3 thousand retail outlets). The Federal Purchasing Union (ZAO Sistema TZS), created by the NSR Union, produces over 100 types of goods, the sales volume of which over the course of a year and a half of project development exceeded 400 litas rubles.

Products produced to order from chains can be divided into two categories: products of a certain brand and so-called first-price products. For example, first-price products are offered by the Auchan chain: on the packaging with a yellow-green stripe only the name of the product is indicated (sugar, tea, soap or cotton swabs). "Auchan" also offers its own brands: "Lakomo" (dairy products), "Bed of Good Luck" (canned food), "Boncafe" (coffee), "Don Gusto" (cereals and pasta), "Fortress" (alcoholic drinks), CleanOK (cleaning products).

See: N. Novopashina. The desire to reduce the cost of a product at the expense of quality is hindering the development of private labels in Russia // However [Electron, magazine version]. March 30, 2011. URL: odnako.org/magazine/material/show_9897/