Why do hypermarkets have their own private label brands competing with category leader brands?

Often while shopping in a hypermarket, you would have noticed private labels of brands of the hypermarket in prominent categories like detergents, soaps, oils, air fresheners, staple foods etc.

The question comes to mind why have your own brand; when you are already selling prominent brands in those categories?

The answer is simple, it's all about two things “Mindspace” and “commercial dominance”.

Consumers using private-label shampoo or soap at the start of their day would have higher top-of-the-mind recall for the hypermarket retailer.

Secondly, selling its own private label product would mean better commercials in terms of margins and provide a “Value” proposition to the customer thus reinforcing the promise of the retailer “Buy more for less” and thus increasing loyalty and repeat purchases.

How to fight competition from Private label brands?

The answer lies in asking the right questions. National or Regional brands to compete with hypermarket Private label brands must answer the following questions.

a)     What value does your brand provide over private labels?

b)    Why should consumers pay higher prices for your product over private labels?

c)     Convincing consumers to trade up will be essential, particularly during the holiday season/ special events.

1)     Bundle your brand with the private label brand of the store in order to avoid discounting practices thus offering better value to the customers.

For example – OMO detergent could be bundled with private label dishwashing liquid of the store, along with a floor disinfectant – bundle focusing on the hygiene aspect. Here the bundle would offer value as the price of the bundle would be lower when purchased individually. (of brands).

2)     The Value of Branding

Brands may also want to consider leveraging the one thing private label is not able to offer: strategic branding and brand equity.

In contrast to private label, which lacks consumer trust and loyalty, legacy and emerging brands have the unique opportunity to position themselves against the competition. 

3)    Contextualize your customer’s shopping habit

Brands can easily compete with private label brands by contextualizing the assortment as per the customer’s shopping patterns i.e. weeknight dinner recipe, weekly meal prep or quick grab-and-go breakfast. Basically, making everything convenient for the customers.

The Cons of category management for brands:

One of the most important negatives of modern trade category management is the ownership of the data.

It’s the retailer (hypermarket) who owns the entire buying data of the customers and also their trolley movement data and complete purchase cycle as well.

Moreover, today almost all hypermarkets have loyalty programs which are also adding a layer of data analysis on repeat purchases and point redemption patterns.

Amazon, the world’s biggest retailer has long leveraged brand data to develop products.

By using purchasing data, the company developed private label brands that resonate with consumers that can also be sold at a lower price point, thus giving Amazon a competitive edge. 

But this strategy has brought criticism that Amazon was using third-party data to shape business decisions and steer customers to its in-house brands.

But why do hypermarkets still need power brands with them?

The answer is “Choice & a wide variety of selection”, Branded goods provide immediate recognition and trust and hence act as crowd pullers for the hypermarkets.

The challenge is to maintain a healthy balance between Private Labels & Branded goods.

Recently, Amazon confirmed that it plans to streamline the number of private brands it offers. Amazon had over 48 in-house brands which are now narrowed to less than 20.

The retailer also plans to rebrand some popular items under existing brands like Amazon Basics and Amazon Essentials. 

As per WSJ, Amazon has cut its overall number of private label brands to less than 20.

Category management and assortment mix becomes challenging & need to be monitored from the customer’s perspective, if the customer NO Longer perceives the value for money proposition from the private label brand then it’s better to close the product line.

For Amazon, there two most popular in-house brands are Amazon Basics and Amazon Essentials which today contribute over 4% to the turnover hence these two in-house brands would be focused further & reinforced by Amazon. Source- Numerator

Summary:

Private label assortment planning needs to be conducted in accordance with customer shopping behavior and perceptions studies. You never know when your customer stops seeing “Value” in your private label offerings hence Perception studies need to be conducted regularly by hypermarket operators.

If you are a business owner operating in the beauty/fragrance genre & want to develop your own range of Private label goods & need an expert to help you achieve your “Vision to Reality” framework then feel free to write to me at [email protected] & schedule a discovery listening call over a #coffeechat.