Private Label Trends

Revision as of 13:35, June 15, 2007 (edit)
Mybikeisgreen4 - Sr. Director (Talk | contribs)

← Previous diff
Revision as of 08:48, March 24, 2011 (edit) (undo)
142.214.116.32 (Talk)
(Impact of Private Label)
Next diff →
(14 intermediate revisions not shown.)
Line 1: Line 1:
{{concept}} {{concept}}
 +[[Category:Mature]]
-'''Intro'''+[[Image:Private1.jpg|thumb|right|Private labels as % of 2006 sales for the top four U.S. grocery retailers]]
-*Reasons for increase of PL - for retailers, PL give higher margins, can establish brand loyalty, and give them something to distinguish themselves from other retailers. For customers, private label goods are usually cheaper and offer a wider variety of options (low-end/very cheap, on par with national brands/cheap, premium/around price of mid-range national brand).+Private label describes products manufactured for sale under a specific retailer‘s brand. They are often designed to compete against branded products, offering customers a cheaper alternative to national brands. Though the public generally used to see them as low-cost imitations of branded products, private labels have overcome this reputation and achieved significant growth in recent years. The most commonly known private label goods are the “store brands” sold by food retailers, though this is just one example of many. Department stores, electronics stores, and office supply retailers all offer private label products or services.
-**The lower prices can increase retailers competitiveness. At the same time, PL's higher margins provide more profit per unit than national brands due to much lower advertising/marketing expenses and R&D).+
-*Negatively impacted - manufacturers of branded products. PL can increase competition. Manufacturers of goods that are highly substitutable are at greatest risk (breakfast cereals, MAYBE protein like meats, dairy, etc.)+
-*Positively impacted - retailers with a higher % of private label goods (providing they are good and people actually want them....otherwise, a high % of PL could be bad) like WMT, TGT, COST, KR. Also, manufacturers of these private label goods could benefit...sometimes, even manufacturers of the branded goods produce PL in an attempt to protect themselves against declining demand for branded products (though they still lose profits on this due to the lower price of PL goods, as well as the fact that they still have to pay for product development and marketing).+
- +
-[[Image:Private1.jpg|thumb|right|Private labels as % of sales for the top four U.S. grocery retailers]]+
-Private label describes products manufactured for sale under a specific retailer‘s brand. They are often designed to compete against branded products, offering customers a cheaper alternative to national brands. Though the public generally used to see them as low-cost imitations of branded products, private labels have overcome this reputation and achieved significant growth in recent years. Private label can refer to a variety of different products across various industries. The most commonly known private label goods are the “store brands” sold by food retailers, though this is just one example of many. Department stores, electronics stores, and office supply retailers all offer private label products or services. +
Private labels offer several benefits to both retailers and customers, driving the segment's rising popularity. For retailers, margins on private label goods are an average of 10% higher than those on similar branded products. Customers benefit from private labels' lower prices, which are often significantly less than those of national brands. This combination, while beneficial to retailers and consumers, can put substantial pressure on the manufacturers of branded goods, who have to compete against their own customers (the retailers) for market share. Private labels offer several benefits to both retailers and customers, driving the segment's rising popularity. For retailers, margins on private label goods are an average of 10% higher than those on similar branded products. Customers benefit from private labels' lower prices, which are often significantly less than those of national brands. This combination, while beneficial to retailers and consumers, can put substantial pressure on the manufacturers of branded goods, who have to compete against their own customers (the retailers) for market share.
 +[[Image:walmart_aisle.jpg|thumb|300px|At Wal-Mart, brand name products share shelf space with pivate label products belonging to the retailer itself.]]
 +
==Impact of Private Label== ==Impact of Private Label==
Line 18: Line 15:
*National brands are sold all over, so there's no real sense of brand loyalty in terms of where consumers buy them. Because private labels are unique to one retail chain, there is the possibility for retailers to cultivate a sense of brand loyalty. Though they used to be seen as knock-offs of "name brands", private labels have become increasingly more accepted by the public as quality has increased and retailers have expanded their offerings of private label goods. Many consumers now seriously consider private labels as acceptable alternatives to national brands. Retailers can capitalize on this shift in public perception by offering quality private label products, which can foster a feeling of brand loyalty. This can give retailers a significant advantage over competitors. *National brands are sold all over, so there's no real sense of brand loyalty in terms of where consumers buy them. Because private labels are unique to one retail chain, there is the possibility for retailers to cultivate a sense of brand loyalty. Though they used to be seen as knock-offs of "name brands", private labels have become increasingly more accepted by the public as quality has increased and retailers have expanded their offerings of private label goods. Many consumers now seriously consider private labels as acceptable alternatives to national brands. Retailers can capitalize on this shift in public perception by offering quality private label products, which can foster a feeling of brand loyalty. This can give retailers a significant advantage over competitors.
 +[[Image:Private2.jpg|thumb|right|Largest private label categories, by % of 2006 volume share]]
'''Lower Prices/Higher Margins''' '''Lower Prices/Higher Margins'''
-*Private label goods are generally much cheaper to produce than branded goods, due to the lack of advertising and marketing expenses. As such, retailers are able to purchase private label goods for much less than they would have to pay for comparable branded products. The cost difference is usually large enough that retailers can offer customers lower prices while still making higher profit margins themselves (an average margin of 28%, compared to around 20% on branded products). Lower prices can be enticing to customers and increase a company's competitiveness. Small chains have a particular incentive to offer private label goods; they are often unable to match larger retailers' prices for branded goods, but private label can allow them to price more competitively.+*Private label goods are generally much cheaper to produce than branded goods, due to the lack of advertising and marketing expenses. As such, retailers are able to purchase private label goods for much less than they would have to pay for comparable branded products. The cost difference is usually large enough that retailers can offer customers lower prices while still making higher profit margins themselves. Lower prices can be enticing to customers and increase a stop on a product's way from the manufacturer to the consumer. Retailers are now becoming increasingly established as brands themselves, marketing their private label products as alternatives to national brands. This has resulted in a growing shift in the balance of power between retailers and manufacturers, with retailers not only becoming less dependent on manufacturers for product offerings but actually making manufacturers dependent on them for sales volume.
- +
-'''Retailers as Marketers'''+
- +
-*In the past, retailers were merely the last stop on a product's way from the manufacturer to the consumer. Retailers are now becoming increasingly established as brands themselves, marketing their private label products as alternatives to national brands. This has resulted in a growing shift in the balance of power between retailers and manufacturers, with retailers not only becoming less dependent on manufacturers for product offerings but actually making manufacturers dependent on them for sales volume.+
==Who benefits from an increase in private label?== ==Who benefits from an increase in private label?==
-*+*[[Wal-Mart]] (NYSE:WMT), [[Target]] (NYSE:TGT), [[Costco]] (NYSE:COST), and other retailers for whom private label goods constitute a significant percentage of total sales. Stores such as these would benefit from the higher margins that private labels provide.
 +*[[Whole Foods]] (NASDAQ:WFMI), [[Kroger]] (NYSE:KR), and other supermarkets with strong private labels could benefit from the further penetration of private label into the food retail industry.
 +*[[Cott Corporation]] (NYSE:COT) is the largest manufacturer of retail-branded carbonated soft drinks in the U.S., producing 68% of all private label soda sold by U.S. retailers. Cott's largest customer is Wal-Mart, who accounted for 38% of total revenue in 2006. An increase in demand for private label soda could benefit Cott greatly, as its entire business is focused on this segment.
==Who benefits from a decrease in private label?== ==Who benefits from a decrease in private label?==
 +*The [[Coca-Cola Company]] (NYSE:KO), [[PepsiCo]] (NYSE:PEP), [[Procter and Gamble]] (NYSE:PG), and numerous other manufacturers of branded products could be harmed by a rise in private label's popularity. Some manufacturers have hedged their bets somewhat by beginning to produce private label goods as well as branded products. Examples include: [[Kraft Foods]] (NYSE:KFT), [[Nestle]] (VTX:NESN), [[Kimberly-Clark]] (NYSE:KMB), [[H.J. Heinz]] (NYSE:HNZ), [[Del Monte Foods]] (NYSE:DLM), and [[Unilever]] (NYSE:UL). By producing private label goods, these companies would be somewhat less impacted by a decrease in demand for their branded products. Private labels, however, provide much lower margins than branded products, especially since these companies already cover R&D and marketing expenses for their existing products.
 +
 +[[category:Retail]]

Revision as of 08:48, March 24, 2011

Private labels as % of 2006 sales for the top four U.S. grocery retailers
Private labels as % of 2006 sales for the top four U.S. grocery retailers

Private label describes products manufactured for sale under a specific retailer‘s brand. They are often designed to compete against branded products, offering customers a cheaper alternative to national brands. Though the public generally used to see them as low-cost imitations of branded products, private labels have overcome this reputation and achieved significant growth in recent years. The most commonly known private label goods are the “store brands” sold by food retailers, though this is just one example of many. Department stores, electronics stores, and office supply retailers all offer private label products or services.

Private labels offer several benefits to both retailers and customers, driving the segment's rising popularity. For retailers, margins on private label goods are an average of 10% higher than those on similar branded products. Customers benefit from private labels' lower prices, which are often significantly less than those of national brands. This combination, while beneficial to retailers and consumers, can put substantial pressure on the manufacturers of branded goods, who have to compete against their own customers (the retailers) for market share.

At Wal-Mart, brand name products share shelf space with pivate label products belonging to the retailer itself.
At Wal-Mart, brand name products share shelf space with pivate label products belonging to the retailer itself.


Impact of Private Label

Brand Loyalty

  • National brands are sold all over, so there's no real sense of brand loyalty in terms of where consumers buy them. Because private labels are unique to one retail chain, there is the possibility for retailers to cultivate a sense of brand loyalty. Though they used to be seen as knock-offs of "name brands", private labels have become increasingly more accepted by the public as quality has increased and retailers have expanded their offerings of private label goods. Many consumers now seriously consider private labels as acceptable alternatives to national brands. Retailers can capitalize on this shift in public perception by offering quality private label products, which can foster a feeling of brand loyalty. This can give retailers a significant advantage over competitors.
Largest private label categories, by % of 2006 volume share
Largest private label categories, by % of 2006 volume share

Lower Prices/Higher Margins

  • Private label goods are generally much cheaper to produce than branded goods, due to the lack of advertising and marketing expenses. As such, retailers are able to purchase private label goods for much less than they would have to pay for comparable branded products. The cost difference is usually large enough that retailers can offer customers lower prices while still making higher profit margins themselves. Lower prices can be enticing to customers and increase a stop on a product's way from the manufacturer to the consumer. Retailers are now becoming increasingly established as brands themselves, marketing their private label products as alternatives to national brands. This has resulted in a growing shift in the balance of power between retailers and manufacturers, with retailers not only becoming less dependent on manufacturers for product offerings but actually making manufacturers dependent on them for sales volume.

Who benefits from an increase in private label?

  • Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Costco (NYSE:COST), and other retailers for whom private label goods constitute a significant percentage of total sales. Stores such as these would benefit from the higher margins that private labels provide.
  • Whole Foods (NASDAQ:WFMI), Kroger (NYSE:KR), and other supermarkets with strong private labels could benefit from the further penetration of private label into the food retail industry.
  • Cott Corporation (NYSE:COT) is the largest manufacturer of retail-branded carbonated soft drinks in the U.S., producing 68% of all private label soda sold by U.S. retailers. Cott's largest customer is Wal-Mart, who accounted for 38% of total revenue in 2006. An increase in demand for private label soda could benefit Cott greatly, as its entire business is focused on this segment.

Who benefits from a decrease in private label?

  • The Coca-Cola Company (NYSE:KO), PepsiCo (NYSE:PEP), Procter and Gamble (NYSE:PG), and numerous other manufacturers of branded products could be harmed by a rise in private label's popularity. Some manufacturers have hedged their bets somewhat by beginning to produce private label goods as well as branded products. Examples include: Kraft Foods (NYSE:KFT), Nestle (VTX:NESN), Kimberly-Clark (NYSE:KMB), H.J. Heinz (NYSE:HNZ), Del Monte Foods (NYSE:DLM), and Unilever (NYSE:UL). By producing private label goods, these companies would be somewhat less impacted by a decrease in demand for their branded products. Private labels, however, provide much lower margins than branded products, especially since these companies already cover R&D and marketing expenses for their existing products.
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki