According to Nielsen data 63% of European shoppers feel that the quality of private label goods has improved over time, and some private label products, such as Tesco’s Finest range, fetch a higher price than their branded equivalents.
“The future is co innovation, without a shadow of a doubt. And technology will be a key driver,” says Per Sundelin, senior analyst at the Healthy Marketing Team.
This is as true for brands as it is for retailers and their private label ranges.
A progressive brand is one that incorporates technology, a brand story, passion and customer and consumer engagement. So in terms of competing with private label innovation, brands should look at categories
that have low private label penetration because consumers feel loyal to branded products. People still prefer their Marshall bar or bottle of Heineken, says Sundelin.
Strategic insight director at IRI Tim Eale told this publication earlier this year that brands needed to look at these categories where brands are still top, such as confectionery, alcohol or perfume, and learn from them.
These brands have worked hard to decommoditise their products and have become well-known and trusted, and competing with a private label product that may 30 or 40% cheaper is all about making an emotional connection, in the same way as perfume does.
But private labels are also working hard at fostering that emotional connection and developing a ‘brand personality’ and for Sundelin, who gave the example of an advert by UK retailer Waitrose, this is co-innovation.
Keeping ahead of consumer trends and being able to predict what shoppers will want next is also crucial.
Of course retailers will always have an advantage over brands thanks to the wealth of data at their fingertips – they know exactly what consumers are buying and
This data is a strategic asset that supermarkets can either keep for themselves or sell onto market research companies, providing an additional revenue stream for them while brands are required to purchase the data from market researchers.
But, as Sundelin points out, retailers also have a vested interest in ensuring a balance between private label and branded products.
“It’s a trade off because yes it’s a revenue stream but they have a need to make sure that the branded products evolve and develop. They need to balance both. Some German hard discounters have 100% own brands. Is that ideal? Well it comes back to the positioning they do and the value they put into their brand, the promise to the consumer.”
Meanwhile the transparency created by the explosion of online shopping - a one-time retail innovation in itself - and the proliferation of apps allowing people to compare prices of almost every product in just a few clicks, risk reducing consumer loyalty to retailers, warns Sundelin.
“Convenience, formats, availability, internet shopping – [retailers and private labels] are providing additional benefits which is of course added value to the brand.
“But once you’ve used that lever what else can you use? If you don’t develop further innovation, you have to fall back on and rely on price. And then it becomes a commodity.”