Trends in Retail Competition: Private Labels, Brands and Competition Policy

Trends in Retail Competition: Private Labels, Brands and Competition Policy

A Symposium on the Role of Private Labels in Competition between Retailers and between Suppliers

The Institute of European and Comparative Law in conjunction with the Centre for Competition Law and Policy

Oxford, 9 June 2005Sponsored by Bristows

CCLP (S) 04/05 (I)

OxfordOxfordInstituteInstituteof Retailof RetailManagementManagement

Private LabelPrivate Label

Their Role for Retailers&

Their Impact Upon Competition

Part I


Structure of PresentationStructure of Presentation

1. The Structure of Grocery Retailing

2. The Integration of Grocery Retailing

3. The Role of Private Label

4. How Private Label is Developed

5. The Impact Upon Competition


The Retail RevolutionThe Retail RevolutionThe Nature of ChangeThe Nature of Change

1. The Growth of Chains

2. Evolution of Large Formats

3. Dedicated Distribution Systems

4. Retail Chains as Retail Brands


The Retail RevolutionThe Retail RevolutionConsequences of the Nature of ChangeConsequences of the Nature of Change

1. Growth of Chains

2. Large Formats

3. Integrated & Dedicated Distribution

4. Retail Brands

Increased buying power Focus on price as competitive weapon

Decline in number of small stores Shift to Out of Town Exclusive Sites

The Application of I.T. Control of Retail Stores Speed & Frequency of Replenishment Decline of Wholesaling

Differentiation by Format & Location Private Label Loyalty Programmes


Retail ConcentrationRetail Concentration

Market Concentration 2002:

The Top Five Retailers

Country Market Share HHI

Netherlands 95 2394

Sweden 95 2990

Austria 93 2211

Denmark 84 2502

Norway 84 2500

Switzerland 84 2535

France 83 1619

Finland 83 2529

UK 79 1355

Germany 76 1216

Belgium 72 1128

Portugal 54 671

Spain 51 462

Greece 45 509

Italy 31 285

Median 83 1619


Retailer Scope -The Virtuous CircleRetailer Scope -The Virtuous Circle

AssetInvestment Supply Chain

Dominance

Private LabelFresh/chilled

Differentiation

GrossMargins

Growth

PriceCompetition

Efficiency


Integration - Up-streamIntegration - Up-stream

H.Q.

CENTRALISED BUYINGCENTRALISED BUYING

SUPPLY CONTRACTS WITH PRODUCERSSUPPLY CONTRACTS WITH PRODUCERS

SCANNINGSCANNINGSCANNINGSCANNING DAILY DELIVERYDAILY DELIVERYDAILY DELIVERYDAILY DELIVERYINTEGRATEDINTEGRATED

STOCK CONTOLSTOCK CONTOLINTEGRATEDINTEGRATED

STOCK CONTOLSTOCK CONTOL

I N F O R M A T I O N I N T E G R A T I O NI N F O R M A T I O N I N T E G R A T I O N


Consequences of IntegrationConsequences of IntegrationRef. Private LabelRef. Private Label

1. Supply Chains Exclusive to Individual Retailers Collapse of Wholesaling

2. Direct (and Potentially Exclusive) Contracts with Producers Farmers Manufacturers


The Model is ChangingThe Model is Changing

Stage 1 - The Classic Structure of DistributionConsumers(Shop in several stores)

Stores(Can purchase from different wholesalers)

Wholesalers

Suppliers(Supply all wholesalers)



Stage 2 - The Erosion of Horizontal CompetitionConsumers(Shop in one stores)

Stores(Supplied by chain RDC)

DistributionCentres

SuppliersBranded Suppliers try to supply all chains. Chains seek exclusivity from P/L Suppliers

TESCOTESCO ASDAASDA SAINSBURYSAINSBURY



Stage 3 - The Emergence of Vertical SilosConsumers(Shop in one stores)

Stores(Supplied by chain RDC)

DistributionCentres

SuppliersBranded Suppliers supply some chains. P/L Suppliers

TESCOTESCO ASDAASDA SAINSBURYSAINSBURY


The Role of Private Label for RetailersThe Role of Private Label for Retailers

1. Differentiation – Reduces Price Competition

2. Customer Loyalty

3. Higher Margins

4. Consumer Value


Cost Differences:Cost Differences:Brands vs. Private LabelBrands vs. Private Label

Suppliers Cost Saving 10.6%

Lower Supplier Margin 18.8%

Retailers Purchase Saving 29.4%

Lower Retail Price 19.3%

Higher Retail Margin 10.1%

Source: UK Competition Commission


DifferentiationDifferentiationPer Cent Sales in Private Label ProductsPer Cent Sales in Private Label Products

Safeway

Tesco

Sainsbury

Asda

Somerfield

National Av.

UK

47

51

54

54

36

45

Sources: Nielsen/Competition Commission

Aldi

Rewe

Tenglemann

Metro

Markant

Germany

90

22

19

14

6

33

Nielsen

Carrefour

Auchan

Intermarche

LeClerc

Casino

France

20

16

29

18

23

22

Secodip


How Private Label is DevelopedHow Private Label is Developed

Product and Packaging Specification is Developed Jointly with Potential Supplier

Suppliers Asked to Tender for the Cost of SupplyProduct Responsibility (Adherence to Spec, Safety

etc) Passed up the Chain e.g. Sudan ScareConcept of Vendor Assurance Contrasts with

Concept of Brand Ownership


How Private Label is Developed In StoreHow Private Label is Developed In Store

Benchmark the Brand Leader Look-a-likes

Category Segmentation

Space Allocation

Selective Listing of Brand Leader SKU’s


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Trends in Retail Competition: Private Labels, Brands and Competition Policy

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