Consequences of competitionbetween national brands and

private labelsEmpirical results from different German

outlet formats

Rainer Olbrich and Gundula GreweFakultat fur Wirtschaftswissenschaft, FernUniversitat in Hagen,

Hagen, Germany

Abstract

Purpose – A proliferation of private labels in European food retailing has been evident for severalyears now. Against this background, the purpose of this paper is to analyse the impact of competitionbetween national brands and private labels on product variety, prices and turnover.

Design/methodology/approach – Within the empirical study, a product group from theready-meals category is analysed over a total period of six years (between 2000 and 2005) based onscanner data from different German outlet formats. The empirical study contains time series as well asregression analyses.

Findings – The empirical results indicate that, in all studied outlet formats, there is evidenceof decreasing product variety and increasing prices over time. Moreover, the results show that theturnover in the supermarkets and especially in the hypermarkets is in decline. A positive turnovertrend can only be found in the discount stores.

Originality/value – This empirical study is the first that covers such a long period of time (six years)and several outlet formats. Previous studies have mostly been static or short-term and predominantlyonly covered one outlet format.

Keywords Brands, Labelling, Retailing, Food products, Retail marketing, Germany

Paper type Research paper

1. On the proliferation of private labelsFor several years now, a proliferation of private labels has been evident in Europeanfood retailing (Kumar and Steenkamp, 2007; Olbrich et al., 2009). The proliferationof private labels has been facilitated by the per se ban on vertical price fixing(Article 81 EC), regulating the European market by law. The prohibition of resale pricemaintenance has restricted the pricing policy tools available to manufacturersand has, in its wake, considerably broadened the range of pricing policy optionsfor private labels.

Here, “price sceneries”, i.e. artificially generated pricing comparisons for certaingoods are playing an ever-increasing role (Olbrich and Buhr, 2004). A topical examplefrom food retailing shows the form in which “price sceneries” are currently embeddedin business practices. Advertising leaflets issued by the retailer group REWE showeda direct comparison in the form of illustrations, comparing the price and quality of itsown labels and national brands (REWE leaflets from week 22/2007 and 23/2007).

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0959-0552.htm

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Received 30 May 2008Revised 15 October 2008Accepted 27 April 2009

International Journal of Retail &Distribution Management

Vol. 37 No. 11, 2009pp. 933-951

q Emerald Group Publishing Limited0959-0552

DOI 10.1108/09590550910999361

Here, the intended effect of the comparison is not only aimed directly at an increasein sales of private labels, but also at the retailer’s profile in comparison with otherretailers that still sell a considerable number of national brands.

In this context, the judgement pronounced by the US Supreme Court on 28 June 2007regarding vertical pricing agreements is of particular significance. In it, the US SupremeCourt overturned the former per se prohibition of vertical minimum pricing agreementsand instead introduced case-by-case assessment (“rule-of-reason”; US Supreme Court,judgement of 28 June 2007, No. 06-480 “Leegin Creative Leather Products, Inc. vs PSKS,Inc.”). The court struck down an almost 100 year old precedent from 1911, thereby atleast indirectly recognising potential anti-competitive effects of any per se prohibition.

Owing to the associated increase in the power for the retailers, current literatureon the subject has reiterated the fear that statutory regulation of the market couldhave effects on ranges of products available in the stores and on pricing policy that willhave a detrimental impact from the perspective of national brands manufacturers.

Against this background, the objective of this study is, after a discussion ofthe relevant literature and the hypotheses development (Chapter 2), to demonstrate,on the basis of empirical data from the German groceries sector, selected effects of theproliferation of private labels in the product group studied (Chapter 4), in orderto ultimately point out the risks of continued crowding-out of national brands.The utilised data, sample, measures and method will be explicated in detail in Chapter 3.

2. Literature review and hypotheses developmentIn the literature, on the one hand pro-competitive effects are attributed tothe proliferation of private labels. On the other hand, however, anti-competitiveeffects are identified, at least in the long-term (Olbrich et al., 2009). This contradictionin the results can be attributed to the varying lengths of the studies.

The effects of the proliferation of private labels in view of the indicators “productvariety”, “prices” and “turnover” discussed in the literature are illustrated in thefollowing sections.

In some instances, the same authors expect there to be both a reduction and anincrease in the range of different products available (Dobson, 1998; Vogel, 1998;Dobson Consulting, 1999; Dobson et al., 2001).

By contrast, the following authors or institutions take a clearer stance: Mills (1995)also assumes a reduction in the range of different products as a consequence ofthe increased distribution of private labels as do the European Commission (1997), theCompetition Commission (UK) (2003), the Nordic Competition Authorities (2005) andthe Federal Competition Authority of the Republic of Austria (2007). Raju et al. (1995)and Ward et al. (2002) have been able to provide empirical evidence for this positionwith studies from American supermarkets, Baker et al. (2006) on the basis ofquestionnaire survey results from Danish producers and retailers from the food sectorand Bergstrom et al. (2006) with reference to data from the Swedish food retailing.

In contrast to this, however, there are comparatively few (generally older) studies tobe found in which there is a reference to a rise in the product variety as an effect of theproliferation of private labels (Call, 1967; National Commission on Food Marketing,1966; Tager, 1998).

Against this background, the following basic hypotheses can be set out in terms ofthe development of product variety in consumer goods retailing:

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H1. Over time, the number of private labels listed continuously increases.

H2. Over time, the number of listed national brands continuously declines.

H3. Over time, the total number of listed products continuously declines.

Assessments also vary concerning the effects of the increase in private labels on thelevel of prices in the retail sector. Several authors consider (long-term) risingand (short-term) falling prices to be likely or have observed such effects empirically.In the majority of cases, the price level of all products has not been studied, only theprices of national brands. In a few studies, however, the effects on prices of privatelabels and the level of prices as a whole have also been examined. These results willbe explicated in detail in the following paragraphs.

Lower prices as a consequence of the proliferation of private labels are mainlyexpected in older studies and generally in studies that do not include any empiricalresearch (Hoch and Banerji, 1993; Dobson and Waterson, 1997; Dobson, 1998;Vogel, 1998; Dobson Consulting, 1999; Wieser et al., 1999). To justify the assumption of,in particular, short-term (Dobson Consulting, 1999) falling prices, on the one handreference is made to the fact that national brands have been undercut by competingprivate labels (Dobson, 1998). The price pressure generated in this way by privatelabels (Wieser et al., 1999) might lead as a whole to cheaper products on offer(Vogel, 1998). On the other hand, it is also debated whether falling prices could be aconsequence of the passing on of more favourable purchasing terms and conditionsto consumers (Dobson and Waterson, 1997). It is true that even a few recent sources doreport price reductions: According to Bergstrom et al. (2006), a 10 per cent increase inthe market share of private labels leads to a 3.4 per cent reduction in price level in theSwedish food retailing (the authors also refer in this context to the HandelnsUtredningsinstitut, 2005). The Nordic Competition Authorities (2005) also assume,without any empirical study having been carried out, that a rising percentage ofprivate labels goes hand in hand with a reduction in price levels.

It should be emphasised that price level should not be regarded independent ofquality. Lower prices are often associated with lower quality (Hoch and Banerji, 1993).That means that related to the previous (higher) quality level, a lower price in absoluteterms could still represent a relative price increase.

Falling prices in the wake of an increase in private labels have seldom been provenempirically. Cotterill and Putsis (2000), in a study of American supermarkets,discovered lower prices of national brands and private labels where the market sharesof private labels were higher.

Chintagunta et al. (2002) also studied, among other things, the effects of theintroduction of private labels on the prices of national brands and found pricereductions of approximately 7 per cent. These authors are the only ones who useda sample period (275 weeks) that is comparable to that in this study (312 weeks).However, they only determine supermarkets of a particular chain and only have avery limited data basis. Furthermore, they only analyse the prices of national brandsand total sales. The product variety, the prices of private labels, the entire price level,the turnover of private labels and national brands as well as the total turnoverare not in the focus of their investigation. Therefore, their analysis contains considerablyless indicators compared to this study.

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Both price increases and reductions are considered by Dobson (1998) and Wieser et al.(1999) to be possible effects of the proliferation of private labels. A general rise in pricelevel is attributed by Wieser et al. (1999), among other things, to retail oligopolisationcaused by private labels. They explain price reductions on the basis of pricing pressureexerted by private labels on national brands.

Putsis (1997) as well as Putsis and Cotterill (1999) report contradictory empiricalresults in the pricing response of national brands and private labels to the proliferationof private labels. They determine, in the context of their studies in the American foodretail sector, increasing prices of private labels and reduced prices of national brands.

Bonfrer and Chintagunta (2004) discovered varying results in the prices of nationalbrands on the basis of data from the American food retail sector.

In particular, more recent non-empirical and empirical studies unanimously expectand observe increasing prices of national brands to be a negative consequenceof the proliferation of private labels (regarding empirical results from the Americanfood retail sector, c.f. Cotterill et al. (2000), Ward et al. (2002) and Bonanno and Lopez(2005). Empirical results from the French food retail sector are given in Bontemps et al.(2005a, b, 2006), regarding theoretical results, c.f. Gabrielsen and Sørgard, 2007).

To sum it up, increasing prices, at least in the long-term, are to be expected.Against this background, with regard to price level trends in consumer goods

retailing over time, the following hypotheses can be set out:

H4. Over time, the average prices of private labels continuously increase.

H5. Over time, the average prices of national brands continuously increase.

H6. Over time, the average prices of all products continuously increase.

In this context, it should be noted that the H6 could not be falsified if H4 and H5 canbe well-proved.

In the scientific literature, the growing significance of private labels, in particular inEuropean but also in American consumer goods retailing is unanimously exposed withreference to increasing market shares of private labels. Comparatively rare in thiscontext are studies on the effects of the increase in private labels on turnover.

In terms of the key figures studied in the literature, it can therefore be stated thatpredominantly only sales and turnover shares have been evaluated (Corstjens and Lal,2000; Steiner, 2004; Competition Commission (UK), 2007; Lamey et al., 2007). Effects ofprivate labels on absolute sales and turnover by contrast are seldom the focus of study.

None of the sources explains how turnover of private labels and national brandshave developed in the wake of the proliferation of private labels. However, it can beassumed from them that the increasing sales of private labels and declining sales ofnational brands have ultimately resulted in corresponding trends in turnover.

Total sales and turnover have also rarely been the focus of study. In the few sourcesthat do deal with this, however, either increasing market-related figures are determinedempirically (Chintagunta et al., 2002) or else forecasted without such trendsbeing empirically demonstrated (McGoldrick, 2002; Gilbert, 2003). Solely, Raju et al.(1995) empirically determined neither a significant positive nor a negative effect of theintroduction of private labels on total sales in the product group.

Against this background, with reference to the development of turnover inconsumer goods retailing over time, the following hypotheses can be set out:

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H7. Over time, turnover of private labels continuously increases.

H8. Over time, turnover of national brands continuously declines.

H9. Over time, total turnover continuously increases.

Regarding the presented results of the literature review, it should be mentioned thatsome cited references draw conclusions on causality between the proliferation ofprivate labels and different indicators. The present investigation, however, does notstrive to establish causal relationships. The results, nevertheless, provide – as anykind of regression – indications for potential causalities. Of course, the underlyingcause-and-effect chains (causal relationships) must be comprehensible and consistenton the level of logic.

3. Data, sample, measures and methodThe study is based on point of sale scanning data from the German groceries sector.The data were collected and provided to the authors by the market research company“Information Resources GmbH” (IRI) and contain almost seven million data records.One data record covers prices, sales and turnover of a particular product per calendarweek and store. Moreover, it is apparent which kind of brand (national brand versusprivate label) the particular product is. The data on which the study is based arescanning data from different German food retailers and outlet formats. They wereascertained in 24 discount stores, 24 super-markets (less than 800 square metre salesarea) and 24 hypermarkets (more than 800 square metre sales area).

A product group from the ready-meals category was analysed over a total period of312 consecutive calendar weeks between 2000 and 2005. The ready meals studied weremainly meat-based meals. Therefore, the superior product category is meat.

Meat is a product category in which buying behaviour is affected by perceiveduncertainty and health-risk felt by consumers (Smith et al., 1999, p. 1107; Kenning, 2008,p. 467). Many food scandals in recent years (e.g. bovine spongiform encephalopathy)have once more intensified the perceived uncertainty and health-risk. Hence, signalswhich provide safety and quality of products to consumers are needed. In this context,we assume that branding – especially regarding potential differences between nationalbrands and private labels – may play an important role.

The selected product group from the ready-meals category was particularlyappropriate in view of the objective of the study, that is, to investigate the consequencesof the proliferation of private labels: this is exemplary for a product group which at onetime was mainly supplied by the national brands industry, but is nowadaysincreasingly being penetrated by private labels (Smith et al., 1999, p. 1110; Olbrich andGrewe, 2009).

The difference between private labels and national brands refers mainly tothe question of ownership regarding trademark right. Trademark rights of privatelabels are held by retailers, while trademark rights of national brands are heldby manufacturers.

This paper is the first to make a long-term analysis covering such a long period(six years) and several outlet formats (discount stores, supermarkets and hypermarkets).Previous studies have predominantly been static or short-term and generally onlycovered one outlet format.

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One disadvantage of short-term studies is the fact that they only reveal temporaryupward or downward “leaps”. The long-term course of development is left untracked.As a result, the danger of misinterpretations in short-term studies is significantlyhigher compared to long-term studies. Such a risk is avoided in a long-term study asthis is.

Differences between the various outlet formats only become apparent if severalformats are investigated. Indeed, there may be shifts in demand between the forms ofoutlet. This investigation rules out the “deficiency” of studies which only take oneoutlet format into consideration.

In this paper, the effects of the proliferation of private labels are examined onthe basis of the indicators “product variety”, “prices per kilogram” and “turnover”.The reason for the selection of these indicators lies in the fact that they probably takeup an exceptional position in the context of the proliferation of private labels:in the short-term it is to be expected that the product variety increases, the pricesdecrease and the turnover rises. In the long-term, however, oppositional developmentsare to be expected.

In the present investigation, the indicator “product variety” was operationalised bythe number of listed different products in the assortments of the respective studiedoutlets. In order to eliminate the eventuality that price differences between productsmay trace back to different packaging sizes, the “average prices per kilogram” werecalculated in a first step and have then been taken as a basis for the indicator “price”in the present study. As measure for the indicator “turnover” served the absoluteturnover in the product group.

In order to be able to analyse the long-term development of the respective indicators,a longitudinal analysis has been chosen as research method. Moreover, bivariateregression analyses will help to examine the relation between time (in weeks) andthe respective indicators.

Concerning the question of potential changes in tax rates during the study period,it is to be stated that there have not been any changes in the rate of turnover tax forfood – which is the directly concerned kind of tax in the studied context – in Germanyduring the sample period. The rate of inflation, however, has to be taken intoconsideration in the context of assessing the empirical results.

4. Empirical results4.1 Decreasing product varietyFigure 1 shows the number of different products (EANs[1]) broken down by nationalbrands, private labels and “total” per calendar week for the respective outlet formats.The figure indicates that the number of listed national brands declined considerably inthe investigation period in all three outlet formats, whereas the number of listed privatelabels has increased. The sharp decline in listed national brands has not been balancedout by the addition of new private labels. The absolute number of different productsin the product group therefore has been reduced overall. These trends can be mostclearly seen in the supermarkets and hypermarkets where the number of productsin the period of the study approximately halved. Thus, there has been a considerablereduction of the variety of different products in the product group.

Table I provides an overview of the results of the bivariate linear regressionsfor the respective outlet formats with the time (in weeks) as independent variable

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and the particular number of listed products as dependent variable. The outlet formatis shown in the first column. In the second column, the appropriate dependent variablesare listed. Column three shows the expected sign for each regression coefficient withthe appropriate hypothesis number. The fourth column contains the determined

Figure 1.Number of different

products per calendarweek in a study of thespecific outlet formats

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Number of EANs private labels Number of EANs national brands Total number of EANs

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standardised regression coefficients. The appropriate t-values, significance levelsand coefficients of determination are reproduced in columns five to seven. Finally,the conclusions regarding the hypotheses are given in column eight.

In the table, all standardised regression coefficients illustrate the expectedindication. Moreover, the t-values show that the results are highly significant.The coefficients of determination indicate good to very good values. It can therefore bestated that the hypotheses regarding the relation between time and the number oflisted products can be regarded as proved statements.

In this context, it should be noted that a reduction in product variety should not beevaluated as negative in itself. A very pronounced product variety can considerablyincrease the complexity of the purchasing decision for consumers as they have to decidebetween a wide choice of the same kind of products. This can ultimately lead to theconsumer feeling “overwhelmed” (Otnes et al., 1997; Oppewal and Koelemeijer, 2005).Consumers do have the opportunity to frequent stores that best suit their ownpreferences in this respect though. The variety of products in discount stores isgenerally significantly smaller than the range of products in supermarkets and this,in turn is generally smaller than in hypermarkets (Liebmann and Zentes, 2001).

From the perspective of retailers, a decreasing number of listed national brandsmay potentially go along with a decreasing number of suppliers and that may possiblyresult in potentials to lower cost (e.g. concerning negotiations, coordination andlogistics).

From the perspective of manufacturers, however, a decreasing number of supplierswould lead to the risk of being delisted. In case of not being delisted, the continual riskof it would potentially lead to the disadvantage for suppliers to be forced to makeconcessions to retailers, e.g. concerning delivery conditions.

Outletformat Dependent variable

Expectedsign

Standardisedregressioncoefficient t-value Significance R 2 Proved?

Discountstores

Number of productsprivate labels

þ (H1) þ0.842 27.482 0.000 0.709 Yes

Number of productsnational brands

2 (H2) 20.746 219.753 0.000 0.557 Yes

Total number ofproducts

2 (H3) 20.615 213.733 0.000 0.378 Yes

Supermarkets

Number of productsprivate labels

þ (H1) þ0.749 19.891 0.000 0.561 Yes

Number of productsnational brands

2 (H2) 20.958 258.520 0.000 0.917 Yes

Total number ofproducts

2 (H3) 20.957 257.991 0.000 0.916 Yes

Hypermarkets

Number of productsprivate labels

þ (H1) þ0.880 32.644 0.000 0.775 Yes

Number of productsnational brands

2 (H2) 20.983 292.988 0.000 0.965 Yes

Total number ofproducts

2 (H3) 20.982 290.839 0.000 0.964 Yes

Table I.Results of the regressionanalyses with therespective numberof listed products asregressands consideredfor the specific outletformats

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4.2 Rising pricesFigure 2 shows the average prices per kilogram of national brands and private labelsas well as those of all pro-ducts (overall) for each outlet format (the curve for theaverage prices per kilogram of private labels in discount stores only starts in week33/2000, because private labels were only listed as from that week).

Figure 2.Average prices per

kilogram per calendarweek in a study of thespecific outlet formats

0.000.501.001.502.002.503.003.504.004.505.005.506.006.507.007.508.008.50

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

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Discount stores

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Supermarkets

0.000.501.001.502.002.503.003.504.004.505.005.506.006.507.007.508.008.50

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Average price per kg private labels Average priceper kg national brands Average price per kg overall

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The figure indicates that in all three outlet formats, in particular from 2003 onwards,some significant increases in the average prices per kilogram both in national brandsas well as private labels took place. In all outlet formats, it was the price per kilogramof the national brands that increased most sharply with the increase being less sharp inthe discount stores than in the supermarkets and hypermarkets.

Even the rises in private label prices per kilogram are significantly above the6.4 per cent rate of inflation for meat and meat products (Federal Statistical Officeof Germany, 2006). In the discount stores, the average private label prices per kilogramrose between 2000 and 2005 by 18.72 per cent, in the supermarkets by 63.60 per centand in the hypermarkets by 47.92 per cent. Therefore, the price increases of privatelabels exceeded the rate of inflation by 12.32 per cent points in the discount stores,57.20 per cent points in the supermarkets and 41.52 per cent points inthe hypermarkets.

In this context, it is remarkable that the average prices per kilogram of the privatelabels were kept well below those of the national brands by the retailers in all outletformats. The fact that both, the prices per kilogram of private labels as well as thoseof national brands, have practically continuously increased over recent years and thatthe prices per kilogram of the private labels in 2005 were approximately at(supermarkets and hypermarkets) or even above (discount stores) the level of theprices per kilogram of the national brands in 2000 (within the outlet formats), hasprobably not been noticed by consumers. Presumably, the consumers do not make anydetailed records of the prices of the foods they have purchased over a period of sixyears. Hence, we assume that consumers only see the current prices on the shelf andtherefore only notice that the prices per kilogram of the private labels are currentlybelow those of the national brands. Whether they notice the significant price increasesin both types of brand over the analysed period at all is debatable for theaforementioned reasons (cf. for greater detail regarding price-knowledge andreference pricing, Kalyanaram and Winer (1995), Monroe and Lee (1999),Evanschitzky et al. (2004), Magi and Julander (2005), Aalto-Setala et al. (2006) and,Kenning et al. (2007).

Thus, we suggest that the perception of well-priced private labels retained by manyconsumers persists because national brands are frequently used by retailers asreference products when setting prices. This means that the prices per kilogram ofprivate labels are constantly kept below those of the national brands, although at anincreasingly high level. In this context, it is remarkable that retailers have been giventhis opportunity by the prohibition of vertical price fixing and the associated freedomof price fixing on two levels (Olbrich, 2001).

Table II in a study of the specific outlet formats indicates the results of the bivariatelinear regressions with the time (in weeks) as independent variable and the particularaverage price per kilogram as dependent variable.

The table shows that the supposed positive relations between time and appropriateprices per kilogram in all outlet formats are clear and highly significant. Thecoefficients of determination also show that the ratio of the declared scatteringcompared to the overall scattering in all cases is very high.

Therefore, in summary, it can be stated that during the period of the study in alloutlet formats – and therefore also considered across the outlet formats – apredominantly clear rise in average prices per kilogram of private labels and national

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brands can be determined and therefore also a clear rise in the average prices of allproducts. The hypotheses set out above are therefore to be described, in the context ofthese empirical results, as proved statements.

It is to be added in this context that two separate regression analyses (Tables IIIand IV) showed that the prices in supermarkets and hypermarkets have been risingfrom 2000 to 2002 and from 2003 to 2005 as well. Thus, the positive regressioncoefficients for the whole time period in supermarkets and hypermarkets do not onlytrace back to the price jump. We assume that the fact that the price jump occurred atthe beginning of 2003 is a typical phenomenon of “annual appraisals”. Especially,in this case, it can be assumed that retailers have exploited the fact that 2003 wasthe first year in which – from the beginning on – the “Euro prices” stood alone on theprice labels (not longer accompanied by national “Deutsche Mark prices”). The “doublelabelling” due to the European Monetary Union ended in 2002.

From the national brands industry’s perspective, the rising prices do not necessarilymean positive effects on turnover and profits because their profits do not depend onconsumer prices but on delivery conditions agreed with the retailers. As long asretailers do not want to completely risk renouncing national brands, the remainingnational brands manufacturers will have a secure bargaining hand. However,as retailers can play one manufacturer off against the other – at least for as long asthere are still two or three national brands in each product category from variousmanufacturers – the retailers are probably those who receive the larger share of theprofits obtained through higher prices.

Outletformat Dependent variable

Expectedsign

Standardisedregressioncoefficient t-value Significance R 2 Proved?

Discountstores

Average price perkilogram private labels þ (H4) þ0.812 23.206 0.000 0.660 YesAverage price perkilogram nationalbrands þ (H5) þ0.859 29.476 0.000 0.737 YesAverage price perkilogram all products þ (H6) þ0.861 29.760 0.000 0.741 Yes

Supermarkets

Average price perkilogram private labels þ (H4) þ0.878 32.326 0.000 0.771 YesAverage price perkilogram nationalbrands þ (H5) þ0.887 33.748 0.000 0.786 YesAverage price perkilogram all products þ (H6) þ0.892 34.719 0.000 0.795 Yes

Hypermarkets

Average price perkilogram private labels þ (H4) þ0.873 31.459 0.000 0.761 YesAverage price perkilogram nationalbrands þ (H5) þ0.933 45.486 0.000 0.870 YesAverage price perkilogram all products þ (H6) þ0.934 46.192 0.000 0.873 Yes

Table II.Results of the regression

analyses with therespective average

price per kilogram asdependent variables

considered for the specificoutlet formats

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4.3 Turnover depends on the outlet formatFigure 3 shows the turnover of national brands and private labels as well as that of allproducts (overall) per week for each outlet format.

The figure indicates that in all three outlet formats the turnover of private labelsrose over time, while the turnover of national brands, especially in the supermarketsand hypermarkets, decreased over time. Moreover, it is apparent that the total turnoveris merely rising in discount stores in the period of the study. In supermarkets andespecially in hypermarkets, however, the total turnover is in decline.

This is particularly apparent as the prices in the same period of time increasedsignificantly (c.f. once more Figure 2 and Table II). As a consequence, the fallingturnover is caused by declining sales. These results point to the fact that intensiveprice increases – at least to some extent – are accompanied by non-consumption.

Table V in a study of the specific outlet formats shows the results of the bivariatelinear regressions with the time (in weeks) as independent variable and the particularturnover as dependent variable.

The table indicates that only H7 can be described as proved statement. Regardingthe discount stores, the supposed negative relation between time and the turnover ofnational brands cannot be stated. H8 is therefore rejected regarding discount stores.

Outletformat

Dependentvariable

Expectedsign

Standardisedregressioncoefficient t-value Significance R 2 Proved?

Discountstores

Average priceper kilogramprivate labels þ (H4) 20.693 210.606 0.000 0.480 NoAverage priceper kilogramnational brands þ (H5) 20.022 20.277 0.782 0.000

No (notsignificant)

Average priceper kilogram allproducts þ (H6) 20.061 20.755 0.452 0.004

No (notsignificant)

Supermarkets

Average priceper kilogramprivate labels þ (H4) þ0.647 10.523 0.000 0.418 YesAverage priceper kilogramnational brands þ (H5) þ0.695 12.007 0.000 0.484 YesAverage priceper kilogram allproducts þ (H6) þ0.723 12.999 0.000 0.523 Yes

Hypermarkets

Average priceper kilogramprivate labels þ (H4) þ0.677 11.429 0.000 0.459 YesAverage priceper kilogramnational brands þ (H5) þ0.907 26.646 0.000 0.822 YesAverage priceper kilogram allproducts þ (H6) þ0.902 25.861 0.000 0.813 Yes

Table III.Results of the regressionanalyses with therespective averageprice per kilogram asdependent variablesconsidered for the specificoutlet formats (2000-2002)

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The relation between time and total turnover in the supermarkets and hypermarkets isnegative, contrary to the hypothesis set out above. H9 is therefore rejected regardingsupermarkets and hypermarkets.

Hence, with regard to the supermarkets and hypermarkets the increasingproportions of listed private labels are not accompanied by positive trends in totalturnover in the product group. However, this does not necessarily mean that profits arealso in decline. It is to be expected that retailers are achieving higher profit marginswith private labels than with national brands (Hoch and Banerji, 1993). To this extent,it is possible that retailers will achieve lower turnover figures with higher proportionsof private labels being listed, but, due to higher profit margins of private labels, willachieve a higher contribution margin. Accordingly, it may be attractive for retailers, atleast to some extent, to forego higher turnover figures in favour of higher contributionmargins. However, whether the decline in total turnover of the product group,discernable here in particular in the super-markets and hypermarkets, isover-compensated by higher contribution margins from private labels, is highlyquestionable.

5. Conclusion, strategic implications for retail managers and limitationsThe descriptive results show that in all studied outlet formats, clear reductions in thevariety of products are illustrated – brought about by the delisting of national brandsonly partially being replaced by newly listed private labels. Moreover, in all outletformats studied, there is evidence of significant price increases. Besides, the totalturnover figures in the supermarkets and especially in the hypermarkets are in decline.

Outletformat Dependent variable

Expectedsign

Standardisedregressioncoefficient t-value Significance R 2 Proved?

Discountstores

Average price perkilogram private labels þ (H4) þ0.748 13.968 0.000 0.559 YesAverage price perkilogram nationalbrands þ (H5) þ0.459 6.416 0.000 0.211 YesAverage price perkilogram all products þ (H6) þ0.459 6.418 0.000 0.211 Yes

Supermarkets

Average price perkilogram private labels þ (H4) þ0.795 16.268 0.000 0.632 YesAverage price perkilogram nationalbrands þ (H5) þ0.293 3.807 0.000 0.086 YesAverage price perkilogram all products þ (H6) þ0.278 3.595 0.000 0.077 Yes

Hypermarkets

Average price perkilogram private labels þ (H4) þ0.642 10.384 0.000 0.412 YesAverage price perkilogram nationalbrands þ (H5) þ0.637 10.252 0.000 0.406 YesAverage price perkilogram all products þ (H6) þ0.597 9.241 0.000 0.357 Yes

Table IV.Results of the regression

analyses with therespective Average

price per kilogram asdependent variables

considered for the specificoutlet formats (2003-2005)

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Figure 3.Turnover per calendarweek in a study of thespecific outlet formats

0

500

1,000

1,500

2,000

2,500

3,000

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4,000

4,500

5,000

5,500

6,000

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

20042003200220012000 2005

20042003200220012000 2005

20042003200220012000 2005

Discount stores

0

500

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4,000

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

Supermarkets

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,00014,00015,00016,000

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

Calendar week

Turnover private labels Turnover national brands Turnover overall

Hypermarkets

Tur

nove

r in

pro

duct

grou

p in

Tur

nove

r in

pro

duct

grou

p in

Tur

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r in

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p in

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Corresponding results concerning the range of different products on sale are, accordingto Iri, discernible throughout the whole German food retail sector. The number ofEANs in food retailing declined by almost 10 per cent between the years 2002 and 2007.

Besides, the results of the regression analyses show that the hypothesesdemonstrated above, with regards to product variety and the price levelper kilogram should be classed as proved statements. With regard to turnover,the results are particularly controversial: both in the supermarkets and hypermarketsthe relation between time and total turnover is negative, contrary to the previoushypothesis. These developments indicate that consumers are restricting theirconsumption, or may in some cases even have ceased to consume. However,this does not necessarily mean that private labels are the only determinants of thisprocess. Other reasons, like a decline in real purchasing power, taxes or other aspects,might be considered as well in this context.

Summed up, the empirical results indicate that the proportion of private labels listedin the supermarkets and hypermarkets has further been extended even though thereare no positive turnover trends associated with such a course of action. A positiveturnover trend can only be found in the discount stores. Hence, the increasing numberof listed private labels in all outlet formats seems to go along with the effect thatsupermarkets and hypermarkets lose turnover to discount stores – at least to someextent. Thus, only the price-aggressive outlet format (represented by discount stores)seems to profit by the increasing number of listed private labels.

For the purpose of a turnover as high as possible, these results lead to the implicationfor retail managers – especially for those of supermarkets and hypermarkets – ofavoiding a delisting of national brands in the course of extending the number of listedprivate labels. Against this background, a “mixed assortment strategy” containingprivate labels as well as national brands seems to be preferable compared to a mainly“private-label-oriented-strategy” including primarily or solely private labels. Regardingmanagement practice, it is to be noted in this context that the decision about which

Outletformat

Dependentvariable

Expectedsign

Standardisedregressioncoefficient t-value Significance R 2 Proved?

Discountstores

Turnover ofprivate labels þ (H7) þ0.880 32.682 0.000 0.775 YesTurnover ofnational brands 2 (H8) þ0.010 0.167 0.867 0.000

(No) notsignificant

Total turnover þ (H9) þ0.639 14.636 0.000 0.409 YesSupermarkets

Turnover ofprivate labels þ (H7) þ0.892 34.670 0.000 0.795 YesTurnover ofnational brands 2 (H8) 20.663 215.596 0.000 0.440 YesTotal turnover þ (H9) 20.379 27.218 0.000 0.144 No

Hypermarkets

Turnover ofprivate labels þ (H7) þ0.936 46.870 0.000 0.876 YesTurnover ofnational brands 2 (H8) 20.894 235.217 0.000 0.800 YesTotal turnover þ (H9) 20.819 225.124 0.000 0.671 No

Table V.Results of the regression

analyses with therespective turnover as

regressands consideredfor the specific outlet

formats

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assortment strategy to pursue should additionally be made on the basis of contributionmargins.

Like any other study our study has some limitations, too. In this context, one has totake into consideration that the results could be different, e.g. in other branches, otherproduct categories, other countries or other study periods. Therefore, further researchis needed for other branches, product categories, countries or study periods in order toput the drawn conclusions on a broader basis.

Note

1. The acronym “EAN” stands for “International Article Number” (quondam “European ArticleNumber”). The EAN allows a clear identification of each different product.

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Corresponding authorGundula Grewe can be contacted at: gundula.grewe@fernuni-hagen.de

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