Brand erosion threatens famous labels
leaving European manufacturers with a tricky dilemma: should they
produce more private labels to recover profits or adapt their
trademarked goods to meet changing consumer needs?
In the UK private label purchases make up a whopping 35 per cent of total consumer packaged goods (CPG) spending, according to a new Datamonitor report.
And European sales of private label goods has now reached €207 billion - accounting for 23 per cent of total CPG consumption - as supermarkets supply premium, mainstream and economy ranges to capture the full consumer spectrum.
But branded products command a premium price for manufacturers compared to the foods they produce for private label retailers, piling the pressure on iconic brands to compete or lose valuable market share.
Datamonitor consumer analyst Matthew Adams told FoodandDrinkEurope.com: "Many marketers say that those brands in the middle, not premium or economy, will suffer as they are neither cheap nor groovy. And for those manufacturers brand erosion is something very real."
So it may be tempting for European producers to take on more private label orders so they can operate across both sectors and take advantage of the wide appeal of private ranges.
"If you look at your business in terms of capacity, making private label items is a very attractive option for the producer," Adams said.
But it can be a risky business. For manufacturers making a quality brand, sticking a supermarket label on half the consignment may shift more units, but the worth of the brand will be irreparably damaged.
The consumer may buy brand X and the private label version and see they are both very similar, Adams explained.
"If consumers go through that experience and see the products as the same, brand erosion will happen," he said.
But still many companies continue to make private labels and famous brands. The UK 1980s advertising fad - "we don't make X for anyone else" - seems to have faded into obscurity as rising production costs and increased competition puts pressure on manufacturers.
And in the current climate, one trend that looks set to catch on is retailers who establish their own capacity to take control of private label production.
If retailers gain cross-ownership they will be better able to control the production process and make the most of the consumer insight gathered through award schemes and point-of-sale transaction information.
"Certainly if retailers can get facilities for knockdown prices from an old famous brand that has collapsed, this might tempt them. In the US it is something that's being mooted at the moment," Adams said.
So with brands like Golden Wonder falling by the wayside, leaving production plants and manufacturing infrastructure in place, it may only be a matter of time before retailers begin consolidating their production base.
This presents a huge challenge to food and drink manufacturers who are struggling to maintain brand superiority while sticking to familiar formats.
Further research and development may be needed to keep up with responsive retailers who adapt well to changing consumer demand.
But some manufacturers seem to be shifting direction. American-owned Budweiser has expanded its range to add premium and cut-price alternatives to its famous number-one brand, rather than produce private labels.
"They have taken a leaf out of the private label book by offering a value product too, called Busch beer. It's cheaper, with less packaging but still benefits from the 'halo effect' of the wider Bud name," Adams said.
Famous brands as a collective are starting to realise they should concentrate on lifestyle benefits, packaging and marketing to sell their goods, but range expansion is still something many manufacturers remain cautious about.
In the meantime the growing private label market share continues to hasten brand erosion - and this trend needs addressing by big-brand producers.
