Why are private labels successful in some markets but not in others?

A new study published in the Journal of International Marketing​ examines the retail distribution structures, types of retailers and logistics that lead to private label brand (PLB) success, and says private labels may threaten the existence of major brands in developing countries.

“It is essential for major brands to understand why store brands have become important players in some countries while in others they are slow to take off,”​ wrote the researchers, from Universidad Adolfo Ibañez. “Sooner, rather than later, major brands in less-developed nations will likely experience enormous competitive pressure that will threaten their very existence.”​

They looked at sales information in 46 countries, and concluded that as supermarkets become more dominant in a market, so do sales of private label goods, as only bigger stores can buy products in large enough quantities to make own brands profitable. They noted that supermarkets took about 50 years to become widespread in the UK and USA, but nations that followed adopted them much more quickly.

“The findings suggest that PLBs will become a global phenomenon; however, in some markets this will occur in the short run and in others in the long run,”​ the authors wrote.

They say it is clear that branded manufacturers face a competitive threat from private label products in Europe, where they account for nearly half (48.9%) of the market by volume, and 38.7% by value, according to market research organisation IRI.

However, in other parts of the world, private label market penetration is low, including in Latin America, Eastern Europe and Asia. In Chile, for example, own brands account for 5.2% of the market, and in Brazil, just 0.9%, according to Europanel figures. In Russia, the figure is 0.8% while in Turkey it is 7.7%, and Asian market penetration ranges from 0.3% in China to 5.5% in South Korea.

Apart from the advantages of scale achieved by supermarkets, which can partly explain the success of private label, the authors suggest logistics also play a large role, including underdeveloped logistics networks, volume variability between rural and urban areas, the efficiency of border controls, and even geography.

“These types of logistical challenges also present restrictions on supply, similar to those that affect the diffusion of new products and, as such, can create barriers for retailers to become profitable through their PLB,”​ they wrote.

Source: Journal of International Marketing​

Vol. 23, No. 1, 2015, pp. 72–90 doi:​ http://dx.doi.org/10.1509/jim.14.0036​

“The Growth of Private Label Brands: A Worldwide Phenomenon?”​

Authors: Andres Cuneo, Sandra J. Milberg, Jose Miguel Benavente, and Javier Palacios-Fenech