For any national brand selling in supermarkets, competition is a major component of the sales environment. Private labels add to the pressure on manufacturers, and the distribution contract generally does not prevent the emergence of substitute products.
This article looks at the fundamentals of the private label phenomenon, a new form of competition that emerged around ten years ago, pitting retailers and brands against each other - economic operators who are supposed to be working together!
After a quick economic focus, we'll talk contracts. Finally, we'll list 10 strategic measures that will enable your brand to win the competition or defend its market share against chain brands.
A private label is a brand owned by the distributor itself. Elementary!
However, it should be noted that products sold under this banner are generally manufactured by external operators, and sometimes even by national brands with whom production agreements have been signed. The launch of a private label corresponds to a commercial objective on the part of the distributor itself, which is trying to maximize its revenues by using its points of sale to sell products on which it limits external purchases and other remunerations as much as possible.
Retailers generally launch private labels with the aim of replicating successful products, enabling them to limit financial risk-taking while maximizing profits in the event of success. In practice, these products are often sold at lower prices than the national brands from which they were inspired. One reason for the price difference is that retailers have virtually no R&D costs on these products.
That's why retailers generally communicate on the fight against high prices, and offer (often flagship) products at more accessible prices, to give consumers more choice.
In 2023, as Je bosse en grande distribution explains, private label sales will reach an all-time high. In France, private labels account for 1 third of purchases. This figure rises to 50% among our European neighbors. The impact of this trend is all the greater in that its growth has been exponential since COVID: +2% per year, with a gap of 13% in 2023.
Private labels can be problematic for manufacturers who sell their products to supermarkets, for a number of reasons. Indeed, as we have just seen, private labels are generally positioned at lower prices than national brands (-30% on average), and this can generate downward pressure on prices, likely to have a negative impact on manufacturers' profit margins.
While this may be a win-win situation for consumers, it's important to remember that supermarkets wouldn't exist without independent manufacturers. It's a dangerous game for all operators in the chain.
But the loss of market share is not the only impact for companies: private labels can contribute to reducing recognition of the manufacturer's brand. And for good reason: in the absence of strong branding or a differentiating product, consumers will have no qualms about opting for a cheaper substitute.
Finally, if a brand relies heavily on major retailers to distribute its products, and these retailers introduce competing private label products, the risk of finding itself in a vulnerable position increases for the manufacturer, and its bargaining power is greatly reduced. As we shall see below, start-up brands entering the mass retail market must anticipate this type of risk, and fully understand what is permitted under the distribution contract.
In France, private labels occupy a very special place in the strategy of the main supermarket chains. These tactical choices can vary according to each brand's objectives, market positioning and target clientele.
For example, Carrefour has a number of private labels, such as Simpl, Carrefour Bio, Reflets de France and My Carrefour Baby. Their positioning is generally based on accessibility (price) and vertical marketing.
Intermarché also tries to reconcile authenticity and price with brands such as Monique Ranoux, Pâturages and Jean Rozé.
The same logic applies to Auchan, which prides itself on quality at the best price. Auchan also markets interior products and household appliances under brands such as Garden Star, Qilive and Actuel.
As for Leclerc's "Marque Repère", its name clearly indicates the company's ambition to position itself as a benchmark in its industry, an image largely shaped by its high-profile CEO Michel-Edouard Leclerc and his anti-inflation stance.
Last but not least, Monoprix is undoubtedly the most daring in its brand strategy: "To be a forerunner and democratize trends": a commitment that the company regularly reiterates in its communications.
These examples illustrate the diversity of private label strategies adopted by major French retailers. Some focus on low prices, while others seek to differentiate their private labels through quality, innovation or specific market segments. A strategy that is paying off, since private labels have captured 34.6% of French spending on FMCG products, according to panellist NielsenIQ.
Although it may come as a surprise, competition between private labels and national brands is a key aspect of the French retail landscape.
Unless it is a "technical invention", a consumer product cannot be patented. Thus, only the distribution contract can prevent the retailer from launching substitute products. However, your distributors are unlikely to undertake never to launch equivalent products, even though they can list those of your competitors, and private labels are an integral part of their business model.
As a result, the legal protection available to you as an industrialist is limited to your trademark and any plagiarism of your image or communications. One conclusion: you need to activate every possible lever to be competitive and differentiate yourself in the marketplace, and that's what we're going to look at now.
For an independent brand seeking to avoid losing market share to private labels, it's essential to implement effective strategies to differentiate itself and build customer loyalty. Here are 10 strategic recommendations:
So, despite increased competition from private label products, your brand has a number of levers at its disposal to position itself and win or defend its market share. Innovation and differentiation are the watchwords when faced with products that generally attempt to replicate what already exists.
