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OWN BRANDS:INCREASING CONSUMER CHOICE AND

DRIVING INNOVATION

DECEMBER 2010

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3Increasing consumer choice and driving innovation

What are own brand products?

The term own brands, also known as store brandsor private labels, reers to all merchandise sold

under a retailers brand. That brand can be the

retailers own name or a name created exclusive-

ly by that retailer. (Source: PLMA website)

Own brand products are not a new phenom-

enon. They have been in the market or almost a

century. Whereas some retail ormats have de-

veloped almost exclusively as own brand sellers,most retailers sell a mix o both branded and

own brand goods.

In the early days, own brands were oten per-

ceived as cheap or generic. Over the past 20

years or so, however, they have shown an im-

pressive development. Own brand products

have become more and more sophisticated and

their market share has grown signicantly in all

types o retail. Nowadays they sit alongside oth-

er brands at all value and price ranges.

Nevertheless, market penetration in Europe

varies signicantly between member states,

store ormats and product lines. In most Euro-

pean countries own brand market share lies be-

tween approximately 20 and 30 percent. Own

brands are particularly popular in Switzerland

and the UK with a market penetration o morethan 40 percent. At the lower end o the scale

are countries like Italy, Poland and Greece with

market shares between only 10 and 15 percent.

Notwithstanding this diversity, Europe is at the

oreront regarding own brands: The world-wide

weighted average market share is only approxi-

mately 15 percent (Source: Nielsen 2010).

Today, a broad selection o own brand productsis available in stores, ranging rom resh, tinned

and rozen oodstus, organic and air trade

products to household products, health and

care products, home improvement products and

many more.

The market shares o own brands at product level

show large variations. Product ranges with a high

proportion o own brands are household goods

such as aluminium oil, rubbish bags or kitchen

towels as well as vegetables, sh and meat, and

milk products. Ready meals are a particularly suc-

cessul example o own brand products. Toiletries,

baby ood, beer or sot drinks, on the other hand,

account or the lowest shares o own brands.

Own brand oodstus, an important segment,

are available in a number o categories such as

gourmet ood or local and regional specialities.

In terms o quality, there are, or example, value,

gourmet, regional or estive oodstus. In terms

o health and wellness, the range comprises

products with authenticated health claims, ree

rom allergen oods or unctional, e.g. choles-terol reducing, ood. A more recent phenom-

enon is the strong growth o eco-riendly, ethical

and organic own brand products.

The recent economic downturn and increased

price sensitivity o consumers have increased

growth and popularity o own brands. However,

despite their successul development, it is un-

likely that the share o own brands will continue

to grow endlessly. There is a simple reason or

this. Consumers expect a variety o products in

the shops. They want to nd a certain number

o branded products on the shelves o their pre-

erred supermarket. Examples are sot drinks,

breakast cereals or hazelnut sandwich spreads.

For other products they preer own brands. Ex-

perience shows that i a retailer does not have

certain must have products in its range o

goods, it is very likely that the customer will goto a competitor.

Own brands: good value ormoney keeping ination down

With own brand products, consumers benet

rom a greater choice, as own brands share shel

space with branded items, increasing productrange at both the low cost and more expensive

ends o the range.

Own brands are highly accepted by customers.

Europe wide, 78 percent o consumers agree that

own brands are a good alternative to named

brands (Source: Nielsen 2005). There are various

reasons why customers choose own brands. Ac-

cording to a 2009 IH/BBE study rom the Ger-

man Retail Federation HDE, 64 percent o con-

sumers buy own brands because they are good

value or money.1 61 percent indicated a low

1 At European level this number even mounts up to 73 percent o consumers (Nielsen 2005).

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4 Increasing consumer choice and driving innovation

price, 59 percent good quality and 58 percent

mentioned good experiences as a driver or their

buying decision. Only six percent o customers

replied that they never buy own brand products

(Source: IH/BBE Study 2009).

These gures conrm that own brands can oer

good value or money and quality at aordableprices. Price dierences between branded prod-

ucts and own brands can be up to 50 percent.

With lower prices, own brands help keep infa-

tion down. Since retailers do not need to make

huge advertising investment in their own brands,

savings are passed on to consumers.

Furthermore, with their own label on their prod-

ucts retailers retain control over quality and thuscan guarantee consumers that their own high

quality standards are maintained.

Increased competition beneftsthe consumer

Own brands are an essential part o retailers

strategy in creating more choice and better

value or their customers. They are also a way

or retailers to maximise their own brand equity

What BEUC, the European Consumers Organisation, says about own brands

Retailers own brands are an important element o consumer choice. They alloweven the most vulnerable groups to have access to sae and aordable productswhile at the same time contributing to making retail markets more open tocompetition. It is crucial that the saety and quality o consumer goods areguaranteed by all suppliers in the market chain and with many retailers applyinghigher standards this can only be seen as benecial to the consumer. On ood and

health, retailers lead the way when it comes to reormulation to reduce the levelso at, sugar and salt in their products with other branded goods ollowing in theirootsteps thus providing consumers with more and healthier ood choices.

BEUC, the European Consumers Organisation has a membership o 44 independent national con-

sumer organisations rom 31 European countries (EU, EEA and applicant countries). BEUC acts as the

umbrella group in Brussels or these organisations and its main task is to represent its members and

deend the interests o all European consumers.

and to increase their price competitive oer in

relation to branded products.2 Hence, through

their own brands, retailers have become direct

competitors o brand manuacturers.

Retailers are criticised by some manuacturers

or playing a double role where they are both

their customer and competitor. The act thatretailers not only sell but also produce some o

their products is not unusual - such vertical in-

tegration also takes place on the manuactur-

ers side. There are a number o manuacturers

who sell goods directly to consumers without

retailer intermediaries. One o the most nota-

ble current examples is coee capsules, which

are sold by producers exclusively in their own

shops or over the internet. Other examples canbe ound in the clothes, computer and beverages

sectors. Just as we welcome armers selling di-

rectly to consumers, we welcome such initiatives

as they ultimately result in consumer benet.

Critics accuse retailers selling own brands o

damaging the workings o competition and

so causing detriment to consumers. This alle-

gation does not refect reality. The European

Commission has recently conrmed that no

case of anticompetitive effects stemming from

the increasing use of private labels has been

found to date by any competition authority3.2 European Commission, SEC(2010)807, p. 463 European Commission, SEC(2010)807, p. 46

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With their own brand products retailers oer

a wider choice o alternative products to con-

sumers. Thus own brands increase competitionboth between dierent retailers and between

retailers and manuacturers to the benet o

consumer choice and prices.

Own brands allow retailers to position them-

selves on the market and to distinguish them-

selves rom their competitors by creating a

unique identity. They can lead to competitive

advantages vis--vis other retailers - somethingthat branded products cannot oer. In this re-

gard, own brands help attract and retain cus-

tomers. In a highly competitive sector such as

commerce, customer loyalty is clearly an asset.

Stronger competition between retailers and

manuacturers will also provide an incentive to

brand manuacturers to respond to own brand

products and bring new products to the market.

Eventually, this will lead to greater choice or the

consumer.

Innovation through own brands

Own brand products today are well respected

and trusted brands, which are based on innova-

tion. Furthermore, retail companies oten go

beyond their legal obligations to ensure quality,saety and traceability o their own brand prod-

ucts leading innovation even urther.

The act that retailers produce their own prod-

ucts allows them to respond quickly to new

trends, changing consumer demands and re-

quests by policy makers. As the closest link to

consumers, retailers might thereore be quicker

to introduce new products to the market thanbrand manuacturers.

Own brands promote sustainable

and environment-friendly products

For some time, retailers have been selling or-

ganic, ethical and environmentally riendly

products under their private labels. With own

brands retailers have greatly promoted the sale

o organic and air trade oodstus and made

them more aordable. Thanks to retail these

products - coee, tea, chocolate, ruit and veg-

etables, wine - have moved rom the niche to

the mainstream market and are now available to

the wider public. Retailers own brands are also

at the oreront with regard to sustainable sh-

ing, or example.

Most retailers also have an eco-product line un-

der their own brand, or example cleaning prod-

ucts. With own brands retailers are also able to

take initiatives to reduce packaging or replace

traditional with biodegradable packaging.

Own brands promote healthy eating

Own brands allow retailers to drive product de-velopments which exceed public policy goals

or ood with healthier ingredients or better

labelling inormation. Sophisticated nutritional

labelling aims to help consumers make the right

decision or a healthy diet. In Germany, or ex-

ample, 80 percent o own brand ood products

provide voluntary nutrition labelling (Source:

HDE 2010).

Ready-made resh meals are a particularly suc-

cessul example o own brand products and

they are oten market leaders in terms o nutri-

tion and healthy eating. Many retailers have re-

ormulated recipes in order to reduce sugar and

at and to remove articial colours and favours.

A growing number o people are aected by al-

lergies or intolerances to certain oodstus or

ingredients. Retailers have thereore developedspecic own brands to provide customers with

ood which does not trigger allergies. Own

brand products now oten comprise gluten or

lactose ree oodstus. Another example o in-

novative healthy own brand products is unc-

tional ood which, or example, helps to reduce

cholesterol.

Some retailers also take religious belies into ac-count in their own brand production by oering

a range o halal ood under their private label.

The supplier side: promotingSMEs and creating employment

Own brand products are manuactured and sup-

plied in dierent ways.

Some major retailers operate their own manu-

acturing sites and provide own brand products

or themselves.

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Carreour Quality Lines

M C Q L

In 1992, Carreour launched its rst Quality Lines range o resh ood products (meat, vegetables,

cheese etc.). With this product range, Carreour aims to meet consumer demand or ood saety,reshness, taste and authenticity, working with upstream suppliers to ensure quality is maintained.

It also prioritises the economic, social and environmental impact o these products.

E :

Building long-term partnerships with suppliers, armers and producers, remunerating them

according to the real value o the product

Oering high quality products at reasonable prices to consumers

Promoting regional products and giving suppliers access to export markets

Contributing to the economic, social and environmental development o local communities

through inormation and access to education or international suppliers

E :

Developing an integrated approach to arming involving responsible water usage and the pro-

motion o integrated pest control

Promoting arming conditions that respect animal welare

Avoiding chemical treatments and the use o soil-ree plant production, antibiotics and growth

hormones

Forbidding GMO products in animal eed or plant production

In October 2010, Carreour also launched in France a non-GMO label, which now appears on more

than 300 meat and egg products. The companys aim is to increase the ability o consumers to

make inormed choices and to link sustainable development goals with consumer expectations on

choice, quality, and price.

Delhaize Private Brands affordable and healthy

In these budget-conscious times, many shoppers eel they have to choose between aordability

and health. We dont agree. We believe all our customers should be able to choose rom a varied

range o ood that is nutritious, tasty - and aordable.

In 2009, Delhaize Belgium adjusted its procedures or testing and buying private brand products to

identiy opportunities to increase their nutritional value. The main reormulations related to reduc-

ing salt, at (including transat) and sugar.

The rst step in changing the procedures was to introduce a systematic nutrition benchmark-

ing o private brand products against equivalent national brand products, to give a quantied

perormance indicator or each product. In the second step, Delhaize implemented detailed nu-

trition testing with internal and external panels. Meeting these goals depends on close collabo-

ration with private brand suppliers. Delhaize will communicate the results o its assessments to

guide reormulation opportunities, and suppliers will widen their own testing to improve their

products nutrition value.

The review o more than 900 products in 2009 led to reormulations that reduced salt by 11 tons

and at by more than 100 tons. An additional 1800 existing private brand products were under

review in 2010, with a target o covering all private brand ood products within three years. All newprivate brand products are subject to nutrition screening since the beginning o 2010 - and none will

get on the shelves i they havent passed these screenings. These reormulations were done without

necessarily pushing up the price.

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Mercadona employment creationthrough own brands

Most o Mercadonas own brands are pro-

duced in Spain. In 2009, Mercadonas Inte-grated Suppliers invested 500million, work-

ing with 8,500 local SMEs. They created 1,100

new direct jobs, raising the total number o

their payrolls to 40,000 employees. In 2008,

they created 1,000 new jobs.

A particular example is Martnez Loriente,

who runs an integrated supply business or

meal products. In 2002, Martnez Loriente

created a actory in Valencia. Since then, the

total investment has been 200 million, with

1,400 new jobs created in the region.

Another example is Senoble, Mercadonas in-

tegrated supplier or yogurt. This French com-

pany specializes in good quality own brands all

over Europe. Thanks to this retailer-producer

relationship, Senoble set up a actory in To-

ledo (Spain) in 2002 and began production oMercadonas own brand yogurt, with an initial

investment o 60 million and the creation o

500 new direct jobs (1,300 indirectly). Since

2002 the turnover o the actory has increased

by 100 percent.

Kaufand Voluntary nutritionlabelling and dietary advice forcustomers

In 2008, Kaufand implemented an extendedvoluntary nutrition labelling scheme or all o

its own brand ranges. In this way, Kaufand in-

orms its customers about calorie and nutrient

content o products on the packaging.

Almost all o the more than 1000 products

o the own brand ranges K-Classic, K-Bio,

K-Classic WellYou have this additional ront

o pack customer inormation, thus helping

customers to realise a balanced choice to suit

their needs. Kaufands own brands customers

are invited to use the ree service hotline or

any questions and comments.

To deal with dietary questions in greater detail

and provide consumers with practical assis-

tance, Kaufand has developed a diet concept

or its customers with six dierent nutrition

types, e.g. sensitive type or amily type. Kau-land oers dietary advice that suits the needs

o each single nutrition type including recipes,

specic shopping and cooking tips.

Customers can obtain inormation about

Kaufands diet concept on the internet or in

Kaufands customer newspaper. Kaufand also

oers ree nutrition consultations via phone

and e-mail. Customers appreciate the proes-sional guidance and make use o the ree ser-

vice hotline to get answers to their questions

regarding topics such as lactose intolerance,

cholesterol-conscious diet and osteoporosis.

Metros Horeca Select tomato

sauce in aseptic pouches

In March 2009, Metro Cash & Carry Interna-

tional teamed up with CYROVAC/Sealed Air,

one o the most innovative packaging manu-

acturers or sealed air and launched a new

packing solution in its Horeca Select range:

aseptic pouches or tomato sauce. Instead o

cans the sauces are aseptically packed in plastic pouches which ensure that the products are germ-

ree and shel-stable. This innovation allows a more ecient business or HoReCa customers such

as canteens, caterers and restaurants by saving time, storage space and money. The benets or

the customers a maniold:

Convenient to handle: The pouch is easy to open. No can opener is required. There are no sharp edges.

See the product: Transparent packaging lets customers check the product beore they buy it.

Save storage-space: Packaging requires 30% less storage space compared to cans.

Greater yield per pouch: Flexible packaging lets users get almost all the sauce out o the pouch.

Improved favour and quality: Reduced heat processing due to the aseptic plastic pouches preserves

the favor o the tomatoes.

Easy and cheap disposal: The pouches create less packaging waste. The packaging contains no alu-

minium.

The tomato sauce is produced by the Parma-based company Columbus, part o Mantua Surgelati

Group and specialized in the eld o tomato processing and in the production o semi-nished and

nished products. Columbus is a producer with a private label share o 85%.

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What the European Commission says about own brands

Private labels refect a new orm o relationships between processors, retailers andconsumers. They oten allow SMEs to access large markets. Compared to A-brands,marketing costs are relatively low or private labels. Thereore, consumer prices aregenerally lower.(European Commission, SEC(2009)1448, p. 8)

Even i European retailers have, at aggregate level, achieved lower productivitygrowth over the past decade than their counterparts in the United States, theirgrowth and the waves o horizontal and vertical integration have contributed tomaking the retail sector more ecient and to lowering infation. Moreover, greatercompetition, in particular because o the rise o European discount stores andbudget price own brands, has reinorced this trend, ever pushing retailers to become

even more ecient in order to curb the erosion o their margins.(European Commission, COM(2010)355 nal, p. 4)

Retail brands have also increasingly become vehicles or product innovation as wellas a means or retailers to control quality levels o products directly and thereorealso their product liability obligations, which underline the strength o theirrespective brands.(European Commission, SEC(2010)807, p. 12)

On the retailers private label contracts business: It should also be noted that it hasresulted in eciency gains in certain processing plants where manuacturing linecapacity can be more ully exploited. It has also allowed or less well known brandsor medium sized companies who could not compete ace on with the major brandsto remain in business and grow.(European Commission, SEC(2010)807, p. 46)

On the relationship between retailers and own brand manuacturers: Some othe most durable and stable contractual relationships with suppliers have been

developed in this way. Through such trusted relationships, the two work togetherand maximise the utility o the market trend inormation that the retailer collects.The retailers product lines are thereore oten trendsetting and innovative.(European Commission, SEC(2010)807, p. 38)

Tesco introduces Mutsu apples in Poland

Tesco in Poland worked with one o its Polish

ruit growers, Adam Soska, to introduce a new

variety o apple called Mutsu. This variety ismuch like a Granny Smith, but grows well in Po-

land and is between 40-60 percent o the price

o imported Granny Smith apples.

Adam Soska has been supplying apples to Tesco

or eight years. Developing the new Mutsu vari-

ety took ve years and required investment by

Soska. On the basis o his long-running relation-

ship with Tesco, Soska was condent that Tesco

would buy the Mutsu apples. When he encoun-

tered some problems growing the new variety,

Soska and Tesco worked together to solve these.

Tesco is currently the only retailer o Mutsu

apples in Poland. However, as the crop increas-

es over time, Soska will be able to supply other

retailers and expand. With a unique product

and a cost advantage over imported apples,

Soska is now more insulated rom fuctuations

in apple prices and has gained acces to a large

market.

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not compete with major brand manuacturers.

Indeed, more and more small and medium-sizedmanuacturers specialise in particular product

lines and concentrate on the exclusive produc-

tion o own brand products. A 2010 Nielsen

study, commissioned by the French Federation

or Commerce and Distribution (FCD), ound

that there has been a signicant increase in own

brand products made by SME suppliers. The

study also ound that over 70 percent o French

own-brand products are made by French SMEs.

Own brands thus help many small suppliers to

access national and international markets. In the

process, these SME suppliers gain access to inor-

mation on consumer preerences, while not hav-

ing to nance the development, marketing and

distribution o a brand. Without the production

o own brands, many SMEs would be unable to

nance the marketing o their brands.

There are also large brand manuacturers who

produce both branded and own brand products orretailers. In act, brand manuacturers and retailers

collaborate increasingly on developing exclusive

products, co-branding and joint promotions.

According to a study o the Spanish trade un-

ion UGT published in June 2010, 66 percent o

Spanish brand manuacturers also produced own

brand products. With the production o own

brand products, brand manuacturers can realiseeciency gains by making use o possible excess

capacities and thus exploiting manuacturing

line capacities to a higher degree. Own brands

thus provide an opportunity or growth and de-

velopment or brand manuacturers.

Thanks to own brands, numerous retailers also

provide an entry to the market or many thou-

sands o smaller suppliers who could otherwise

What the Federation of Enterprises and Entrepreneursof France (FEEF) says about own brands

The FEEF arms that own brands ensure constant growth o activity or itsmembers. Own brands have allowed or the emergence o pertinent innovationsor consumers thanks to the unailing support o distribution companies thatnd in these own brands a true brand name identity (Marque Refets de France,Carreour Market, Marque U, Marque Auchan, Marque Repre).Own brands reinorce the nancial independence o our SMEs, help them to resistbeing bought up by large groups and contribute to the maintenance o jobs andconsumer purchasing power.Moreover, own brands oer producers the opportunity to extend their marketshare thanks to the partnership they have been able to create with distribution

companies by beneting rom their internationalisation. This collaborationbetween distributors and suppliers has also resulted in advances in terms oinnovation (dierentiating products) and quality (raised expectations), whilstremaining a competitive oer in terms o quality/price compared to brandproducts.In France the market share o own brands amounts to 35%. Not supporting ownbrands would not only endanger the uture o our SMEs and their suppliers, thearmers, but also the purchasing power o consumers.

The Federation o Enterprises and Entrepreneurs o France, which was ounded in 1995, encompassesmore than 600 amily enterprises today, including suppliers o large retailers. Among its members are

producers who produce exclusively own brands, but most o them also manuacture in their own name.

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Contrary to some suggestions, own brands do

not compete with local and regional products. In

act, own brands have played an important role in

bringing unique ood specialities to a larger market.

In France, or example, own brands have brought

many local specialities on to the shelves (delicates-

sen produce, cheeses, biscuits etc.), thus helping toincrease their sales. Lesser known local specialities

and recipes, in particular, benet rom this positive

partnership with established retail brands.

Retailers have a strong interest in engaging in

stable and long-term partnerships with their

Own Brands: Share in terms o productnumbers by large & medium stores, France, 2008

SMES LARGER COMPANIES

F F F F

Large & medium stores 64.7% 21.9% 7.9% 5.5% 100%

Dry products 64.0% 20.6% 8.7% 6.7% 100%

Beverages 79.3% 11.0% 6.4% 3.3% 100%

Cosmetics, Personal &

Homecare38.2% 50.3% 0.0% 11.5% 100%

Rerigerated section 75.4% 11.4% 11.5% 1.7% 100%

SME suppliers, as they help retailers innovate

and introduce new products to the market.

At the same time, SMEs can benet rom sig-

nicant growth in sales, productivity and know

how.

Through their close cooperation with local andregional SME suppliers, retailers make an im-

portant contribution to the preservation and

creation o jobs in Europe. The production o

own brands can thereore be seen as a contribu-

tion to the EU 2020 strategy or smart, sustain-

able and inclusive growth.

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OWN BRANDS

A UNIQUE SUCCESS STORY

To sum up, own brands

provide consumers with a more diverse range o goods.

oer good value or money. With aordable prices

they help keep ination down.

increase competition among retailers as well as with

brand manuacturers to the beneft o consumers.

No anticompetitive eects caused by the rise o own

brands have been ound.

are innovative and oten developed where brands are

not very strong.

promote sustainable and environment-riendly

products and oster healthy diets.

give SMEs suppliers access to large national andinternational markets and a long-term perspective or

growth and employment.

bring unique local and regional ood specialities

to a larger market.

help create and saeguard employment in Europe.

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EuroCommerce a.i.s.b.l.Avenue des Nerviens 85, B-1040 Brussels

T: +32 2 737 05 91F: +32 2 230 00 78

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EuroCommerce and the commerce sector

EuroCommerce represents the retail, wholesale and international

trade sectors in Europe. Its membership includes commerce edera-

tions and companies in 31 European countries.

Commerce plays a unique role in the European economy, acting as the

link between manuacturers and the nearly 500 million consumers

across Europe over a billion times a day. It is a dynamic and labour-

intensive sector, generating 11% o the EUs GDP. One company out o

three in Europe is active in the commerce sector.

Over 95% o the 6 million companies in commerce are small and

medium-sized enterprises. It also includes some o Europes mostsuccessul companies. The sector is a major source o employment

creation: 31 million Europeans work in commerce, which is one o

the ew remaining job-creating activities in Europe. It also supports

millions o dependent jobs throughout the supply chain rom small

local suppliers to international businesses.

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