How 'private brands' affect retail industry

[Photo from ShopStalker]

If the worldwide trend is anything to go by, the “private brands” in the Philippines will soon be having a more dominating presence, much like many countries the world over.

[Photo from marriagemarkers.com]

These private brands or “in-house brands”--such as SM's Bonus or Shopwise's Surebuy—has a global penetration rate of 22 percent, with a continuing indispensable growth in recent years. Its penetration rate is highest in Europe at 35 percent.

In the Philippines, however, the penetration rate of these private brands stand at a measly 1 to 2 percent. This is according to a presentation by Tom Moran IV at the recently concluded seminar organized by the National Retailers Conference & Expo held at the SMX Convention Center.

“Private brands are a strategic pillar of growth for retailers worldwide,” said Moran, director of business development for Daymon Worldwide, in his presentation titled “Global Private Brands Trend: 2011 and Beyond.”

According to Moran, these private brands are not limited to food. In the USA or the UK, brands such as Marks & Spencer and GAP have their own in-house brands. Even convenience store leader 7-Eleven have begun replacing branded items in their shelves with their own.

“Since the Philippines has just started adopting this strategy, there's a large room for improvement,” he said.

In his presentation, which was attended by hundreds of participants nationwide, Moran said that this strategy would keep on going at exponential levels as shoppers continue looking for value for their money. At the very least, individuals would be inclined to try out these new line which could later lead to brand loyalty.

[Photo from heart-2-heart-online]

Secondly, Moran said that private brand growth can occur rapidly if done properly and forcefully. In South Korea, penetration rate increased to 18 percent (from virtually nothing) in less than 10 years.

“Soon enough, retailers would realize why there are so many brands in their shelves when they can occupy those shelved by their own brands. In fact, having their own brands in their shelves look better,” he said.

That is why, thirdly, for categories where there is limited brand loyalty (such as plastic cups or disposable plates), buyers will most likely shift towards private brands.

Additionally, an increase in store presence increases sales for these private brands. This would allow stores to actually take advantage of earning margins from selling their own brands instead of just receiving promotional space payments.

In the near future, Moran sees private brands as taking the lead in innovation and design. He said: “Many people are still embarrassed with buying private brands because the packaging is not entertaining enough. In able to succeed, it is important to move away from generic packaging.”

Lastly, national brands or those items that established themselves separate from a parent company, would get more aggressive as private brands expands deeper into their territory.

Moran said: “These branded lines of products would defend or try to recapture their market. This would lead to lower pricing to retailers and consumers, perhaps more rebates to retailers, new strategic alliances, or better contracts for retailers. In the end, it's the consumers who win here, more than anyone else.”