Noticias Ibermir (9)

How far can own-brand products go?

Obviously, there are opinions and assessments of all kinds, but, whether we like it or not, the development of own-brand distributor products, and their unstoppable conquest of market share in recent years, is one of the most significant events currently impacting our industry.

Own-brand products already occupy practically 50% of our market, a percentage that, considering that at the beginning of the century we were around 15%, gives us an idea of the magnitude of progress, whose speed has increased significantly since the pandemic, reaching a current rate of 2% per year.

A good friend and colleague from the sector who knows about my past involvement in retail infantry and my participation for some years in this chapter of own-brand management, asks me a question that serves as the title for this modest reflection and requests some consideration about it and its possible answer.

BY WAY OF BACKGROUND Back in the year ’81 of the last century, when I had been working at Eroski for four days and 500 nights, with hardly a “Everything at 100” and a “Monograph of Country Products” as my only cultural baggage, the orchestra management decided, with a courage bordering on recklessness, that the development of own-brand distributor (MDD) was a strategic issue that needed to be pushed to the max, and that I should be the owner of the project.

I was advised a good dose of caution, but a much more generous one of ambition. I was asked to remove the brakes on the development of references and set sky-high objectives for sales conquest by category, with modest price differentials compared to manufacturer brand references, but encouraging a margin boost.

The path to follow at that time, when there was no VAT, no EBITDA, no Google, no Internet, was the “Free Products” from Carrefour on the other side of the border, which more than clues were put to me as hares to make me start running without asking for further explanations.

From here, allow me to share with you some ideas or reflections on the matter.

  1. IN THE WAR TO WIN THE CONSUMER, THERE IS NO SMALL RIVAL Despite the long time that has passed, my first steps parading the holy grail of MDD through a good number of manufacturers, trying to turn them into active devotees of the initiative, may serve for a first consideration that to a large extent I believe may still be relevant.

Initially, good manufacturers with capacity and quality guarantees in processes and products acted as if they were slow to understand the objective of putting your brand on their product, considering it as if the result was going to be second-rate in the value scale, with little commercial potential and with concern to ensure our commitment to bear the labels and packaging that would be left over a few weeks after their launch.

That disdain from many manufacturers of relevant brands in their category, I believe, has largely persisted over time, to the point of coining the term “white label” for these products, as if they were suspiciously anonymous, lacking personality or brand intentionality, with little security and guarantee in their benefits for the buyer.

With the advance of the MDD already suspiciously relevant, more than once when a manufacturer from the premier division visited us to present the commercial plan for the new season and explained the distribution by brands of the category. When we expressed our surprise at the absence of the MDD slice of the pie, more than one would tell you that they did not consider the “white label” because “we are in another war.”

Now, when their war has half the ground to conquer, it is possible that for many it is too late to understand that the war to win the consumer is the same for everyone and that the youth from the reserves cannot be underestimated.

  1. QUALITY AND PRICE DIFFERENTIAL EXPLAIN EVERYTHING Another aspect that I believe deserves consideration is the issue of the quality of MDD products, long criticized as second-rate copies with doubtful guarantees.

I remember how, in those early visits to manufacturers in the 80s, when trying to convince them with the objective of becoming manufacturers of a product with our brand, more than one would agree to the deal because it suited them to have an open door to “get rid of the bad” and that they would give us a good price.

I also remember, with all the modesty of the few resources available in those years, that we were clear about the need to have our own quality department that would agree with the manufacturers on the protocols of definition and control according to the product characteristics. This quality department had veto power, so if it considered that the product did not meet the defined level, it was not added to the collection, even if the manufacturer gave it to us for free.

A few days ago, I saw a report from AECOC Retail Knowledge, “MDF vs MDD: Driving the Return to Growth in 2024,” which points out that “buyers still perceive that brands (I suppose manufacturer brands) are more reliable, but that the gap is closing.” And it is closing so much that, in the same report, when asked if “manufacturer brands tend to be of better quality than MDD alternatives,” 26% of buyers answer affirmatively, while to the question “I trust MDD products as much as brands,” 65% answer affirmatively.

To explain the advances of “white label,” add to this factor another important element to consider: the unstoppable increase in price differentials between the premier division and the quarry alternatives, in times like the current ones with a buyer settled in the neighborhood of caution, fiercely defending their budgets through hunting territories seeking adjustment and savings.

  1. MANUFACTURERS WITHOUT FACTORIES AND RETAILERS WITHOUT STORES Finally, I would like to mention another element that has never ceased to amaze me for a long time. When we started developing MDD products, we quickly understood that it was about learning to play at being manufacturers without factories.

It is a game, as fantastic as complex, that forced us to use resources to thoroughly analyze the category role, consumer-buyer analysis, product benefits and attributes, decision tree, etc., before determining possibilities to incorporate our brand into the game with guarantees of not making a fool of ourselves.

After getting the green light, the next phase was to study the product manufacturing process in its container and content, learn about raw materials, define consumer value elements, etc. A process in which many manufacturers were willing to collaborate with an admirable degree of involvement, while others only looked at “their war.”

Retailers learning to be manufacturers without factories in contrast to the few manufacturer brands that seemed willing to learn to be retailers without stores.

You reached that conclusion when receiving manufacturers who came to present the commercial plan of the year without remembering the last time they had visited one of our stores, or who reproached you in a lamenting tone with “but if it costs you nothing to add four more juice references …”, or who suggested possible extra benefits if you committed to sell more expensive than THEM.

I assure you that the few who asked us for help to learn to be retailers, and who we explained the diagrams of the most important processes of the trade, not only improved the professional and personal relationship with us, even within the natural belligerence, but also contributed ideas to improve our internal procedures and formulas to enhance our competitiveness in the category.

With all this, the initial question of “how far can MDD go?” is logically answered by buyers, who in recent times have learned and become fond of conjugating two verbs: “discounting” and “I’m not naive,” which they practice with enthusiasm and good aim when they go out hunting for the best option.

With all this, in my humble opinion, as long as the current market conditions persist and many of the big manufacturers continue with the idea that “white label” is territory they won’t enter because they’re in another war, MDD will not stop gaining ground, although surely in a more moderate way, slowing down its current growth.

Source: Food Retail

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