Trends in Retail Competition: Private Labels, Brands and Competition Policy
A Symposium on the Role of Private Labels in Competition between Retailers and between Suppliers
The Institute of European and Comparative Law in conjunction with the Centre for Competition Law and Policy
Oxford, 9 June 2005Sponsored by Bristows
CCLP (S) 04/05 (I)
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Private LabelPrivate Label
Their Role for Retailers&
Their Impact Upon Competition
Part I
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Structure of PresentationStructure of Presentation
1. The Structure of Grocery Retailing
2. The Integration of Grocery Retailing
3. The Role of Private Label
4. How Private Label is Developed
5. The Impact Upon Competition
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The Retail RevolutionThe Retail RevolutionThe Nature of ChangeThe Nature of Change
1. The Growth of Chains
2. Evolution of Large Formats
3. Dedicated Distribution Systems
4. Retail Chains as Retail Brands
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The Retail RevolutionThe Retail RevolutionConsequences of the Nature of ChangeConsequences of the Nature of Change
1. Growth of Chains
2. Large Formats
3. Integrated & Dedicated Distribution
4. Retail Brands
Increased buying power Focus on price as competitive weapon
Decline in number of small stores Shift to Out of Town Exclusive Sites
The Application of I.T. Control of Retail Stores Speed & Frequency of Replenishment Decline of Wholesaling
Differentiation by Format & Location Private Label Loyalty Programmes
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Retail ConcentrationRetail Concentration
Market Concentration 2002:
The Top Five Retailers
Country Market Share HHI
Netherlands 95 2394
Sweden 95 2990
Austria 93 2211
Denmark 84 2502
Norway 84 2500
Switzerland 84 2535
France 83 1619
Finland 83 2529
UK 79 1355
Germany 76 1216
Belgium 72 1128
Portugal 54 671
Spain 51 462
Greece 45 509
Italy 31 285
Median 83 1619
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Retailer Scope -The Virtuous CircleRetailer Scope -The Virtuous Circle
AssetInvestment Supply Chain
Dominance
Private LabelFresh/chilled
Differentiation
GrossMargins
Growth
PriceCompetition
Efficiency
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Integration - Up-streamIntegration - Up-stream
H.Q.
CENTRALISED BUYINGCENTRALISED BUYING
SUPPLY CONTRACTS WITH PRODUCERSSUPPLY CONTRACTS WITH PRODUCERS
SCANNINGSCANNINGSCANNINGSCANNING DAILY DELIVERYDAILY DELIVERYDAILY DELIVERYDAILY DELIVERYINTEGRATEDINTEGRATED
STOCK CONTOLSTOCK CONTOLINTEGRATEDINTEGRATED
STOCK CONTOLSTOCK CONTOL
I N F O R M A T I O N I N T E G R A T I O NI N F O R M A T I O N I N T E G R A T I O N
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Consequences of IntegrationConsequences of IntegrationRef. Private LabelRef. Private Label
1. Supply Chains Exclusive to Individual Retailers Collapse of Wholesaling
2. Direct (and Potentially Exclusive) Contracts with Producers Farmers Manufacturers
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The Model is ChangingThe Model is Changing
Stage 1 - The Classic Structure of DistributionConsumers(Shop in several stores)
Stores(Can purchase from different wholesalers)
Wholesalers
Suppliers(Supply all wholesalers)
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The Model is ChangingThe Model is Changing
Stage 2 - The Erosion of Horizontal CompetitionConsumers(Shop in one stores)
Stores(Supplied by chain RDC)
DistributionCentres
SuppliersBranded Suppliers try to supply all chains. Chains seek exclusivity from P/L Suppliers
TESCOTESCO ASDAASDA SAINSBURYSAINSBURY
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The Model is ChangingThe Model is Changing
Stage 3 - The Emergence of Vertical SilosConsumers(Shop in one stores)
Stores(Supplied by chain RDC)
DistributionCentres
SuppliersBranded Suppliers supply some chains. P/L Suppliers
TESCOTESCO ASDAASDA SAINSBURYSAINSBURY
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The Role of Private Label for RetailersThe Role of Private Label for Retailers
1. Differentiation – Reduces Price Competition
2. Customer Loyalty
3. Higher Margins
4. Consumer Value
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Cost Differences:Cost Differences:Brands vs. Private LabelBrands vs. Private Label
Suppliers Cost Saving 10.6%
Lower Supplier Margin 18.8%
Retailers Purchase Saving 29.4%
Lower Retail Price 19.3%
Higher Retail Margin 10.1%
Source: UK Competition Commission
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DifferentiationDifferentiationPer Cent Sales in Private Label ProductsPer Cent Sales in Private Label Products
Safeway
Tesco
Sainsbury
Asda
Somerfield
National Av.
UK
47
51
54
54
36
45
Sources: Nielsen/Competition Commission
Aldi
Rewe
Tenglemann
Metro
Markant
Germany
90
22
19
14
6
33
Nielsen
Carrefour
Auchan
Intermarche
LeClerc
Casino
France
20
16
29
18
23
22
Secodip
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How Private Label is DevelopedHow Private Label is Developed
Product and Packaging Specification is Developed Jointly with Potential Supplier
Suppliers Asked to Tender for the Cost of SupplyProduct Responsibility (Adherence to Spec, Safety
etc) Passed up the Chain e.g. Sudan ScareConcept of Vendor Assurance Contrasts with
Concept of Brand Ownership
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How Private Label is Developed In StoreHow Private Label is Developed In Store
Benchmark the Brand Leader Look-a-likes
Category Segmentation
Space Allocation
Selective Listing of Brand Leader SKU’s
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