BRANDS
Birth of Brands
During World War-2 , manufacturing capacities were destroyed . As a result , the demand-supply equation got disturbed and demand outweighed supply . Western capitalists exploited Japan as a cheap manufacturing base for their mass production . Japan became the world ’ s factory . In the 1960s , the four Asian Tigers Hong Kong , Singapore , South Korea , and Taiwan emerged focusing on exports . In the late 1980s , China joined the party . Within a decade , they snatched the crown from Japan and became the world ’ s factory .
By the 1990s , the situation got stabilized , manufacturing capacities were built all over the world and more products started chasing the demand . Having got the option to choose from many products , the customer got confused . They wanted assurance on quality , performance and reliability . The brand was born . It provided the required assurance and peace of mind to customers who were buying commodities .
Emergence of Brands
With further increase in the competition , brands started delivering more than what customers could imagine and demand . That was termed Consumer Surplus . In the 1980s and 1990s , mega brands emerged globally . They created Wow Factor by delivering consumer surplus . Post the year 2000 , brands started managing customer loyalty schemes to maximize the Customer Lifetime Value ( CLV ). Consumer Packaged Goods companies ( CPG , also called FMCG companies in India ) started ruling the supermarket shelves . The brands they created gave them the upper hand over the wholesale-retail channel . They ruled for three decades .
The emergence of Global Chain Retailers
By the year 2010 , retailers developed scale with an increasing number of stores globally . They increased both span and depth of their distribution . In the year 2020 Walmart had more than 11,000 stores , Aldi had 10,000 stores , 7 Eleven had 71,000 stores . Fortune-500 list was dominated by retailers with about 49 retailers featuring in the list and 10 more didn ’ t submit the data but had the same scale . Top 250 retailers had a combined turnover of $ 4.85 trillion as per Deloitte ’ s Global Power of Retailing -2021 report .
The gigantic scale acquired by retailers gave them a strong negotiating muscle against CPG companies . In garment and fashion , Pharmacy and Consumer Electronics industries brands were at peace with retailers . Both supplemented each other , rather than competing . In addition , brands started factory outlets and Single Brand Outlets ( SBO ). They enjoyed superior profitability . The Department stores , Pharma retailers and speciality retailers enjoyed gross profit margins over an average of 30 %.
“ Private labels or store brands are the brands owned by retailers . They are available only in those retail chain stores . Usually , private labels are 25 % cheaper than the national brand leader of that category . The retailer earns 25 % more on their private labels . Thus , private label or store brands are win-win for both , retailers and customers .”
Food Retailers - National Brands Tussle
In food retailing , CPG companies enjoyed superior margins than food retailers . Food retailers like supermarkets , hypermarkets and convenience stores barely managed 13-15 % gross profit margins . They were left with the option to scale up for survival . They had to look for avenues to improve profitability . They started charging slotting allowance - unofficial fees to make store shelves available to new CPG brands . Hypermarkets and Supermarkets realized the increasing store loyalty of customers who were shopping twice-thrice a week in their stores . They were looking to encash this consumer franchise which they had developed over a period of time . Private labels ( also called Store Brands ) were born . However , private labels were already part of garment retailers .
What are Private Labels ? How did they change the game ?
Private labels or store brands are the brands owned by retailers . They are available only in those retail chain stores . Usually , private labels are 25 % cheaper than the national brand leader of that category . The retailer earns 25 % more on their private labels . Thus , private label or store brands are win-win for both , retailers and customers .
Private Label : Heavy Hand
Food retailers started returning the favor . They locked horns with CPG brands . They increased categories and variants improving the consistency of product lines for their private labels . As the scale of private labels grew , retailers realized the inadequacy of manufacturing and wanted access to sophisticated mass manufacturing facilities and supply chain management . They realized only CPG brands were having such a strong and powerful infrastructure for manufacturing and delivering their scale . Retail chains started armtwisting of CPG brands . They started negotiating for the manufacturing of their private labels in the factories of CPG brands , in exchange for their shelf space . Once CPG companies succumbed to the pressure , retailers prevailed . They made almost every CPG brand manufacture private labels . P & G was the only exception . They accepted a loss in sales rather than becoming a private label supplier .
In the era of CPG brands , product and promotions were the most dominant Ps of the 4 Ps of marketing . With the emergence of global retailers , the equation changed . Price and Place became dominating components of the marketing mix , replacing Product and Promotion . Private labels saved on research and product development , costs of channel management and profits , cost of advertising , cost of packaging , etc . Plus , they got instant volume due to their store loyalty and scale of operations . Part of these saving , rather half of it is passed on to customers to build volumes . For national brands , it becomes tough to
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