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 2005
Sponsored by Bristows
CCLP (S) 04/05 (I)
Private Label
Their Role for Retailers
&
Their Impact Upon Competition
Part I
Oxford
Institute
of Retail
Management
Structure 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
Oxford
Institute
of Retail
Management
The Retail Revolution
The Nature of Change
1. The Growth of Chains
2. Evolution of Large Formats
3. Dedicated Distribution Systems
4. Retail Chains as Retail Brands
Oxford
Institute
of Retail
Management
The Retail Revolution
Consequences of the Nature of Change
1. Growth of Chains  Increased buying power
 Focus on price as competitive weapon
2. Large Formats
 Decline in number of small stores
 Shift to Out of Town
 Exclusive Sites
3. Integrated &
Dedicated
Distribution
 The Application of I.T.
 Control of Retail Stores
 Speed & Frequency of Replenishment
 Decline of Wholesaling
4. Retail Brands
 Differentiation by Format & Location
 Private Label
 Loyalty Programmes
Oxford
Institute
of Retail
Management
Retail Concentration
Market Concentration
2002:
The Top Five Retailers
Oxford
Institute
of Retail
Management
Country
Netherlands
Sweden
Austria
Denmark
Norway
Switzerland
France
Finland
UK
Germany
Belgium
Portugal
Spain
Greece
Italy
Median
Market Share
95
95
93
84
84
84
83
83
79
76
72
54
51
45
31
83
HHI
2394
2990
2211
2502
2500
2535
1619
2529
1355
1216
1128
671
462
509
285
1619
Retailer Scope -The Virtuous Circle
Price
Competition
Growth
Efficiency
Asset
Investment
Supply Chain
Dominance
Gross
Margins
Private Label
Fresh/chilled
Differentiation
Oxford
Institute
of Retail
Management
Integration - Up-stream
I N FO R MATI O N I N TE G RATI O N
SCANNING
INTEGRATED
STOCK CONTOL
DAILY DELIVERY
H.Q.
CENTRALISED BUYING
Oxford
Institute
of Retail
Management
SUPPLY CONTRACTS WITH PRODUCERS
Consequences of Integration
Ref. Private Label
1. Supply Chains Exclusive to Individual
Retailers

Collapse of Wholesaling
2. Direct (and Potentially Exclusive) Contracts
with Producers


Oxford
Institute
of Retail
Management
Farmers
Manufacturers
The Model is Changing
Stage 1 - The Classic Structure of Distribution
Consumers
(Shop in several stores)
Stores
(Can purchase from
different wholesalers)
Wholesalers
Suppliers
(Supply all wholesalers)
Oxford
Institute
of Retail
Management
The Model is Changing
Stage 2 - The Erosion of Horizontal Competition
Consumers
(Shop in one stores)
Stores
(Supplied by
chain RDC)
Distribution
Centres
TESCO
ASDA
Suppliers
Branded Suppliers try to supply all chains. Chains seek exclusivity from P/L Suppliers
Oxford
Institute
of Retail
Management
SAINSBURY
The Model is Changing
Stage 3 - The Emergence of Vertical Silos
Consumers
(Shop in one stores)
Stores
(Supplied by
chain RDC)
Distribution
Centres
TESCO
Suppliers
Branded Suppliers supply some chains. P/L Suppliers
Oxford
Institute
of Retail
Management
ASDA
SAINSBURY
The Role of Private Label for Retailers
1. Differentiation – Reduces Price Competition
2. Customer Loyalty
3. Higher Margins
4. Consumer Value
Oxford
Institute
of Retail
Management
Cost Differences:
Brands 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
Oxford
Institute
of Retail
Management
Differentiation
Per Cent Sales in Private Label Products
UK
Germany
France
Safeway
47
Aldi
90
Carrefour
20
Tesco
51
Rewe
22
Auchan
16
Sainsbury
54
Tenglemann
19
Intermarche 29
Asda
54
Metro
14
LeClerc
18
Somerfield
36
Markant
6
Casino
23
National Av.
45
Sources:
Oxford
Institute
of Retail
Management
Nielsen/
Competition
Commission
33
Nielsen
22
Secodip
How Private Label is Developed
Product and Packaging Specification is Developed
Jointly with Potential Supplier
Suppliers Asked to Tender for the Cost of Supply
Product Responsibility (Adherence to Spec, Safety
etc) Passed up the Chain e.g. Sudan Scare
Concept of Vendor Assurance Contrasts with
Concept of Brand Ownership
Oxford
Institute
of Retail
Management
How Private Label is Developed In Store
Benchmark the Brand Leader
Look-a-likes
Category Segmentation
Space Allocation
Selective Listing of Brand Leader SKU’s
Oxford
Institute
of Retail
Management
Cloning I
£1.28
Oxford
Institute
of Retail
Management
£0.99
Cloning II
£1.81
Oxford
Institute
of Retail
Management
£1.59