Devangshu Dutta
March 23, 2009
‘Refrigerated and Frozen Food Retailer’ magazine wrote about price wars in food and grocery retail, between retailers, or between retailers’ private labels and national brands.
The comments about the difference between retailers’ own brands and national supplier brands are particularly interesting. The question, whether retailers’ own brands necessarily need to be cheaper and whether they can catch up later, is also very acute.
To me, the price difference here is really reflected by the difference between whether you are creating a brand (albeit one that is available only in one chain of stores) or a lower-priced private label.
A brand needs distinctiveness, a private label is mostly a me-too. A brand needs to build its own relationships and desirability beyond the store it is available in, while private label sells because there is an existing customer for something else that it is knocking-off. (Of course there are private labels that are not me-too and that are distinctive, but they are the exceptions proving the rule, so I would much rather go with the simplified view of the world for now.)
Finally, migrating up the price curve is difficult in the best of times. Believing that it can be done quickly after an introductory low price, in the current economic scenario, would be highly optimistic.
Price-optimization solution providers believe that retailers can increase private label prices:
DemandTec’s Derek Smith is seeing smaller price gaps between national brands and private label, with private label also adding more tiers. This allows one tier to fulfill the opening price point in a category, with the other tier playing roughly on par with the national brand or even priced above it…
“You also have to understand what price gap is necessary to get the consumer to trade up or down,” depending on your strategy, he adds. For example, you might want to incent shoppers to trade down to your private label, so you get more margin. So… do you raise the price on the national brand, lower the price on the private label, or do a bit of both? Once again, it will depend on your customer set and their purchasing history…
Lyle Walker, VP of marketing, KSS Retail, has seen some of the retailers he has worked with raise prices on their private label without losing sales – thus significantly increasing category profits. “We build demand models with two years’ worth of POS history, and then dynamically adjust elasticity values based on weekly updates of POS data,” said Mr. Walker.
Of course, Mr. Walker also qualifies the argument by saying that the increment may be “pennies here and pennies there,” implying that the discount for private label may still remain large enough for the customer not to notice the “pennies” being added on gradually.
Which sort of negates the whole question about whether retailers’ private label can really compete by pricing on par with national supplier brands, doesn’t it?
(The original RFF article is available here.)
Tarang Gautam Saxena
October 10, 2008
I recently had the opportunity of window shopping with some friends visiting India and it was interesting to note how visitors to India from different continents react to the retail prices of the products of the international brands available in the Indian market.
Friends from Europe (specifically from the UK, which is a relatively expensive country to live in) were pleasantly surprised to find the prices of some of the products of international brands such as L’Oreal, Tommy Hilfiger, Marks & Spencer and Levi Strauss cheaper and they extended their list of things to buy from India at the cost of paying for the extra baggage on their way home. (Well, it also happened to be the discount season during their visit.)
On the other hand, friends from Canada who had arrived a few weeks earlier (before the discount sales started) found the products of international brands too expensive by “Indian standards” and decided that they should do their shopping back in their home country during the markdown sales for Halloween or Christmas!! After all, shouldn’t India be cheaper?!
Yet again, a case in point, when I visited a “just opened” retail outlet of an international brand at a well known mall in the NCR region, I noticed the Rupee price mentioned on the tag was higher than the converted value of the unit price printed in Euros on the same tag. As a consumer I rationalized that probably the brand was launched in a hurry and one forgot to remove the Euro price stickers, though it may also have been a possibility that since the products were imported, the high import duty structure may have resulted in a higher Indian price!
Is it possible for the international brands to follow a common pricing globally? Could the international brands integrate the global tariff barriers/ duties, and currency conversions in their cost structure and have their products priced the same across all international borders?
Well, maybe not just yet…although some brands have tried. For now, consumers can only hope for more parity.
Come to think of it…..if you went shopping in the UK after the US you may just find that for some products the prices (read digits) appear to be the same ……only the “$” would have been replaced by “£”.
Devangshu Dutta
October 16, 2007
A discount outlet store sells merchandise that is off-season (such as summer merchandise in winter or vice versa) or out-of-fashion (hence possibly two-three seasons old) or comprising of manufacturing over-runs.
However, in India discounts are prolific even in the high street market. In clothing as an example, a large chunk (estimates vary from 40% to 70%) of ready-to-wear stock is sold under discount. Some of it is sold in factory outlets, but a significantly larger proportion is sold throughout the year in regular high street stores under offers that run throughout the year.
There are also discount streets within the city (such as Fashion Street in Mumbai or Sarojini Nagar in Delhi) operating the year round. This reduces the benefit that a discount outlet specifically provides to the consumer.
Second, discount stores typically are based “off-locations” away from regular customer traffic. In markets such as the US and the UK, an “outlet village” may be located 50-100 km from the nearest suburban or urban centre but quite close in terms of drive time. In India currently, due to poor road conditions, the stores have to be in higher cost locations.
Most critically, a sustainable and sizeable discount outlet also needs a base of many brands that have built up high profile and that operate consistent price premium at full-price levels. The brands must have enough scale so a discounting outlet cannot damage its brand image. This enables not just standalone discount outlets, but entire “outlet villages” to be set up. These clusters can generate a much bigger and sustainable customer footfall, much like a shopping mall. That ecosystem of brands has been weak in the past in India but has recently accelerated, and we are likely to see critical mass emerging in future, which may allow the discount business to grow.
In the coming years, expect more action, with clustering of stores and brands, specialist discount malls, and possibly even innovative and India-specific models to come up. How about air-conditioned haats with proprietary bus connectivity to town centres?
Let the good, discounted, times roll.
