Brand loyalty or infidelity

McKinley with display for POS

Uhu (Elmers), Tempo (Kleenex), Nivea (Vaseline) – there are German brand names that have turned into the generic term in their respective product group. Each year, brand manufacturers launch new products on the market, but brand communication is a tough business. The competition amongst brands is fierce. Retail also gets in on the act – with its own brands that are no longer just cheap products.

”German consumers love to buy store brands“, says Bettina Willmann. She is in charge of the Department of Research and Concepts at the German Institute for Retail Studies (“Institut für Handelsforschung, IFH”) at the University of Cologne, Germany. In most product groups, only every fourth to fifth person does not buy private label products, according to the results of the new IFH baseline study on ”Private brands and their secret of success” (“Eigenmarken und ihr Erfolgsgeheimnis“).

According to the IFH, consumers choose private brands most often when it comes to milk produce and sanitary paper products. Brand attachment is strongest for tobacco products and alcoholic beverages, although even here 33 and 50 percent, respectively, time and again buy private label products.”Overall the percentage of those who generally don’t purchase any private brands is rather small in many product sectors, so that there are enormous potential sales volumes in this area for retailers“, says Bettina Willmann.

Umfrage: Reine Markenkäufer sind bei Lebensmitteln selten

When it comes to satisfaction of German consumers with the offered private brands, discounter Aldi Süd (Aldi South) ranks on top. Almost 80 percent of respondents indicated to be extremely or very satisfied with its private label range of products. Aldi Nord (Aldi North) ranks a very close second. The full line distributors Rewe and Edeka rank numbers three and four. Competitors like Norma and Kaiser’s/Tengelmann on the other hand fall behind and rank in the lower end.

Product quality is key for most consumers as well as cost-performance ratio.”Consumers expect retailers to have these private brands available and in different price ranges. To some extent, they also base their choice of where to shop on this“, according to Barbara Unterbusch, who oversaw the study at the IFH in Cologne. Around 60 percent of interviewed persons stated they prefer one store over another based on excellent store brands – both when it comes to full line distributors as well as discounters.

Private label or retail brand

Retail pursues different strategies with their private brands. Retail brands are brands with the retailer’s logo on the package, for example in the case of Edeka Bio (= organic) or Rewe Feine Welt (=savory world). In contrast, there are private brands that are only offered by certain chain stores. According to the IFH study, Lidl leads the competition with above average known private brands. Milsani, a private brand by Aldi Nord, is only classified as a private label by just under 30 percent of interviewed consumers.

Private labels are not just available in food retailing. The German drugstore chain dm for example is successful with its Balea beauty product line. At this point, many consumers equate Balea with brand quality – as a low-priced alternative to Nivea or Dove. Since the brand is only available at dm, it increases the appeal of the stores.

McKinley – Private label for almost 30 years

Long before outdoor became a buzzword in Germany, the McKinley brand hit the market almost 30 years ago. McKinley, named after Mount McKinley in Alaska, encompasses sleeping bags, hiking boots and outdoor apparel. McKinley is exclusively available at Intersport retailers. It is one of six private brands. Spokesperson Roland Scheuermeyer:”Store brands stand for the ’bread and butter’ business of retailers. Our preferred industry focal brands are the gravy.“ Those brands are asics, adidas or Nike for instance and in the outdoor sector Mammut or North Face.”It would be a mistake to not utilize the market demand of a well-known brand.“ According to Scheuermeyer, the exclusive brands on average make up 15 percent of sales. ”We actually don’t want to go any higher than 20 or 25 percent.“

Intersport therefore instead sees the private brands in competition with B and C-list brands of the industry and not A-list brands.”The built-in margin oftentimes absorbs the necessary write-offs by retailers for fashion industry brands”, says Scheuermeyer. ”Exclusiveness is added to this, meaning the incomparable range of products compared to the competitor. “The private brands often cover the entry-level product sector. This has significantly decreased in recent years, since national brands have adjusted downwards.

Bargain price, poor quality?

The margin pressure is especially tough in food retailing. Discounters put a terrible strain on Edeka & Co. That is why they have introduced cheap private brands that can stand up in terms of price to Aldi or Lidl. They are called ”ja!“ (“yes” at real), ”gut & günstig“ (“great & inexpensive” at Edeka) or ”tip“ (at Rewe). Yet it is no longer enough to only use store brands in the cheaper market sector. New store brands in the mid-priced segment are being introduced to increase the margin. However, if this does no longer involve quality, you are in danger of receiving critical media reports. In its consumer report show “Markt” in March, the German TV network NDR showed ”Trickery with store brands", that were far more expensive than the cheap brands with almost the exact same content.

Admittedly, brand manufacturers are not entirely blameless for the increasing competition. Many of them also produce store brand for retailers next to their well-known brands. Consumer protection agencies and journalists keep uncovering which manufacturers also produce cheaper products along the way. This is easy to do for dairy products, because the EU check digits have to be specified there.

Retail and manufacturers struggle with conditions

In an interview on this focal topic, ...from the German Brands Association, emphasizes however, that they have no choice but to go along with the market power of retail, which pushes margins more and more. The Association asks policymakers to use the anti-monopoly legislation against the from its point of view ever more powerful commercial enterprises. The consumer is only going to profit for a short time from lower prices. In the long run, the cutthroat competition will also lead to less competition in retail. The private brands oftentimes cover the entry-level product sector.

The German Brands Association, founded in 1903, represents the interests of brand manufacturers – ranging from foods to clothing all the way to home appliances. The message for price sensitive customers is to consider that “the lower price comes at the expense of quality and safety – not to mention at the expense of research and development for new products, jobs, the environment and external costs.“ In product tests, discounters or supermarkets oftentimes perform just as well and sometimes even better with their store brands. And as far as jobs and external costs are concerned: branded companies also manufacture abroad at lower wages.

For some time now, brand communication has to be more than just advertising and commercial television. The Internet provides new possibilities. Brands however, also have to be staged in the real world. EuroShop exhibitor D’art from Neuss, Germany for example develops creative spaces for the “brand environment”. Spokesperson Constanze Frowein shows in our second interview on this focal topic how this presentation is not only possible at tradeshows, but also in shopfitting.

René Schellbach, EuroShop.de

01.08.2012

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