Why have distributor's brands?

In 2006, at the world’s number one distributor, out of a turnover of US$285 billion, 40 per cent was made from distributor’brands. This percentage is 60 per cent at Tosco, the fourth-largest distributor in the world, 35per cent at Metro, but 90 percent at Ali, the king of the hard discounters. In the field of sports products, it is 51 per cent at Decathlon.

Why do distributors come to set up their own brands, to the point that – like Gap or Pi card –they eventually sell nothing else?For an answer to this question, we should not look to the consumer, who is only too happy to have finally found a cheaper product. In reality, the true economic motor of the unstoppable growth of distributor’s brands lies with the industry: the distributor sand producers themselves.

In the mass consumption sector, the early distributor’s brands are almost always born of conflict between the distributor and the producer. Dissatisfied with the poor treatment it receives, the distributor has its goods produced elsewhere, in order to plug agap, and sells them either under its own name or under a private label.

The atmosphere of conflict persists, particularly since –in Europe for example – brands now typically depend on a very small number of distributor clients (four) for 60 per cent of their sales. Procter & Gamble makes 16 per cent of its worldwide turnover (US$51 billion) from single client: Wal-Mart. In some sections the concentration is even higher: Decathlon accounts for more than 10 per cent of Nike’sales in Europe. Furthermore, these distributor’s brands parallel the worldwide development of distributors, leading them to match the expectations of quality products at lower prices that are prevalent in emerging countries (Brazil, Eastern Europe, Russia, India and so on).

Consumers are selective. They decide in which categories they are the most tempted to buy distributor’s brands: those in which they have a low degree of involvement (Kapfererand Laurent, 1995). Remember that brands exist wherever customers perceive a high risk in purchasing. Conversely, where they see no risk, they are tempted by the distributor’sbrand, particularly if they consider that distributor to have a good reputation and an image of quality. For example, the butter category is now dominated by distributor’s brands.

Three-quarters of all the processed meat sold in self-service stores in France slow-cost or distributor’s brand products, but the same is not true of new food products, such as low-fat butters and unsalted hams, which suggests product development is source of concern, and consumers need the reassurance of a well-known brand name. In all cases where the consumer expects superior performance (cosmetics, for example), the producer’s brand carries the day. The same is true wherever the product has assumed the status of a symbol or ‘badge’: again, the distributor’s brand fails to make an impression, except where it has become itself declaration of self (the Gap is the anti fashion).

Now, emboldened by satisfactory past experiences, consumers are taking the plunge: there are distributor’s brands for PC's, 120 bicycles, hi-is and domestic appliances . Consumers may want a Sony or Sam sung television for their living room, but in the kitchen or in a child’s bedroom they are less involved: they may be tempted by a Blue Sky(Careful’s low-cost hi-i brand). The same is true for home computing. Dell is a product assembler, and sells under its distributor’brand. However, its products are guaranteed‘Intel inside’.

In reality, the distributor’s brand is based on supply, not demand. Whenever distribution is concentrated, and the size of the domestic market makes it economically possible, there is no other way of increasing return on investment (ROI), as we shall analyses below. On the one hand, in the previously independent retail sector, as trade concentration progresses, the first step is to buy in bulk to reduce purchasing costs.

Next, a collective commercial store name is applied (for example Bureau +, Squalling). But if there is to be a collective name, there must also be collective range: this forms the heart of the store’s product range. The last step is a logic alone; the distributor’s brand – which only represents a small part of the offer to begin with – can only grow. It is an integrating factor.

Bear in mind that growth in distribution is achieved over time, through the elimination of competing channels or forms of commerce, followed by the competitors themselves. In this way, in Europe, small traders have vanished altogether in many categories, having been swamped by the supermarket sand the hard discounters; this was how the distributors first started to grow. Having reached the end of this path, distributors have turned to the international market and cost reductions: hence the fashion for cost-cutting techniques such as efficient consumer response (ECR) mode and trade marketing. The final stage is the distributor’s brand as means of improving ROI.

Finally, we should not forget what the major distributors sometimes call upstream marketing. The distributor’s brand makes it possible for large stores to present themselves as objective allies of local and regional Meagan the multinationals, since it is the Somewhat manufacture the distributor’s brands . Everyone knows that mass distribution doe snot always have a good image.

The crushing of small businesses has contributed in large measure to the desertion of town centers, and of complete suburban zones: society as aw hole is paying a steep price for this. In their eagerness to position themselves as the cheapest, the major players in distribution and their massive bulk buying have launched themselves on the world like hunting dogs, driven by a single idea: to always find it cheaper and import it as quickly as possible.

This quest – with the approval of consumer sonly too happy to save money in the short term – has led to the downfall of companies, entire sectors and towns, leaving thousands of workers unemployed. This social cost has passed largely unnoticed. The salaries in mass distribution are among the lowest in the country: the store owners are rich, but the prospects for salary increases for a cashier over10 years are minimal, a situation dictated by the price war.

What has society gained from this frenetic competition between the major distributors?Conscious of the collateral damage for society, mass distributors make use of two levers to give themselves a clear conscience. Either, Ikea, they flatter national pride, since the company has exported itself worldwide(although this does not create more jobs in France), or like Lecher, they present themselves as the defender of SME's, the majority suppliers of distributor’s brand products . Having been crushed by the multinationals, SME's will be saved by mass distribution.

We know that this is provisional, since this preference for SME's derives from the refusal of the major industrial groups to produce DOBs. here they do so, there are no SME's. Now the question for all boards of directors of the major industrial groups is: why leave this market to the SME's?

Strategic Brand Management Related Practice Tests

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