“Who is the competition these days, you might ask yourself. I may slice, dice and bag my carrots, or batch and dispatch my eggs, or slice the bacon all ready for market.
Then, after all that work and getting the product into the supply chain, how often are you left wondering that you have actually been competing against yourself when you look at the supermarket shelves; where is your product amongst the array of private label and multinational brands. You think if this continues and the more I sell into private label, how am I ever going to distinguish my quality and improve my prices. Am I the one actually in the bacon slicer?
And that is the whole point about the importance of the maintenance of brands in our food and beverage markets. The ongoing removal of brands from our shelves with their substitution by an increasing suite of private label brands removes the capacity for competition and narrows consumer awareness to an ever decreasing circle of choice, narrowing the entrance gate but making the gatekeeper loom larger than ever.
Should I be bothered about this?
The answer is yes. With a brand which consumers recognise and appreciate, that establishes a goodwill for the producer with customers which is an item of value, not only in repeat custom and any negotiations with retailers (although this can be notional for some even at the best of times) but also on the balance sheet.
A suppliers’ contract into private label establishes neither. This renders the private label only supplier even more beholden to the buyer and retailer and eliminates to a real extent any credible alternatives. When credible alternatives are removed, ultimately that will result in price squeeze on the supplier but also has the capacity to facilitate margin retention vis-à-vis consumers. The buyer controls both the supply agreement, the branding the pricing and range of SKUs. It may also lead to less competition in quality to the detriment of the consumer body as a whole.
This is where we are all probably in agreement with all stakeholders in the supply chain – competition is not all about lowest price, particularly where there is an absence of choice. It is about driving efficiencies and quality. Driving efficiencies should lead to lower price but if at the expense of quality and choice, then that is a fiction.
Tim Harford, otherwise known in the English Financial Times as the Undercover Economist noted in the 13 August 2014 edition:
“Monopolists can sometimes use their scale and cash flow to produce real innovations – the glory years of Bell Labs come to mind. But the ferocious cut and thrust of smaller competitors seems a more reliable way to produce many of the everyday innovations that matter.
That cut and thrust is no longer so cutting or thrusting as once it was. “The business sector of the US economy is ageing,” says a Brookings research paper. It is a trend found across regions and industries, as incumbent players enjoy entrenched advantages. “The rate of business start-ups and the pace of employment dynamism in the US economy has fallen over recent decades … This downward trend accelerated after 2000,” adds a survey in the Journal of Economic Perspectives.
That means higher prices and less innovation, but perhaps the game is broader still.”
What does this mean for you?
If you have an idea for a brand or strategy for your product, believe in it, try and stick with it. It is a hugely important aspect of that element of competition policy which drives innovation and we can all be policy makers on that front. The game is broader still. Otherwise, where’s the fun in white label, right!