Our consultancy has run with the hare and hunted with the hounds on this one. We have worked with a number of major pan-European private label suppliers, and so have come to recognize the key drivers of success. But our main area of work has remained with the major brand manufacturers in cosmetics and toiletries, where we have all too often encountered indifference when it comes to being aware of, and defending against, private label.
To succeed in private label, you must be single-minded and gear up your company operation accordingly. The secret lies in speed of reaction and technical excellence in terms of the basics; e.g. small batch procurement, manufacturing flexibility, consistent quality control (there’s nothing like putting Retailer A’s label on Retailer B’s product to start losing business at a rate of knots), plus high service levels—retailers don’t appreciate running out of stock!
Then there is the whole question of how to successfully pitch for new private label business—we’ve attempted to encapsulate our thoughts in the panel above.
On the other hand, if you’re a brand owner, private label is in some ways as much the enemy as that competitor you’ve been struggling with for years. It has always surprised us when going into brand manufacturers, to find brand directors’ filing cabinets full of information on their branded competitors, yet virtually nothing on private label. Again, we have sought to tabulate a few thoughts on defense for brand owners (see table above).
Tesco’s private label products make for a formidable lineup.
One thing that you should not attempt to do, as a manufacturer of brands, is to treat private label as some sort of production capacity regulator. That is, try and get into private label supply when it suits, without really being properly set up for it. Time and again, it has been our experience in Europe that such a double-minded approach in personal care leads to problems. It may perhaps work in, say, instant coffee, but in the premium world of cosmetics and toiletries it can be little short of disaster. There are many reasons why. Your purchasing and operations people are simply not geared up for the short runs and constant line changeovers. Your sales people are ill-equipped to handle the myriad packaging and formulation variables inherent in private label. But by far the biggest danger is cross negotiation; i.e., when your nice, friendly buyer turns round and asks for the same formulation, fragrance or packaging innovation as your company’s flagship brand, to put in his private label. Your sales manager then finds himself between a rock and a hard place. If he says no, suddenly that nice buyer threatens to delist your flagship brand. If he says yes, he risks losing his job when he gets back to the office. This happens time and again. It’s a slippery slope.
Private label is simply too big these days—here in Europe, anyway—for supplying both private label and brands. It’s got to be one or the other. In case you have any doubts, dear U.S. reader, take a long hard look at the table on the previous page; it shows European private label’s shares by category, just imagine what would happen, or indeed may happen in the U.S., if recession causes anything like these levels of private label success to be achieved. That’s great news for genuine private label suppliers, but a big threat to the No. 4 and 5 brands in the category, and quite likely the death knell for the rest.
Innovation from Beiersdorf
Innovation is a brand manufacturer’s best insulation against private label, as well as against branded competition, and Germany’s Beiersdorf knows it. Two recent examples in Europe come to mind.
Beiersdorf has consistently increased its share of the European deodorant category, and has just launched Nivea For Men Silver Protect. The product includes “antibacterial silver ions to work against the bacteria that cause body odour.” The silver package puts the brand head-to-head with Unilever’s Rexona Men (Degree in the U.S.). But whereas Rexona has its well-known “tick” motif to signify long-lasting action, Nivea’s Silver Protect includes a 24-hour roundel motif. Although Unilever effectively owns the global deodorant category with more than a 28% share, this new entrant from Beiersdorf should give Unilever a run for its money when it comes to the male deodorant segment in Europe.
Nivea Silver Protect and Hair Re-charge—recent innovations from Beiersdorf.
Alliance Boots Gets Bigger
Europe’s pharmacy trade is dominated by three major wholesaler operations, which together account for more than 80% of the sector. The three are Alliance Boots in the UK, and Celesio and Phoenix, both from Germany. Pharmacy wholesale is particularly important in Europe because chain retail pharmacies are still not allowed by law in most continental European countries, although this looks to be changing, albeit more slowly in the current recession than has previously been predicted.
KKR, the U.S. private equity group that owns Alliance Boots, has reportedly expressed “active interest” in Phoenix, which is part of the faltering empire of Adolf Merkel, the German billionaire who committed suicide in January. The Financial Times has quoted a person close to the discussions as saying “Phoenix would be a perfect fit as Alliance Boots aims to expand and fill gaps in Germany and Europe.” Certainly, it will make Boots a whole lot bigger, yet again, and a very potent force to be reckoned with—provided Boots can live with a highly leveraged financial situation. Strategically interesting for CVS and Walgreens, too; if and when they come to Europe, or vice versa.
There have been reports of two very different businesses that may be up for sale. One has considerable added value, thanks to its single-minded focus on its core business, while the other’s business is diffuse.
What price Sara Lee's household & bodycare business?
At the other end of the scale, Sara Lee is examining the sale of its European household and body care business, with Goldman Sachs hired to flush out possible bidders.
Frankly, we don’t think Goldman will get lucky on this one, or the activist hedge fund apparently pushing for the sale—not for $2 billion anyway.
The reality is that Sara Lee’s body care division is a very mixed bag of one- or two-country brands, with Sanex the only one with any pretensions to having a proper international franchise. Sara Lee executives have sat on their marketing hands for too long, never grasping the nettle and rationalizing their many and diverse local portfolios into a coherent series of pan-European brands. If someone else is going to do this for them, it is unlikely to be at much more than distress sale prices.