The Brand Erosion Crisis
Discussions around whether or not the private label sector is deemed a close ally or a despised enemy are fairly common across the consumer goods landscape and, depending on who you ask, opinions are about as widespread as the glut of private label offerings themselves. Do private labels help boost the image of branded goods? Do they steal market share and erode brand value? Whatever the outcome may be, the private label stats are in and they aren't exactly pretty. That's why companies like Procter & Gamble (P&G) are becoming more aggressive in their war against private label by taking affirmative action against companies that too closely mimic their packaging designs.
The Facts Are In
According to a recent report from Datamonitor, consumer spending on private label food, drinks and personal care in the United States reached $108 billion in 2005, with strongest growth seen in the food market, which peaked at $85 billion. The reason for this growth has as much to do with fulfilling consumer demand as it does distribution. The quality and depth of private label food offerings from Sam's Club, Costco and even specialty chains like Whole Foods and Trader Joe's have created a new breed of loyal consumers that are beginning to frequent traditional grocery stores less and less.
And according to a recent Merrill Lynch research note, current growth figures underscore a severe change in market leadership, which greatly affects the distribution of branded goods. Supercenter sales grew 12.5 percent in 2005 while grocery was a mere 4.6 percent. Merrill Lynch estimates that traditional grocery retailers could lose as much as 17 points of market share to competitors between now and 2014. As long as the Whole Foods of the world continue to drive growth by stocking shelves with primarily non-branded products that consumers crave, branded goods are going to have an increasingly tough time fitting into the future retail landscape.
Some Good News
Only 13.5 percent of consumers surveyed by Datamonitor have more faith in claims made about private label brands over well-known brands. However, with 83 percent of consumers believing that private label varies significantly in quality from one retailer to another, the most trusted, best-known retailers can still compete with branded goods. Famous brand manufacturers need to widen their range of brands to compete with private label. Smart retailers offer value, mainstream and premium products under a single private label brand in order to capture all consumer groups and occasions. Branded goods only stand to benefit by following this model. In addition, a recent study by ACNielsen found that, globally, 69 percent of consumers questioned believe private label goods are an extremely good value for money, with 62 percent considering the quality to be at least as good as the big brands. "From a generic offering with an aggressive price/lower quality positioning, Own Label brands have evolved to become almost equivalent in quality and closer on pricing in the minds of consumers, particularly the highly developed markets in Europe, the Pacific and North America," stated ACNielsen.
Private Eyes Are Watching
Not surprisingly, P&G is keeping a vigilant watch over manufacturers that mimic its brand packages or formulas in private label products. The company has sued three companies in the past three months regarding products that it found to be too similar to well-known brands such as Charmin, NyQuil and Crest.
"There are more coming," P&G Vice Chairman of global operations, Bob McDonald, told Reuters. "We spend a lot of time and a lot of money creating our brands and equity of our brands."
The claims are made regarding "trade dress," or packaging that mimics P&G packaging, and patent infringement. P&G is hunting down companies that violate the patents or put a claim on their packaging that is not supported by the technology in the private label product. P&G often approaches retailers carrying these types of product infringements but retailers claim they did not knowingly stock shelves with items that involve trade dress or patent laws.
P&G recently sued Vi-Jon Industries, claiming that Vi-Jon's mouthwash packaging and advertising message infringe on its Crest Pro-Health oral rinse. The suit, filed in U.S. District Court for the Southern District of New York in February, also takes issue with the blue color of the rinse that happens to be the same shade as the Crest Pro-Health product. P&G also reached a settlement with McLane Co. Inc. in February regarding a suit filed in December 2005. In that suit, P&G alleged that McLane sold products with packaging that copied some of P&G's well-known brands, such as Charmin and NyQuil. McLane, owned by Berkshire Hathaway Inc., denied P&G's contentions, but said it would immediately redesign the packaging of its products.