Millions of citizens have got accustomed to the presence of own-brand products on the shelves of big chain supermarkets. Are there any store brands in construction retail companies? What are they for and are there any advantages to buying them?
What is a store brand?
The notion of a “store brand” or “own brand” means that the product has been manufactured at the company’s own plants or ordered from other producers especially for the store. We are speaking here about a situation wherethe construction store is the owner of the brand. Experts and representatives from famous retailing and production companies have helped us with this point.
— It is not a bad thing that retailers working in the DIY segment(do it yourself — V.R.)have developed their own trade brands for simple things: tools and auxiliary materials, the production of which does not demand serious investment in development and high level quality support, Alexei Zimin, head of marketing and the sales department of KNAUF Group CIS, thinks.
What can retailers notdo?
There must be some restrictions on own-brand products (OBP). For example, one won’t see really excellent finishing materials packed as OBP.
— The creation of such a product requires research, constant checking of the quality of primary products, ready production, and flexibility for getting guaranteed good, steady results, Alexei Zimin says. — But we can hardly speak of the delivery of complete systems, such as famous companies offer.
The thing is that OBP line items may be produced by different manufacturers and may not fit each other, or may fit badly. Retail chains barely carry out corresponding checks. The main specific feature of goods with OBP labels are their lower prices: they are 10—15% cheaper than other products placed nearby.Why are these products cheaper? Experts say that it is down to low advertising and marketing expenses, and efficient promotion of the products at point-of-sale.
If low prices are the main advantage influencing sales growth for Russian retailers, in Europe the main thing is a customer’s faith in the quality of the product with an own brand label.
Not only for customers
Both the customer who is getting cheap goods and the retail chain win.
— OBP allows us to fulfil the main objective of any company: to decrease expenditure and to increase marginal income, Andrei Smuglin, head of the foreign trade department of the ‘Petrovich’ retail chain, says.— Our experience in own brand implementation shows that regarding expenditures on the company’s capacity forsales on processing goods, cost effectiveness increases by 30—40%.
— Having OBP is a serious competitive advantage for the retail chain and widens the choice for the consumer, affirms Sylvain Richon, Project Manager in OBP development with the Leroy Merlin company.— OBP enhances rivalry between distributors, because in developing and launching new products we are looking for better manufacturers and a reliable partner, thus helping local deliverers develop.
In the current economic situation, such offers must work in favor of Russian producers. Cooperation with retail networks may be a real source of support for them, and a means to raise production capacities, but at the same time their products must correspond both to the stated quality level and a competitive prime cost, as the retailor always wants to decrease it.
But Alexei Zimin from KNAUF Group CIS has a different opinion:
— The development of OBP products is interesting mainly to retail chains themselves — the customer gets a product of unknown quality. Aproducermanufacturinga “noname” product is not interested in its quality or development. Neither is a retailer interested in the development of the product — the producer might easily change.
It’s interesting to know that 35% of the goods in Leroy Merlin’sOBP range are produced in Russia. According to the company’s workers, there are local producers of dry construction mixes, construction materials,ironmongery, and furniture for bathrooms and kitchens in almost all regions.But the company has problems with domestic electric power tools - they cannot find a producer.
But let’s return to the customer.
— Unlike other stores, in construction materials stores, we find ‘professional’ customers. Their choice is predetermined, and it is rather difficult to establish their faith in a new brand. And sometimes it is impossible, says Andrei Smuglin.
But more often than that there is a customer who from time to time needs, say, a drill for work about the house. He’s the ideal customer for OBP. On seeing two tools with almost the same performance but one of which is much cheaper (in the OBP packaging), to the tune of at least 30-40%, he will surely choose the drill with the retailer’s label.
Experts think that if a product is positioned correctly or actively advertised, it cansteal a niche in the segment occupied by large brands. Alexei Zimin agrees with them:
— Constructors are rather conservative customers: it is difficult to win their trust and it takes time, he reminds us. – But for those who redecorate their house or do some repairs for the first time, and are not very aware of technologies and materials, there is no difference between which products to buy: the customer is ready to try what is offered by the retailer.
Little tricks by large stores
Of course, retailers have their own tricks for increasing sales volumes. Thereisasystemfora ‘through’ OBP. Being satisfied with the quality of one product with the OBP trade mark of the store, a customer will be loyal to OBP in other groups of goods.
Sylvain Richon gives examples of a customer’s trust in OBP:
— The formula “I saw, I tried, I know” works here, the expert explains. — Our marketing investigations show that a special interest in the brand is displayed in the lighting and electric tools departments. As far as ironmongery is concerned, a customer doesn’t care where the fitting items were produced. And here we may achieve 100% OBP production.
During the last several years OBPs have shown a steady growth. According to analytic data, OBPs took 10% of the FMCG (First Marketed Consumer Goods)market in 2014 by size, and 6% by value. For the last seven years their share has grown 10-fold.
Will domestic construction retail chains manage to hold on? Time will tell. It is clear that domestic production growth is a necessity, at least within the import replacement program.