The current milk wars playing out in Australian supermarkets is a sobering reminder of the power of private label brands in categories where consumers do not perceive a recognisable difference between national brands and private label offerings. This is very much the case in the dairy aisle and with other staples such as eggs, flour and sugar, all of which have enjoyed solid private label growth to the extent where more than one quarter of all purchases of these items are to private labels. Milk is certainly the hot item at the moment with Coles offering its own branded milk at $1 per litre.
In Australia you would have to be living under a rock not know that Coles is adopting a scorched earth approach with milk pricing. They must be delighted with the amount of publicity it has generated, even with the emotional outcry from farmers and a senate enquiry being thrown into the mix. The media noise that has been stirred up around the issue has driven home Coles low price positioning strategy in the minds of consumers in a very potent manner.
While most of the media attention has focused on the potential fall out for farmers, there should be some consideration given to the plight of brand owners. There have been suggestions that during the current price discounting for milk, branded milk sales have fallen by around 30% (The Age March 3, 2011). When you factor in an IBIS World report last year (Foodweek, August 2010) that stated that private label milk sales had grown from 25% share in 1999, to 52% in 2009, then you have to start feeling a little concerned for the brains trust behind the major branded milk products. And in terms of brains trusts, you don’t have to look much further than National Foods, with a big portfolio of milk brands. What must hurt is the fact that they are also the contracted supplier of Coles private label milk, at prices National Foods say are simple at break even.
There lies the big dilemma for brand owners. From a brand stewardship perspective, should or should you not supply a competitor product in the form of retailer private label brands. Yes, it is a hugely complex issue. If you don’t supply, you place some stress on your relationship with the retailer in question, who you are totally dependent on to sell your product. If you don’t supply then someone else will, and perhaps that will be a competitor that you do not wish to give a leg up on any front. If you do supply, it gives you some scale advantages and perhaps some cost advantages that improve the margins on your branded products. But should you do it from a brand stewardship perspective? It would make for one of the more interesting forums, to assemble all the key brand managers who have gone down the private label supplier route and explore with them why they did, and whether the outcomes have delivered according to their expectations.
Whatever their answer, it is a reminder that real equity leverage comes from the brands that you own. Every effort needs to be made to protect the franchise those brands have with consumers, if your goal is to have an enduring brand with real equity. If you are seduced for good or poor reasons down the private label supplier route, then do everything possible to ensure that the quality specifications of your brand remains demonstrably superior to the private label product, otherwise you run the risk that it will end up simply being a price decision for consumer.
The current milk wars is testimony this!