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04/30/2014

An impressive quartet

Private Label International wanted to honour a handful of small- to medium-sized European retailers within the supermarket, hypermarket, discounter and/or drugstore space that are 1) currently on a strong growth path, and 2) are investing significantly in private label product development. With the help of Planet Retail, Daymon Worldwide and other industry experts, we selected Colruyt of Halle, Belgium; DIA of Las Rozas de Madrid, Spain; HEMA of Amsterdam, the Netherlands; and Conad of Bologna, Italy as deserving of recognition.

DIA

DIA (approximately 45,000 employees) has a private label catalogue that runs to 7,500 SKUs, according to the retailer’s website. It is an international range (present in six countries) that meets the requirements of a broad customer base with differing tastes and sensitivities.

In addition to the DIA brand, the company sells products under other private label brands such as Bonté, which specialises in personal care and hygiene products; Basic Cosmetics, which is focused on the cosmetics segment; BabySmile, which is devoted to all things baby-related; and AS, which covers pet food.

COLRUYT

Colruyt Group (approximately 25,000 employees) offers more than 3,000 private label products. Private brands listed on the retailer’s website include Graindor, Boni Selection, Everyday Selection, Kangourou, Eco-select and bio-time.

Colruyt Group is implementing an action plan to make sure only sustainable palm oil is used in all its private label products, having already replaced palm oil in its private label potato crisps and frozen fries. In a 21 November 2013 news post, the company said it was engaging in a complete overview of all of its private label products that contain palm oil — food as well as non-food. Colruyt estimates it has 300 to 400 products from some 200 suppliers to review.

HEMA

Discount retailer HEMA (approximately 10,000 employees) generally has some 40,000 private label products available. The retailer bills its offerings as a “combination of only the best products for everyday life, with [their] own special design, for surprisingly low prices.” HEMA offers household goods and clothing as core products next to HBC items and food. All products on offer are privately labelled.

“Our private label is HEMA. … We don’t have any other private labels.” Judy op het Veld, manager, corporate communications, HEMA BV, told Private Label International.

CONAD

Conad (approximately 34,000 employees) offers five private labels, which cover various consumer requirements. According to the retailer’s 2012 Annual Report, those brands include Conad (traditional products that compete in packaged consumer goods), Conad Percorso Qualità (fresh produce segment), Sapori & Dintorni (Italian traditional regional food specialities), Conad Il Biologico (range of products from organic agriculture), and Creazioni d’Italia (line of Italian products intended exclusively for the foreign market). The report notes that Conad’s private labels are growing faster than the market. Conad private labels are leaders in 42 per cent of the categories in which they compete.

A PUSH FOR VALUE AND QUALITY

Around a month ago, Colruyt and Conad joined forces with Coop Switzerland and Germany’s REWE Group to launch a new alliance: CORE. The alliance combines a market share of around 6.7 per cent in Europe, representing more than 18 countries with some 20,000 stores.

“Through collective negotiations, we intend to offer more competitive prices to our customers,” says Alain Caparros, CEO of REWE Group and president of the Alliance. “At the same time, we will continue to build internationally strong partnerships with predominantly FMCG companies. With a consolidated and successful management, CORE offers attractive growth perspectives for our suppliers.”

The birth of the alliance also signals a strong commitment to private labels in the EU, which is trickling down the value chain. Early in 2014, Colruyt announced changes to Dreambaby, its baby specialist, offering a new logo, a first-quality private label and a new catalogue. The retailer says the changes will allow it to meet customer needs even better.

Such ongoing trends signal a surge in EU private labels, but why?

“The interesting and ongoing development is this reinforcement of the economy brands, but in a reconfigured market where value and quality collide,” explains Matthias Queck, research director, Planet Retail GmbH, WGSN Group. “Since it is about value for money rather than just the lowest price, retailers keep updating their budget lines to make them proper alternatives to leading brands even if this means cannibalising sales for their standard tiers.”

Aggressive Growth Strategy for DIA, HEMA

Queck says DIA, which has been independent from Carrefour since the middle of 2011, has set out an aggressive growth strategy and is a good example of today’s thinking.

“Firstly, it wants to drive expansion, especially in emerging markets, after it decided to withdraw from Turkey in spring 2013,” he says. “Secondly, it wants to extend the share of franchised stores; thirdly, it aims to finalise the transition of its conventional stores to the Market and the Maxi concepts in Spain; while lastly, it aims at improving efficiency and [reducing] costs to achieve higher productivity.”

In addition, new concepts such as DIA Fresh stores and Clarel drugstores are high on the agenda, Queck notes. He says DIA has two distinct business formats that cater to two well-differentiated forms of buying behaviour. The first is the neighbourhood format (called “proximity”), comprising small- to medium-sized DIA Urban and DIA Market stores, which bring in shoppers within a radius of eight minutes by foot. The second is a larger-format store (called “attraction”), which comprises formats such as DIA Maxi stores, bringing in customers within a much wider radius.

“These shoppers come by car; they shop less frequently but buy more,” he says. “Both formats have evolved in recent years, taking on a more modern, competitive and customer-focused profile and focusing strategically and decisively on perishables, the key driver of shopping frequency.”

The introduction of its DIA Fresh and Fresh by DIA store models, as well as its acquisition of the Spanish and Portuguese Schlecker drugstores in 2012, show DIA’s strategic commitment to the neighbourhood segment, Queck continues.

HEMA is a centrally managed company that consists of the Headquarters, the Bakery, the Distribution Centre and Sales. The retailer intends to enter Spain and the UK in the first half of 2014, Queck explains.

“The variety store chain plans to begin with one outlet in each country, add further stores next year, then double the store numbers each year,” he says. “CEO Ronald Van Zetten sees expansion in Spain as a logical step following HEMA’s successful operation in France. By contrast, he regards the UK as being an entirely different proposition, making the entry riskier. However, HEMA’s shopper research shows there is a demand.”

Queck reveals that HEMA sees itself as a “‘global brand” and notes that the company has announced expansion plans several times in recent years.

“Besides operating in its home market of the Netherlands, HEMA also has stores in Belgium, Luxembourg, Germany and France,” says Queck. “While HEMA sees high growth potential for France, with [an] additional 20 to 30 outlets planned for next year, Luxembourg will always be limited due to the country’s small size. In Germany, HEMA has grown slowly, increasing its coverage from six to 10 outlets over five years.”

In 2012, HEMA also opened standalone beauty shops called HEMA Beauty, exclusively offering its full beauty product range, Queck notes.

“The retailer rolled out this concept to France and also plans to open dedicated standalone grocery outlets,” he says. “Furthermore, HEMA has begun introducing beauty shop-in-shop concepts [and] offering its full drugstore range in larger variety stores.”

PRIVATE LABEL A CONTINUING FOCUS

Private label continues to play a major role in the four retailers’ growth plans.

According to op het Veld, HEMA has sold products under its own label from the very beginning. Private label items are based on three pillars: “price, quality and design.”

That triple header of price, quality and design hints at why private brands are an appealing proposition — and not just for HEMA.

And private label helps drive consumers to shop at Conad.

“It offers the quality of a leader at prices 25 to 30 per cent lower and brings the production of many small and medium local businesses to market which otherwise would not have access to large-scale distribution,” Conad states in its 2012 annual report.

Tim Eales, director of strategic insight for Information Resources Inc. in the UK, notes that private labels increasingly are being marketed as true brands with a high quality. He is seeing new launches and innovative programs across Europe and further afield, as private labels gain territory and leverage.

In Italy, Conad has started to export its private label premium line, Sapori & Dintorni, which covers typical and regional Italian food. Eales calls this development interesting.

“Not only has the retailer just started exporting to the U.S., but in Italy, Conad now has Sapori & Dintorni mono-brand shops,” he says.

Queck, too, has an eye on Conad’s work.

“Conad has increased preliminary gross sales by 5.4 per cent to EUR11.5 billion in its 2013 financial year ended 31 December,” he says. “Conad stated it had managed to increase its sales in a year when the amount Italian households spend on food was down, particularly in central and southern Italy, and grocery sales in hypermarkets and supermarkets fell for the first time.

“As a result, Conad has strengthened its leadership in the supermarket channel,” Queck adds. “Although the retailer achieved weaker sales growth than last year when it generated an uptick of 7.3 per cent, we consider the increase very satisfactory given the continuing difficult economic conditions caused by the Eurozone crisis.”

In addition to ongoing “home-grown” growth, Spanish DIA also is growing private label sales by exporting its products directly to places such as Mauritius and Bulgaria.

“DIA’s private labels showcase the product but also the manufacturer supplying it,” says the retailer, noting that the company ensures the quality of its private labels by performing ongoing audits to certify its suppliers. DIA has standardised this process in all of its operating markets.

And since October 2013, a Colruyt subsidiary, DreamLand, has been offering toys under its own private label. The chain says it wants to organise its offer better and reinforce its image as a toy specialist.

All the activity among the four “ones to watch” underscores the importance strong private label programs play in growth for European retailers overall.

“UK retailers are seeing that private label can help to engage shoppers and boost long-term loyalty. The fact is that UK retailers want private label to be seen as a key differentiator,” says Eales. “There is no single private label journey for a shopper, and retailers are successfully adapting and introducing products across all three private label tiers to meet consumer needs. They are becoming better at understanding shoppers’ habits.”

Vasco Brinca, vice president, Europe/ North Africa/ Middle East, for Daymon Worldwide, notes similar overarching growth trends.

“Daymon Worldwide estimates that private brands in Europe will reach an overall penetration of 31 per cent by 2017, up from 29 per cent in 2012 and 24 per cent in 2004,” Brinca explains. “As private brands continue to evolve, we will see more and more of them outside of their home stores, channels and countries.”