In 2002, grocery multiples have been moving their own label brands into cosmetics and toiletries, OTC, home care, and even crockery and bed linens. Private labels have a natural competitive advantage in entering new product categories of which branded manufacturers can only dream.

In 2002, grocery multiples have been moving their own label brands into cosmetics and toiletries, OTC, home care, and even crockery and bed linens. Private labels have a natural competitive advantage in entering new product categories of which branded manufacturers can only dream.

No limit for private label

Unlike manufacturers, retailers have direct access to the consumer and complete control over the selling environment. This allows for rapid NPD and easy expansion into new categories. Private label manufacturers such as Swallowfield, a major player specialising in cosmetics and toiletries, are significant forces in UK manufacturing and work in close partnership with retailers, offering technology and production flexibility including packaging, colour, and a wide choice of formulations.

Cutting edge private label manufacturers such as Swallowfield and Hazelwood Foods give retailers the production capacity of a major fmcg manufacturer while allowing them to pick and choose among product categories. Branded manufacturers on the other hand are faced with fixed costs and low retail prices that discourage capital investment and expansion into new categories. Branded manufacturers must also consider their brand heritage before launching a new product. Consumers may think nothing of Tesco Finest Chianti, but how willing would they be to accept Mars Paracetamol or Wrigley’s Orbit Smoked Salmon Fillets? In contrast, there has thus far been little public hesitation in following private label into OTC, bath and body products and home care.

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The consumer lifestyle solution

The move by private label into non-food areas, particularly OTC, cosmetics and toiletries, and home care, represents the evolution of these brands into lifestyle solutions rather than products. Sainsbury’s active:naturals, launched in 2002, is arguably the most ambitious launch ever in cosmetics and toiletries from a multiple grocer, with a range of over 100 different products, each containing at least two natural ingredients.

According to Helen Touchais the aim was to convert those food conscious consumers who pay close attention to ingredients and seek authenticity in their food purchases, into buyers of Sainsbury’s toiletries. Touchais claims this group of consumers makes up 40% of Sainsbury’s shoppers, representing a significant opportunity for upselling and encouraging consumers to fulfil their home care and beauty needs at Sainsbury’s rather than make a separate trip to Boots. The active:naturals range reads like a food shopping list with such ingredients as celery, honey, orange juice, green tea, milk protein and grape seed. It also covers laundry care and washing up liquid.

Keeping up with the Sainsbury’s

Tesco has not let Sainsbury’s steal all the thunder, launching several new skin care products itself in 2002 including a men’s skin care range called So Dam Tuff and expanding the Tesco Finest range into bath and body products. Much like Sainsbury’s active:naturals, the Tesco Finest products are heavily influenced by the popularity of plant and fruit extracts. Finest Silk Crème Bath includes bamboo extract and rice bran oil as well as milk protein. Tesco’s Finest is moving into crockery, cutlery, bed linen, towels and glassware.

Tesco also has its sights set on OTC with its Nutri Centre@Tesco project. It has opened its first in-store Nutri Centre at its West Kensington store, staffed by nutritionists and offering 3,000 SKUs under the Nutri Centre@Tesco brand. Tesco purchased a controlling share in Nutri Centre in 2001.

Supply chain flexibility

Private labels can also make supply chain changes which some branded manufacturers would find difficult to emulate. Co-op announced recently that all of its private label chocolate would be sourced fairtrade. Meanwhile Nestlé in the face of rising advertising costs over the last 10 years relies on low prices for its key ingredients to keep its prices low. If Nestlé tried to position Kit Kat as a fair trade product it would run a significant risk of alienating its consumers and running up significant costs in its supply chain.

In contrast Co-op’s recent decision to use only fairly traded cocoa for its own brand chocolate is arguably a way for the chain to distinguish itself amongst its peers, maintaining an ethical stance without necessarily sacrificing its bottom line. It already sells significant quantities of fairly traded bananas and coffee. However by positioning its chocolate under the fair trade label it aligns itself with a typically young, well-educated demographic which will be drawn by the Co-op’s policy, but which will then go on to shop across product categories, both fairly traded and not. Fair trade chocolate is unlikely to boost confectionery margins, but it will endear the retailer to a valuable group of consumers.

Related research reports

Chocolate Confectionery in UK 

Euromonitor Profile: Nestlé SA 

Euromonitor Profile: Wm Wrigley Jr Co