"The main prerequisite to a successful entry to the house brand market is the maximum reduction in the cost of production and sales, while maintaining the quality of products" - CEO of TPV CIS Blazej Bernard Reiss acted as expert for "Kommersant" newspaper in the material devoted to the production of house brands goods.
The private label goods are represented in virtually all trade directions. The largest share is in the food retail sector, but networks, selling household appliances and electronics, DIY-retailers also actively increase the share of private label. Experts say that consumer demand for private label is determined by the displacement of trust from a particular brand to a specific network, price and the fact that the quality of the appliances is now almost the same.
Julia Chayun
Today there are almost no networks in Russia, particularly in household appliances and electronics segment, without a private label. Domestic retail, experts say, follows the American way, when companies prefer not to order goods on the side, but to produce their own ones, especially in those segments where for a consumer the functionality and credibility of a retailer is more important than the brand. Market participants have concluded that a consumer moves from the commitment to different brands in electronics, household appliances, DIY to trust in a network. Confidence in the point of sales is becoming much more important than trust in the brand of goods. Today the ability to return or exchange goods, guarantee and all service functions are more valuable for a buyer. It has happened also because the quality of almost all goods equalizeed.
According to "220 Volts" managing partner Alexei Fyodorov, there are, of course, some luxury goods, but the overall quality of no-name products was close to the best analogues of well-known brands. "Even Jack Ma said that often fakes quality is no worse and sometimes better than the original, we are not talking about a fake, but the goods analogues, presented under private label", Mr. Fedorov said.
For any retailer private label development allows avoid price wars and competition. In this case it is not even the additional margin that matters, which is not necessary to be given the owner of the brand, because the owner of the brand is the retailer himself. The main thing is that the retailer is independent. It can set its own price, which will satisfy both it and a buyer, independently engage in positioning, in contrast to the positioning imposed by vendors. It can motivate its staff to sell by any means, which is not always possible when it comes to the sale of third-party brands.
At the same time, as Mr. Fedorov noted, the key success factor for private label is creativity. "It is necessary to come up with something, so that your private label is understandable and close to the customer. There are lovely Russian examples of creative thinking – the brands Bork and Redmond. These are the examples of the creation of great brands. In the first case, relatively common equipment is sold as luxury one, and it is a terrific case. In the second case brand "multivarka" was invented - a word derived from "steamers", which is now used everywhere. These cases, in my opinion, has to be studied in the course MBA in business schools, they demonstrate what a successful private label must be", Mr. Fedorov gives the example.
CEO of TPV CIS Blazej Bernard Reiss, noted that the main condition for a successful entry to the private label market is the maximum reduction in the cost of production and sales, while maintaining product quality. "There’s no churning for the brand, that is, ordering a private label the retailer immediately reduces the marketing component of costs per unit of production. For a buyer it looks like a competitive price offer, plus an attractive design, developed after-sales service, a mass product scale. In my opinion, the most private labels in Russia exist in the field of food products. In electronics the niche is occupied by the so-called B-brands. Among them are Supra, Mystery, Telefunken, DEXP (DNS network) and others", said Mr. Riess.
According to GFK research, in 2015 this segment of the TV market was estimated at 2 million units, or 35% of the market.
Experts statements on the control and impact on pricing are confirmed by the other market participants.
Ivan Smirnov, the head of "private label" project at "Yulmart" company (share of private label in turnover in some categories is as high as 90%, in the total amount of not less than 5% of turnover, the company produces computers and portable devices, accessories for digital devices, memory cards, auto products and sporting goods, children's products, products for house and garden), said that the company can control not only the quality of products but it also affects its value. "The absence of logistics margins and minimal marketing costs allow us to offer fair prices", - he explains.
According to Mr. Smirnov, while working with a private brand it is necessary to rely initially on an adequate, high-quality product: high-margin cheap products without quality guarantees do not cause high interest among customers.
"Consumer properties of a private label must not be inferior in performance to leaders of the given segment. At a private label start a strategy focused on unique niche products can become winning. In general, domestic retailers prefer to produce appliances such as TVs, monitors, refrigerators, hoods, washing machines under a private label. These are often the items with the first price on a shelf. For companies, private labels mean an additional source of margin, and at the proper level of quality - even prestige in the market", emphasizes Ivan Smirnov.
If we talk about the benefits of manufacturers from the production of goods under private label, Mr. Reiss explains that the margins of the production is lower, but this business is attractive due to the volume of orders, which allows reduce fixed costs and optimize production itself.
Some analysts believe that retailers of home appliances and electronics are trying to reduce the number of private labels under conditions of ruble devaluation, as they do not want to assume the risks associated with the freezing of working capital, which the development of a private label requires. However, retailers and manufacturers themselves do not agree with such assessments.
Mr. Reiss is sure that the crisis is the most profitable time for the launch of a private label in the segment of TVs manufacture. "There are a number of financial instruments that allow all parties to minimize risks and to manage without substantial freezing of funds. Banking guarantees, relationships with Asian suppliers of components with the possibility of deferred payment, the minimum cost of the assembly and reduction of the logistics component allow networks to order as much as the market demands at the moment", he explains.
According to Alexei Fedorov, private labels evolve greatly. "The number of private labels is growing. More and more networks are trying to do something on their own, and not even because of the additional margins, but due to the ability to quickly and flexibly change prices. Retailers who have their own brands, are not depending on the vendor pricing policy, they can do anything. Hedging instruments, primarily the purchase of futures, various bank guarantees, letters of credit allow a retailer to fairly flexible approach the use of working capital, and to risk not that much", says Mr. Fyodorov.
It should be noted that, nevertheless, not all the retailers develop a line of products under private label. For example, "M. Video" has not been developing its private label since 2008, focusing on the retail trade, after-sales service and long-term partnerships with suppliers and manufacturers. According to Valeria Andreeva, PR-director at "M. Video", the company makes promotion offers or exclusive conditions jointly with a manufacturer on a particular product line, which attracts buyers. "If we see market demand for a particular model, we can translate this demand to B-brands manufacturers and get in the end an exclusive model that will be in demand, and we do not bear the risks associated with the development and production, the importation of goods into the territory of Russia. It is also important to understand that one of the selection criteria for an electronics or household appliances buyer is the credibility of the brand manufacturer and desire to purchase goods with a known name", she said.
The last statement is objected by Mr. Reiss, who believes that today a brand plays a secondary role for a mass buyer. "The crisis dishabituated many people to overpay for marketing. Even if today it is most popular to produce food products under private labels, we are observing by customers how B-brands turnover is growing in the consumer electronics segment. The absence of redundant functions, modern design and ease of use of these products have a direct impact on sales growth at negative trends in premium brands", he concludes.
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