Retailers vs. manufacturers

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Key points

The original big brands in the food industry date from the mid-late 1800s, partly because food quality/integrity was such a critical issue for the consumer at a time when much food was adulterated, and partly because the emerging mass media enabled national brand building.

Non-food f.m.c.g. and equipment brands followed the food brands. Surprising numbers of the big brands of today date from this period, whether you talk food, soaps, oils, or cars.

The big manufacturer brands dominated the retailers, who were fragmented, until national chains started to be built in the 1960s. Consolidation in retail ownership since the 1960s has tended to drive the balance of power towards retailers, because they are closer to the customer in the value chain, although, in practice, there are mutual benefits in strong branding by both parties. Manufacturer brands benefit from high levels of distribution and visibility in significant retailers; retailers benefit from being associated with big brands. They both resent each other's power, and they both need each other.

Today, retailers face a number of branding issues, the first one being their brand's impact on local authorities who grant them planning permission. If the concept of “location, location, location” is correct, retailers should primarily target stakeholders who can provide them with the right locations.

While there are some retailers who aggressively build their own brands to the virtual exclusion of manufacturer brands, most have a policy to build their own brands alongside the imperative of maximising income per square metre - which tends to point to a dual branding strategy of stocking both the premium/segment-specific brand(s) and the store brand.

Retailers are usually cautious about excluding major manufacturer brands in certain categories, such as "traffic builder". If you, as a manufacturer, own the leading brand, it is a good trick to interview the retailer's customers about what would happen if that retailer did not stock your brand. They will invariably say that they would shop somewhere else, although the evidence is that in many cases they may well switch manufacturer brands on a temporary, or even permanent, basis. Most consumers, in most product categories, are repertoire buyers (i.e. willing to buy more than one brand), and may be persuaded to switch brand even by the number of facings accorded to each brand, never mind by whether the major brand is listed or not.

There is evidence that retailer brands are primarily "stature" brands, providing an effective warranty that the products are fit for purpose, rather than "intimacy" brands that consumers feel particular affinity for. Most consumers are more influenced by location, than by the retailer's brand. Through loyalty card data, retailers can draw maps of their customers by the street. The further away from the store the street is located, the less consumers they are likely have in that street to the extent that it intersects with a rival retailer's space.

However, it is a mistake for manufacturers to view retailer brands as “private label” or “own brands”, rather than as genuine brands in their own right. Many manufacturer brands are primarily “stature” brands too, and some retail brands are “intimacy” brands. The fashion industry, where clothes design is often vertically integrated with retail outlets (Gap, Benetton, Ralph Lauren etc.) is a good example. The Body Shop is a superb example of an intimacy brand that could probably stretch quite broadly into an ethical brand positioning, in the same way that Virgin (originally a retailer brand) has stretched into a broad “wind of change” positioning.

On balance, it is in the interest of both manufacturers and retails to co-operate in the same branding space. For the broad category retailer to exclude manufacturer brands is dangerous because it takes to much resource to build a strong brand across all retail product categories, although it can work if you focus on a specific market segment. For manufacturers to pray for “disintermediation”, and the day when they can deal directly with the consumer to the exclusion of the retailer, is equally fanciful and limiting as a strategy.

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