STRATEGY & DIGITAL


However, when manufacturers decide to increase prices, the bargain is not so attractive for the retailer anymore.


Would private label products be able to replace the rebellious brands without harming traffic to the store? Would we actually care if we could not find our regular soft drink brand anymore? Would we leave the store and walk or drive to another one? The answer depends on multiple factors. If it were a bottle of our favourite Coca- Cola for an upcoming party we might be angered, but what about bottle of mineral water or iced tea? Consumers are less likely to waste energy contemplating bottled water brands. The trend of private label performance shows that competing against commodities or with brands with lower affinities can be a successful strategy for retailers. Let’s imagine that a large retailer like Carrefour or Walmart decided to ‘punish’ a medium-sized water company for not being collaborative during contract negotiations – a situation many have faced at some point or another. The retailer might simply take the ‘unfortunate negotiator’ off the shelves and put their own brands in its place. As consumers, we would probably not even notice this change and would buy whatever is available. We are unlikely to spend time wondering why the brand is no longer on the shelves. Instead, we would just grab the supermarket’s own brand of water and move


on. This exact behaviour is what could benefit a retailer next time they are negotiating an additional 0.5% product investment from the producer. The producer would know that and most likely agree to the ‘ransom’.


“The trend of private label performance shows that competing against commodities or with brands with lower affinities can be a successful strategy for retailers.”


So, how much power does a manufacturer really have? There are several factors that can benefit the producer, including product category, brand affinity and alternative store locations. The more commoditised the category is, the lower the bargaining power – for example, consumers are unlikely to choose a private label car over a BMW, but they would have no problem buying a bag of own-brand refined sugar. While shoppers might be upset not to see a major brand like Coca-Cola on the shelves, they probably wouldn’t feel the same way about a smaller, regional brand they’ve only bought once or twice. When it comes to location, the consumer is highly unlikely to go to another shop in search of their preferred brand,


Beverage Essentials Handbook | 43


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