Russian retail chains planning further boost of sales under private labels

At present private labels have become a noticeable phenomenon on the Russian market. For example, now about 300 companies produce various goods under Perekryostok label belonging to the same-called chain which daily offers more than 600 goods under its own label, according to the report of President of Ledovo Group Mrs. Nadezhda Kopytina prepared for the Second International specialized conference "Strategic Challenges on Russia's Seafood Market" (organizers http://www.imperiaforum.ru/).

Practically all the retail chains plan to boost sales of private labeled products by 10-40% in the coming years.

The Russian retailers are also planning to introduce several labels of the high end segment. For comparison, European retailers in the course of the price wars strive for setting adequately low prices for the bulk of goods under private labels.

The private-label system includes not only Russian, but foreign producers as well.

The first goods under private labels appeared in Russia in 2001 when the sales turnover of large retailers approached that of large producers. The retail trade has grown into an important link in the product's way from producer to consumer.

Ramenka Company which owns Ramstor label was the first retailer to start producing goods under private labels. The chain was then followed by Perekrestok, Sedmoy Kontinent, Kopeika, Pyaterechka and others. Private-labeled goods have won the largest share in hypermarkets and discounters where they can reach 45%. In the year 2005 the share of the retail chains in the sales of the products under private labels decreased from 76% to 74%.

Indices

At present products under own private labels are made practically by all the national retail chains. Private labels currently contribute 23% of all the labeled sales in Europe and a little more than 5% in Russia.

According to experts, the Russian consumer is not yet ready to purchase products under national private labels in large volumes. In the meantime, in the western countries 80% of consumers equally trust the high quality of goods under retailers' and producers' labels. On the contrary, in Russia only 40% of consumers trust the quality of Ramstor-labelled juices, Sedmoy Continent sweets, Kopeika milk, Auchan shrimps, etc.

Problems

PL production brings some challenges for producers as they then face not only direct competition with each other, but also with the retail chains owning labels just like producers.

In particular, the following challenges arise for PL producers:

• discrimination of goods under producer's labels (merchandising, price wars);
• reduction of producer's range;
• weakening competition from secondary labels;
• difficulties of consumer comparison;
• formation of the basis for market power growth.

Despite the above problems, the speaker has made it a point at the conference that private labels may still become instrumental for mutually benefitial alliance of producer and retail chain.

More information from:

Central Office of Ledovo Group; 123242 Moscow, Novinsky Bulvar, dom 31, Novinsky Passazh Trade-Delovoy Centre; tel.: +7 495 7776077, 7776078, fax: +7 495 7776076, e-mail: info@ledovo.ru