This document outlines the growth and opportunities in the private label market, particularly within Central and Eastern Europe, driven by trends such as value, local sourcing, organic products, and premium offerings. Retailers are encouraged to leverage these trends for portfolio expansion while navigating challenges in crowded markets. Key strategies include collaboration between retailers, innovative design, and addressing consumer demand for quality and sustainability.

1. November 2011
KNOWLEDGE
CEE Private Label
Trends and opportunities
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2. Introduction
As the world struggles to free itself from global recession, the one silver
lining in an otherwise grim scenario is the expected growth of private
label brands. Indeed, the continued growth of private labels remains one
of the major macro trends affecting FMCG (and other) sectors.
In this short round up, Cocoon Group summarizes a few of the trends
driving and affecting private label brands - with a particular focus on
opportunities for (Central and Eastern) Europe.

3. 10 Opportunities and trends
Opportunities Trends
Our report begins with a round up of six In addition to the 6 PL growth
major opportunities for retailers to grow opportunities, we’ve spotted these 4
their private label portfolio, listed other trends which are affecting
according to accessibility. retailers around the world and around
Europe.
While ranking these opportunities, we
take into account the cost of entry,
consumer trends, retailer credibility, and
inherent barriers to entry.
1 Value 7 Collaboration
2 Buy Local 8 Leaving home
3 Bio/Organic 9 Design
4 Premium 10 Foreign leadership
5 Niche and Specialty
6 The Muddled Middle

4. _Opportunities
1. Value
Value for money remains the strongest
driver of private label consumption, as well
as the easiest entry-level opportunity for
retailers to launch a private label brand.
Value has traditionally been synonymous
with 'cheap'- but there are other ways to
build a value for money brand, especially
since research shows that consumers are
less inclined to
give up quality (unless forced to).
Family sizes and bulk formats can all be
used to create a value proposition that will
appeal to the consumers’ desire to save
money without giving up on the quality they
have become accustomed to.

5. _Opportunities
In Poland, Tesco has taken advantage of the economic uncertainty
to launch 700 'value' products, putting pressure on more expensive
independent markets and less convenient discounters.

6. _Opportunities
2. Buy Local
One micro-trend prevalent in the environmental
movement is Buy Local. Attractive to consumers as
both a way to cut down on carbon emissions as well
as supporting local small businesses and farmers, the
Buy Local movement makes great sense for retailers
who wish to take on a more active role of supporting
the community, the environment, or both.

7. _Opportunities
A retailer’s inherent expertise in sourcing
products and the feet on the ground aspect of
the retail business provides relevant credibility
for the launch of any locally-focused brand
proposition.

8. _Opportunities
Other factors that positively impact the
Buy Local trend are health scares and
politics. The E.coli scare from the recent
‘cucumber scandal’ has prompted a rise in
demand for local vegetables throughout
Europe, including 34% in Latvia. In these
cases, the demand for local produce far
outweighs supply.

9. _Opportunities
3. Bio/Organic
Another fast growing sector that straddles the environment, health, and
wellness macro trend is Organic and Bio. Many retailers are taking
advantage of the fact that this new trend is under-represented by
manufacturer brands, and that the playing field is basically even in terms of
credibility. This has allowed retailers to use the retail environment to really
promote these brands as healthy, environmentally friendly alternatives to
leading manufacturer brands.

10. _Opportunities
The global market for organic products is expected to grow by 8% by the
end of 2011. This is up from 4.7% one year ago.

11. _Opportunities
4. Premium
Premium private label brands are expected
to be one of the major sources of private
label growth in the coming few years. This
growth mainly comes from consumers who
have grown to trust retailer value brands
when money is tight. When this kind of
relationship exists between the retailer and
consumer, the retailer can use a premium
PL proposition to retain those consumers
when they start looking to upscale.

12. _Opportunities
To launch a premium brand successfully, a retailer must already have a
great deal of credibility with consumers, either in the form of high
shopper loyalty or experience with other PL brands.

13. _Opportunities
5. Niche
and Specialty
While the previous four chapters represent the
greatest opportunities for overall PL growth, there are
individual categories where retailers can compete
with their own PL offering. In sectors that have little
competition, with few or no well-established brands,
retailers can easily step in as the value alternative or
even as the front-runner. Horeca, dietary, vitamins/
food supplements, and other niche areas are fertile
ground for forward-thinking retailers.

14. _Opportunities
6. The Muddled
Middle
Trying to launch a brand without
significant price point advantages
in well-developed, saturated
sectors is going to prove the most
difficult for retailers. This 'middle
ground' is fast disappearing, and
even manufacturer brands are
finding it difficult to survive.
Any brands that wish to compete
here will need to draw upon vast
stores of consumer goodwill,
product innovation, and
outstanding design (not to
mention more than a bit of luck)
to survive.

15. _Trends
7. Collaboration
Retailers seeking to streamline are finding success
collaborating with each other rather than
competing. In this way, retailers can utilize their
expertise or resources while providing new
markets or channels for their partners. The
collaboration between Carrefour and Boots in the
UK is a prime example of erstwhile competitors
creating win-win situations out of cooperation.
Carrefour carries Boots’ branded products, while
the Boots manufacturing subsidiary creates
health and beauty products under the Carrefour
brand. Boots benefits from Carrefour's extensive
global footprint, while Carrefour gets Boots'
expertise in helping to create a name for itself
within the health and beauty sectors.

16. _Trends
German discounter Metro (owner of Makro cash n' carry stores) has
worked out a collaboration deal with French retailer Auchen to
improve the reach of both brands' products. Metro will gain access
to Auchen's private label supply network, while Auchen will benefit
from exposure to Metro's small business owners.

17. _Trends
8. Leaving
home
In some exceptional cases where a private label brand has a particularly strong proposition (either in
association with the retail brand, or not), we really see them coming to life as they are sought after
and offered in different retail channels. Sainsbury’s SO Organic in the UK and the Martha Stewart
brand in the USA are two such success stories. As retailers continue to collaborate (see above), we
should expect to see more and more private label brands grow out of their own stores and onto the
shelves of other retail chains.

18. _Trends
9. Design
Design remains one of the primary
tools for communicating private label
brands. In many cases, packaging
design is the only way that consumers
can be made aware of a private label
proposition. As a result, private label
pack design is becoming increasingly
strategic, i.e. drawing from the same
advanced techniques as their A-brand
counterparts. A successful private label
no longer necessarily means simplistic
2-color design and cheap production
material!

19. _Trends
10. Foreign
leadership
The acceptance of private label brands is driven
by exposure and loyalty to retailers. Since most
private label initiatives in CEE come from foreign
retailers, it is logical that consumers in countries
with the most penetration from foreign retailers
would be the first to try new private label brands.
While recent economic activity has added an
element of uncertainty to any near-term
predictions, we can expect a spike in private label
activity in Poland and Ukraine as they are
inundated with western Europeans traveling to
those countries for the upcoming 2012 UEFA
World Cup. These consumers will be looking for
familiar environments and familiar brands to
stock up on food and other supplies.

20. _Trends
Several major western retailers have cited Romania as an important
market for future growth. This is due in large part to the country's
expected fast economic recovery. Discounters, whose business models
are based on private label products, are heavily prevalent in Romania.

21. Thank you for your attention!
For more information, please contact:
Cocoon Group
Douglas Kaufman
d.kaufman@cg-eu.com
00420 603 840 287
U Pruhonu 13, Prague, Czech Republic 170 00
www.cg-eu.com

22. v
Image sources
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Additional images provided by Shutterstock. © Cocoon Group 2011 All Rights Reserved