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Consequences of competition between national brands and private labels


Empirical results from different German outlet formats
Rainer Olbrich and Gundula Grewe
Fakultat fur Wirtschaftswissenschaft, FernUniversitat in Hagen, Hagen, Germany
Abstract
Purpose A proliferation of private labels in European food retailing has been evident for several years now. Against this background, the purpose of this paper is to analyse the impact of competition between national brands and private labels on product variety, prices and turnover. Design/methodology/approach Within the empirical study, a product group from the ready-meals category is analysed over a total period of six years (between 2000 and 2005) based on scanner data from different German outlet formats. The empirical study contains time series as well as regression analyses. Findings The empirical results indicate that, in all studied outlet formats, there is evidence of decreasing product variety and increasing prices over time. Moreover, the results show that the turnover in the supermarkets and especially in the hypermarkets is in decline. A positive turnover trend can only be found in the discount stores. Originality/value This empirical study is the rst that covers such a long period of time (six years) and several outlet formats. Previous studies have mostly been static or short-term and predominantly only covered one outlet format. Keywords Brands, Labelling, Retailing, Food products, Retail marketing, Germany Paper type Research paper

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Received 30 May 2008 Revised 15 October 2008 Accepted 27 April 2009

1. On the proliferation of private labels For several years now, a proliferation of private labels has been evident in European food retailing (Kumar and Steenkamp, 2007; Olbrich et al., 2009). The proliferation of private labels has been facilitated by the per se ban on vertical price xing (Article 81 EC), regulating the European market by law. The prohibition of resale price maintenance has restricted the pricing policy tools available to manufacturers and has, in its wake, considerably broadened the range of pricing policy options for private labels. Here, price sceneries, i.e. articially generated pricing comparisons for certain goods are playing an ever-increasing role (Olbrich and Buhr, 2004). A topical example from food retailing shows the form in which price sceneries are currently embedded in business practices. Advertising leaets issued by the retailer group REWE showed a direct comparison in the form of illustrations, comparing the price and quality of its own labels and national brands (REWE leaets from week 22/2007 and 23/2007).

International Journal of Retail & Distribution Management Vol. 37 No. 11, 2009 pp. 933-951 q Emerald Group Publishing Limited 0959-0552 DOI 10.1108/09590550910999361

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Here, the intended effect of the comparison is not only aimed directly at an increase in sales of private labels, but also at the retailers prole in comparison with other retailers that still sell a considerable number of national brands. In this context, the judgement pronounced by the US Supreme Court on 28 June 2007 regarding vertical pricing agreements is of particular signicance. In it, the US Supreme Court overturned the former per se prohibition of vertical minimum pricing agreements and instead introduced case-by-case assessment (rule-of-reason; US Supreme Court, judgement of 28 June 2007, No. 06-480 Leegin Creative Leather Products, Inc. vs PSKS, Inc.). The court struck down an almost 100 year old precedent from 1911, thereby at least indirectly recognising potential anti-competitive effects of any per se prohibition. Owing to the associated increase in the power for the retailers, current literature on the subject has reiterated the fear that statutory regulation of the market could have effects on ranges of products available in the stores and on pricing policy that will have a detrimental impact from the perspective of national brands manufacturers. Against this background, the objective of this study is, after a discussion of the relevant literature and the hypotheses development (Chapter 2), to demonstrate, on the basis of empirical data from the German groceries sector, selected effects of the proliferation of private labels in the product group studied (Chapter 4), in order to ultimately point out the risks of continued crowding-out of national brands. The utilised data, sample, measures and method will be explicated in detail in Chapter 3. 2. Literature review and hypotheses development In the literature, on the one hand pro-competitive effects are attributed to the proliferation of private labels. On the other hand, however, anti-competitive effects are identied, at least in the long-term (Olbrich et al., 2009). This contradiction in the results can be attributed to the varying lengths of the studies. The effects of the proliferation of private labels in view of the indicators product variety, prices and turnover discussed in the literature are illustrated in the following sections. In some instances, the same authors expect there to be both a reduction and an increase in the range of different products available (Dobson, 1998; Vogel, 1998; Dobson Consulting, 1999; Dobson et al., 2001). By contrast, the following authors or institutions take a clearer stance: Mills (1995) also assumes a reduction in the range of different products as a consequence of the increased distribution of private labels as do the European Commission (1997), the Competition Commission (UK) (2003), the Nordic Competition Authorities (2005) and the Federal Competition Authority of the Republic of Austria (2007). Raju et al. (1995) and Ward et al. (2002) have been able to provide empirical evidence for this position with studies from American supermarkets, Baker et al. (2006) on the basis of questionnaire survey results from Danish producers and retailers from the food sector and Bergstrom et al. (2006) with reference to data from the Swedish food retailing. In contrast to this, however, there are comparatively few (generally older) studies to be found in which there is a reference to a rise in the product variety as an effect of the proliferation of private labels (Call, 1967; National Commission on Food Marketing, 1966; Tager, 1998). Against this background, the following basic hypotheses can be set out in terms of the development of product variety in consumer goods retailing:

H1. Over time, the number of private labels listed continuously increases. H2. Over time, the number of listed national brands continuously declines. H3. Over time, the total number of listed products continuously declines. Assessments also vary concerning the effects of the increase in private labels on the level of prices in the retail sector. Several authors consider (long-term) rising and (short-term) falling prices to be likely or have observed such effects empirically. In the majority of cases, the price level of all products has not been studied, only the prices of national brands. In a few studies, however, the effects on prices of private labels and the level of prices as a whole have also been examined. These results will be explicated in detail in the following paragraphs. Lower prices as a consequence of the proliferation of private labels are mainly expected in older studies and generally in studies that do not include any empirical research (Hoch and Banerji, 1993; Dobson and Waterson, 1997; Dobson, 1998; Vogel, 1998; Dobson Consulting, 1999; Wieser et al., 1999). To justify the assumption of, in particular, short-term (Dobson Consulting, 1999) falling prices, on the one hand reference is made to the fact that national brands have been undercut by competing private labels (Dobson, 1998). The price pressure generated in this way by private labels (Wieser et al., 1999) might lead as a whole to cheaper products on offer (Vogel, 1998). On the other hand, it is also debated whether falling prices could be a consequence of the passing on of more favourable purchasing terms and conditions to consumers (Dobson and Waterson, 1997). It is true that even a few recent sources do report price reductions: According to Bergstrom et al. (2006), a 10 per cent increase in the market share of private labels leads to a 3.4 per cent reduction in price level in the Swedish food retailing (the authors also refer in this context to the Handelns Utredningsinstitut, 2005). The Nordic Competition Authorities (2005) also assume, without any empirical study having been carried out, that a rising percentage of private labels goes hand in hand with a reduction in price levels. It should be emphasised that price level should not be regarded independent of quality. Lower prices are often associated with lower quality (Hoch and Banerji, 1993). That means that related to the previous (higher) quality level, a lower price in absolute terms could still represent a relative price increase. Falling prices in the wake of an increase in private labels have seldom been proven empirically. Cotterill and Putsis (2000), in a study of American supermarkets, discovered lower prices of national brands and private labels where the market shares of private labels were higher. Chintagunta et al. (2002) also studied, among other things, the effects of the introduction of private labels on the prices of national brands and found price reductions of approximately 7 per cent. These authors are the only ones who used a sample period (275 weeks) that is comparable to that in this study (312 weeks). However, they only determine supermarkets of a particular chain and only have a very limited data basis. Furthermore, they only analyse the prices of national brands and total sales. The product variety, the prices of private labels, the entire price level, the turnover of private labels and national brands as well as the total turnover are not in the focus of their investigation. Therefore, their analysis contains considerably less indicators compared to this study.

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Both price increases and reductions are considered by Dobson (1998) and Wieser et al. (1999) to be possible effects of the proliferation of private labels. A general rise in price level is attributed by Wieser et al. (1999), among other things, to retail oligopolisation caused by private labels. They explain price reductions on the basis of pricing pressure exerted by private labels on national brands. Putsis (1997) as well as Putsis and Cotterill (1999) report contradictory empirical results in the pricing response of national brands and private labels to the proliferation of private labels. They determine, in the context of their studies in the American food retail sector, increasing prices of private labels and reduced prices of national brands. Bonfrer and Chintagunta (2004) discovered varying results in the prices of national brands on the basis of data from the American food retail sector. In particular, more recent non-empirical and empirical studies unanimously expect and observe increasing prices of national brands to be a negative consequence of the proliferation of private labels (regarding empirical results from the American food retail sector, c.f. Cotterill et al. (2000), Ward et al. (2002) and Bonanno and Lopez (2005). Empirical results from the French food retail sector are given in Bontemps et al. (2005a, b, 2006), regarding theoretical results, c.f. Gabrielsen and Srgard, 2007). To sum it up, increasing prices, at least in the long-term, are to be expected. Against this background, with regard to price level trends in consumer goods retailing over time, the following hypotheses can be set out: H4. Over time, the average prices of private labels continuously increase. H5. Over time, the average prices of national brands continuously increase. H6. Over time, the average prices of all products continuously increase. In this context, it should be noted that the H6 could not be falsied if H4 and H5 can be well-proved. In the scientic literature, the growing signicance of private labels, in particular in European but also in American consumer goods retailing is unanimously exposed with reference to increasing market shares of private labels. Comparatively rare in this context are studies on the effects of the increase in private labels on turnover. In terms of the key gures studied in the literature, it can therefore be stated that predominantly only sales and turnover shares have been evaluated (Corstjens and Lal, 2000; Steiner, 2004; Competition Commission (UK), 2007; Lamey et al., 2007). Effects of private labels on absolute sales and turnover by contrast are seldom the focus of study. None of the sources explains how turnover of private labels and national brands have developed in the wake of the proliferation of private labels. However, it can be assumed from them that the increasing sales of private labels and declining sales of national brands have ultimately resulted in corresponding trends in turnover. Total sales and turnover have also rarely been the focus of study. In the few sources that do deal with this, however, either increasing market-related gures are determined empirically (Chintagunta et al., 2002) or else forecasted without such trends being empirically demonstrated (McGoldrick, 2002; Gilbert, 2003). Solely, Raju et al. (1995) empirically determined neither a signicant positive nor a negative effect of the introduction of private labels on total sales in the product group. Against this background, with reference to the development of turnover in consumer goods retailing over time, the following hypotheses can be set out:

H7. Over time, turnover of private labels continuously increases. H8. Over time, turnover of national brands continuously declines. H9. Over time, total turnover continuously increases. Regarding the presented results of the literature review, it should be mentioned that some cited references draw conclusions on causality between the proliferation of private labels and different indicators. The present investigation, however, does not strive to establish causal relationships. The results, nevertheless, provide as any kind of regression indications for potential causalities. Of course, the underlying cause-and-effect chains (causal relationships) must be comprehensible and consistent on the level of logic. 3. Data, sample, measures and method The study is based on point of sale scanning data from the German groceries sector. The data were collected and provided to the authors by the market research company Information Resources GmbH (IRI) and contain almost seven million data records. One data record covers prices, sales and turnover of a particular product per calendar week and store. Moreover, it is apparent which kind of brand (national brand versus private label) the particular product is. The data on which the study is based are scanning data from different German food retailers and outlet formats. They were ascertained in 24 discount stores, 24 super-markets (less than 800 square metre sales area) and 24 hypermarkets (more than 800 square metre sales area). A product group from the ready-meals category was analysed over a total period of 312 consecutive calendar weeks between 2000 and 2005. The ready meals studied were mainly meat-based meals. Therefore, the superior product category is meat. Meat is a product category in which buying behaviour is affected by perceived uncertainty and health-risk felt by consumers (Smith et al., 1999, p. 1107; Kenning, 2008, p. 467). Many food scandals in recent years (e.g. bovine spongiform encephalopathy) have once more intensied the perceived uncertainty and health-risk. Hence, signals which provide safety and quality of products to consumers are needed. In this context, we assume that branding especially regarding potential differences between national brands and private labels may play an important role. The selected product group from the ready-meals category was particularly appropriate in view of the objective of the study, that is, to investigate the consequences of the proliferation of private labels: this is exemplary for a product group which at one time was mainly supplied by the national brands industry, but is nowadays increasingly being penetrated by private labels (Smith et al., 1999, p. 1110; Olbrich and Grewe, 2009). The difference between private labels and national brands refers mainly to the question of ownership regarding trademark right. Trademark rights of private labels are held by retailers, while trademark rights of national brands are held by manufacturers. This paper is the rst to make a long-term analysis covering such a long period (six years) and several outlet formats (discount stores, supermarkets and hypermarkets). Previous studies have predominantly been static or short-term and generally only covered one outlet format.

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One disadvantage of short-term studies is the fact that they only reveal temporary upward or downward leaps. The long-term course of development is left untracked. As a result, the danger of misinterpretations in short-term studies is signicantly higher compared to long-term studies. Such a risk is avoided in a long-term study as this is. Differences between the various outlet formats only become apparent if several formats are investigated. Indeed, there may be shifts in demand between the forms of outlet. This investigation rules out the deciency of studies which only take one outlet format into consideration. In this paper, the effects of the proliferation of private labels are examined on the basis of the indicators product variety, prices per kilogram and turnover. The reason for the selection of these indicators lies in the fact that they probably take up an exceptional position in the context of the proliferation of private labels: in the short-term it is to be expected that the product variety increases, the prices decrease and the turnover rises. In the long-term, however, oppositional developments are to be expected. In the present investigation, the indicator product variety was operationalised by the number of listed different products in the assortments of the respective studied outlets. In order to eliminate the eventuality that price differences between products may trace back to different packaging sizes, the average prices per kilogram were calculated in a rst step and have then been taken as a basis for the indicator price in the present study. As measure for the indicator turnover served the absolute turnover in the product group. In order to be able to analyse the long-term development of the respective indicators, a longitudinal analysis has been chosen as research method. Moreover, bivariate regression analyses will help to examine the relation between time (in weeks) and the respective indicators. Concerning the question of potential changes in tax rates during the study period, it is to be stated that there have not been any changes in the rate of turnover tax for food which is the directly concerned kind of tax in the studied context in Germany during the sample period. The rate of ination, however, has to be taken into consideration in the context of assessing the empirical results. 4. Empirical results 4.1 Decreasing product variety Figure 1 shows the number of different products (EANs[1]) broken down by national brands, private labels and total per calendar week for the respective outlet formats. The gure indicates that the number of listed national brands declined considerably in the investigation period in all three outlet formats, whereas the number of listed private labels has increased. The sharp decline in listed national brands has not been balanced out by the addition of new private labels. The absolute number of different products in the product group therefore has been reduced overall. These trends can be most clearly seen in the supermarkets and hypermarkets where the number of products in the period of the study approximately halved. Thus, there has been a considerable reduction of the variety of different products in the product group. Table I provides an overview of the results of the bivariate linear regressions for the respective outlet formats with the time (in weeks) as independent variable

80 Discount stores 70 60 Number of products 50 40 30 20 10 0


01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

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2000 180

2001

2002

2003 Supermarkets

2004

2005

160 140 Number of products 120 100 80 60 40 20 0


01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

2000 280 260 240 220 Number of products 200 180 160 140 120 100 80 60 40 20 0

2001

2002

2003 Hypermarkets

2004

2005

2000

2001 Number of EANs private labels

2002

2003 Calendar week

2004

2005

Number of EANs national brands

Total number of EANs

Figure 1. Number of different products per calendar week in a study of the specic outlet formats

and the particular number of listed products as dependent variable. The outlet format is shown in the rst column. In the second column, the appropriate dependent variables are listed. Column three shows the expected sign for each regression coefcient with the appropriate hypothesis number. The fourth column contains the determined

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

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Outlet format

Dependent variable

Expected sign (H1) 2(H2) 2(H3) (H1) 2(H2) 2(H3) (H1) 2(H2) 2(H3)

Standardised regression coefcient 0.842 20.746 20.615 0.749 20.958 20.957 0.880 20.983 20.982

t-value 27.482 219.753 213.733 19.891 258.520 257.991 32.644 292.988 290.839

Signicance 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

R2

Proved?

940

Table I. Results of the regression analyses with the respective number of listed products as regressands considered for the specic outlet formats

Discount Number of products stores private labels Number of products national brands Total number of products Super Number of products markets private labels Number of products national brands Total number of products Number of products Hyper markets private labels Number of products national brands Total number of products

0.709 Yes 0.557 Yes 0.378 Yes 0.561 Yes 0.917 Yes 0.916 Yes 0.775 Yes 0.965 Yes 0.964 Yes

standardised regression coefcients. The appropriate t-values, signicance levels and coefcients of determination are reproduced in columns ve to seven. Finally, the conclusions regarding the hypotheses are given in column eight. In the table, all standardised regression coefcients illustrate the expected indication. Moreover, the t-values show that the results are highly signicant. The coefcients of determination indicate good to very good values. It can therefore be stated that the hypotheses regarding the relation between time and the number of listed products can be regarded as proved statements. In this context, it should be noted that a reduction in product variety should not be evaluated as negative in itself. A very pronounced product variety can considerably increase the complexity of the purchasing decision for consumers as they have to decide between a wide choice of the same kind of products. This can ultimately lead to the consumer feeling overwhelmed (Otnes et al., 1997; Oppewal and Koelemeijer, 2005). Consumers do have the opportunity to frequent stores that best suit their own preferences in this respect though. The variety of products in discount stores is generally signicantly smaller than the range of products in supermarkets and this, in turn is generally smaller than in hypermarkets (Liebmann and Zentes, 2001). From the perspective of retailers, a decreasing number of listed national brands may potentially go along with a decreasing number of suppliers and that may possibly result in potentials to lower cost (e.g. concerning negotiations, coordination and logistics). From the perspective of manufacturers, however, a decreasing number of suppliers would lead to the risk of being delisted. In case of not being delisted, the continual risk of it would potentially lead to the disadvantage for suppliers to be forced to make concessions to retailers, e.g. concerning delivery conditions.

4.2 Rising prices Figure 2 shows the average prices per kilogram of national brands and private labels as well as those of all pro-ducts (overall) for each outlet format (the curve for the average prices per kilogram of private labels in discount stores only starts in week 33/2000, because private labels were only listed as from that week).
8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2000 8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2000 8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2000 2001 2002 2001 2002 2001 2002 Discount stores

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Average price per kg in

Average price per kg in

Average price per kg in

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

2003 Supermarkets

2004

2005

2003 Hypermarkets

2004

2005

2003 Calendar week

2004

2005

Average price per kg private labels

Average priceper kg national brands

Average price per kg overall

Figure 2. Average prices per kilogram per calendar week in a study of the specic outlet formats

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

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The gure indicates that in all three outlet formats, in particular from 2003 onwards, some signicant increases in the average prices per kilogram both in national brands as well as private labels took place. In all outlet formats, it was the price per kilogram of the national brands that increased most sharply with the increase being less sharp in the discount stores than in the supermarkets and hypermarkets. Even the rises in private label prices per kilogram are signicantly above the 6.4 per cent rate of ination for meat and meat products (Federal Statistical Ofce of Germany, 2006). In the discount stores, the average private label prices per kilogram rose between 2000 and 2005 by 18.72 per cent, in the supermarkets by 63.60 per cent and in the hypermarkets by 47.92 per cent. Therefore, the price increases of private labels exceeded the rate of ination by 12.32 per cent points in the discount stores, 57.20 per cent points in the supermarkets and 41.52 per cent points in the hypermarkets. In this context, it is remarkable that the average prices per kilogram of the private labels were kept well below those of the national brands by the retailers in all outlet formats. The fact that both, the prices per kilogram of private labels as well as those of national brands, have practically continuously increased over recent years and that the prices per kilogram of the private labels in 2005 were approximately at (supermarkets and hypermarkets) or even above (discount stores) the level of the prices per kilogram of the national brands in 2000 (within the outlet formats), has probably not been noticed by consumers. Presumably, the consumers do not make any detailed records of the prices of the foods they have purchased over a period of six years. Hence, we assume that consumers only see the current prices on the shelf and therefore only notice that the prices per kilogram of the private labels are currently below those of the national brands. Whether they notice the signicant price increases in both types of brand over the analysed period at all is debatable for the aforementioned reasons (cf. for greater detail regarding price-knowledge and reference pricing, Kalyanaram and Winer (1995), Monroe and Lee (1999), Evanschitzky et al. (2004), Magi and Julander (2005), Aalto-Setala et al. (2006) and, Kenning et al. (2007). Thus, we suggest that the perception of well-priced private labels retained by many consumers persists because national brands are frequently used by retailers as reference products when setting prices. This means that the prices per kilogram of private labels are constantly kept below those of the national brands, although at an increasingly high level. In this context, it is remarkable that retailers have been given this opportunity by the prohibition of vertical price xing and the associated freedom of price xing on two levels (Olbrich, 2001). Table II in a study of the specic outlet formats indicates the results of the bivariate linear regressions with the time (in weeks) as independent variable and the particular average price per kilogram as dependent variable. The table shows that the supposed positive relations between time and appropriate prices per kilogram in all outlet formats are clear and highly signicant. The coefcients of determination also show that the ratio of the declared scattering compared to the overall scattering in all cases is very high. Therefore, in summary, it can be stated that during the period of the study in all outlet formats and therefore also considered across the outlet formats a predominantly clear rise in average prices per kilogram of private labels and national

Outlet format

Dependent variable

Standardised Expected regression sign coefcient t-value Signicance (H4) (H5) (H6) (H4) (H5) (H6) (H4) (H5) (H6) 0.812 0.859 0.861 0.878 0.887 0.892 0.873 0.933 0.934 23.206 29.476 29.760 32.326 33.748 34.719 31.459 45.486 46.192 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Consequences of competition
R2 Proved? 0.660 Yes

Discount Average price per stores kilogram private labels Average price per kilogram national brands Average price per kilogram all products Super Average price per markets kilogram private labels Average price per kilogram national brands Average price per kilogram all products Hyper Average price per markets kilogram private labels Average price per kilogram national brands Average price per kilogram all products

943
0.737 Yes 0.741 Yes 0.771 Yes 0.786 Yes 0.795 Yes 0.761 Yes 0.870 Yes 0.873 Yes Table II. Results of the regression analyses with the respective average price per kilogram as dependent variables considered for the specic outlet formats

brands can be determined and therefore also a clear rise in the average prices of all products. The hypotheses set out above are therefore to be described, in the context of these empirical results, as proved statements. It is to be added in this context that two separate regression analyses (Tables III and IV) showed that the prices in supermarkets and hypermarkets have been rising from 2000 to 2002 and from 2003 to 2005 as well. Thus, the positive regression coefcients for the whole time period in supermarkets and hypermarkets do not only trace back to the price jump. We assume that the fact that the price jump occurred at the beginning of 2003 is a typical phenomenon of annual appraisals. Especially, in this case, it can be assumed that retailers have exploited the fact that 2003 was the rst year in which from the beginning on the Euro prices stood alone on the price labels (not longer accompanied by national Deutsche Mark prices). The double labelling due to the European Monetary Union ended in 2002. From the national brands industrys perspective, the rising prices do not necessarily mean positive effects on turnover and prots because their prots do not depend on consumer prices but on delivery conditions agreed with the retailers. As long as retailers do not want to completely risk renouncing national brands, the remaining national brands manufacturers will have a secure bargaining hand. However, as retailers can play one manufacturer off against the other at least for as long as there are still two or three national brands in each product category from various manufacturers the retailers are probably those who receive the larger share of the prots obtained through higher prices.

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Outlet format Discount stores

Dependent variable Average price per kilogram private labels Average price per kilogram national brands Average price per kilogram all products Average price per kilogram private labels Average price per kilogram national brands Average price per kilogram all products Average price per kilogram private labels Average price per kilogram national brands Average price per kilogram all products

Expected sign

Standardised regression coefcient

t-value

Signicance

R2

Proved?

944

(H4) (H5) (H6) (H4) (H5) (H6) (H4) (H5) (H6)

20.693 20.022 20.061 0.647 0.695 0.723 0.677 0.907 0.902

210.606 2 0.277 2 0.755 10.523 12.007 12.999 11.429 26.646 25.861

0.000 0.782 0.452 0.000 0.000 0.000 0.000 0.000 0.000

0.480 No No (not 0.000 signicant) No (not 0.004 signicant) 0.418 Yes 0.484 Yes 0.523 Yes 0.459 Yes 0.822 Yes 0.813 Yes

Super markets

Table III. Results of the regression analyses with the respective average price per kilogram as dependent variables considered for the specic outlet formats (2000-2002)

Hyper markets

4.3 Turnover depends on the outlet format Figure 3 shows the turnover of national brands and private labels as well as that of all products (overall) per week for each outlet format. The gure indicates that in all three outlet formats the turnover of private labels rose over time, while the turnover of national brands, especially in the supermarkets and hypermarkets, decreased over time. Moreover, it is apparent that the total turnover is merely rising in discount stores in the period of the study. In supermarkets and especially in hypermarkets, however, the total turnover is in decline. This is particularly apparent as the prices in the same period of time increased signicantly (c.f. once more Figure 2 and Table II). As a consequence, the falling turnover is caused by declining sales. These results point to the fact that intensive price increases at least to some extent are accompanied by non-consumption. Table V in a study of the specic outlet formats shows the results of the bivariate linear regressions with the time (in weeks) as independent variable and the particular turnover as dependent variable. The table indicates that only H7 can be described as proved statement. Regarding the discount stores, the supposed negative relation between time and the turnover of national brands cannot be stated. H8 is therefore rejected regarding discount stores.

Outlet format

Dependent variable

Standardised Expected regression sign coefcient t-value Signicance (H4) (H5) (H6) (H4) (H5) (H6) (H4) (H5) (H6) 0.748 0.459 0.459 0.795 0.293 0.278 0.642 0.637 0.597 13.968 6.416 6.418 16.268 3.807 3.595 10.384 10.252 9.241 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Consequences of competition
R2 Proved? 0.559 Yes

Discount Average price per stores kilogram private labels Average price per kilogram national brands Average price per kilogram all products Super Average price per markets kilogram private labels Average price per kilogram national brands Average price per kilogram all products Hyper Average price per markets kilogram private labels Average price per kilogram national brands Average price per kilogram all products

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0.211 Yes 0.211 Yes 0.632 Yes 0.086 Yes 0.077 Yes 0.412 Yes 0.406 Yes 0.357 Yes Table IV. Results of the regression analyses with the respective Average price per kilogram as dependent variables considered for the specic outlet formats (2003-2005)

The relation between time and total turnover in the supermarkets and hypermarkets is negative, contrary to the hypothesis set out above. H9 is therefore rejected regarding supermarkets and hypermarkets. Hence, with regard to the supermarkets and hypermarkets the increasing proportions of listed private labels are not accompanied by positive trends in total turnover in the product group. However, this does not necessarily mean that prots are also in decline. It is to be expected that retailers are achieving higher prot margins with private labels than with national brands (Hoch and Banerji, 1993). To this extent, it is possible that retailers will achieve lower turnover gures with higher proportions of private labels being listed, but, due to higher prot margins of private labels, will achieve a higher contribution margin. Accordingly, it may be attractive for retailers, at least to some extent, to forego higher turnover gures in favour of higher contribution margins. However, whether the decline in total turnover of the product group, discernable here in particular in the super-markets and hypermarkets, is over-compensated by higher contribution margins from private labels, is highly questionable. 5. Conclusion, strategic implications for retail managers and limitations The descriptive results show that in all studied outlet formats, clear reductions in the variety of products are illustrated brought about by the delisting of national brands only partially being replaced by newly listed private labels. Moreover, in all outlet formats studied, there is evidence of signicant price increases. Besides, the total turnover gures in the supermarkets and especially in the hypermarkets are in decline.

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6,000 5,500 5,000 Discount stores

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Turnover in productgroup in

4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0


01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

2000 4,000

2001

2002 Supermarkets

2003

2004

2005

3,500 Turnover in productgroup in 3,000 2,500 2,000 1,500 1,000 500 0


01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

2000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2000

2001

2002 Hypermarkets

2003

2004

2005

Turnover in productgroup in

Figure 3. Turnover per calendar week in a study of the specic outlet formats

01 06 11 16 21 26 31 36 41 46 51 04 09 14 19 24 29 34 39 44 49 02 07 12 17 22 27 32 37 42 47 52 05 10 15 20 25 30 35 40 45 50 03 08 13 18 23 28 33 38 43 48 01 06 11 16 21 26 31 36 41 46 51

2001 Turnover private labels

2002 2003 Calendar week Turnover national brands

2004

2005

Turnover overall

Outlet format Discount stores

Dependent variable Turnover of private labels Turnover of national brands Total turnover Turnover of private labels Turnover of national brands Total turnover Turnover of private labels Turnover of national brands Total turnover

Standardised Expected regression sign coefcient (H7) 2 (H8) (H9) (H7) 2 (H8) (H9) (H7) 2 (H8) (H9) 0.880 0.010 0.639 0.892 2 0.663 2 0.379 0.936 2 0.894 2 0.819

Consequences of competition
t-value 32.682 0.167 14.636 34.670 2 15.596 2 7.218 46.870 2 35.217 2 25.124 Signicance 0.000 0.867 0.000 0.000 0.000 0.000 0.000 0.000 0.000 R2 Proved? 0.775 Yes (No) not 0.000 signicant 0.409 Yes 0.795 Yes 0.440 Yes 0.144 No 0.876 Yes 0.800 Yes 0.671 No Table V. Results of the regression analyses with the respective turnover as regressands considered for the specic outlet formats

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Super markets

Hyper markets

Corresponding results concerning the range of different products on sale are, according to Iri, discernible throughout the whole German food retail sector. The number of EANs in food retailing declined by almost 10 per cent between the years 2002 and 2007. Besides, the results of the regression analyses show that the hypotheses demonstrated above, with regards to product variety and the price level per kilogram should be classed as proved statements. With regard to turnover, the results are particularly controversial: both in the supermarkets and hypermarkets the relation between time and total turnover is negative, contrary to the previous hypothesis. These developments indicate that consumers are restricting their consumption, or may in some cases even have ceased to consume. However, this does not necessarily mean that private labels are the only determinants of this process. Other reasons, like a decline in real purchasing power, taxes or other aspects, might be considered as well in this context. Summed up, the empirical results indicate that the proportion of private labels listed in the supermarkets and hypermarkets has further been extended even though there are no positive turnover trends associated with such a course of action. A positive turnover trend can only be found in the discount stores. Hence, the increasing number of listed private labels in all outlet formats seems to go along with the effect that supermarkets and hypermarkets lose turnover to discount stores at least to some extent. Thus, only the price-aggressive outlet format (represented by discount stores) seems to prot by the increasing number of listed private labels. For the purpose of a turnover as high as possible, these results lead to the implication for retail managers especially for those of supermarkets and hypermarkets of avoiding a delisting of national brands in the course of extending the number of listed private labels. Against this background, a mixed assortment strategy containing private labels as well as national brands seems to be preferable compared to a mainly private-label-oriented-strategy including primarily or solely private labels. Regarding management practice, it is to be noted in this context that the decision about which

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assortment strategy to pursue should additionally be made on the basis of contribution margins. Like any other study our study has some limitations, too. In this context, one has to take into consideration that the results could be different, e.g. in other branches, other product categories, other countries or other study periods. Therefore, further research is needed for other branches, product categories, countries or study periods in order to put the drawn conclusions on a broader basis.
Note 1. The acronym EAN stands for International Article Number (quondam European Article Number). The EAN allows a clear identication of each different product.

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