Neo-generics: Its valuable role in private label retail

29th January 2015
From Chris Morrison

Neo-Generic-Price-First[1]According to recent research from Kantar media, half of UK shoppers visited Aldi or Lidl over Christmas, showing growing consumer acceptance of the big discounters and sending strong signs to traditional high street retailers. In recent years, we have seen the rise of a new category of private label products: neo-generics. These minimum-cost products, with simple, no-frills package design, have emerged in response to the heavy discounting of branded products and the rise in market share of the discounters. Faced with a growing amount of competition at price level, some retailers have accepted the old adage: if you can’t beat them, join them.

Value first

One of the obvious benefits of neo-generics is that they are meant to undercut the discounter’s prices in order to regain market share. Furthermore, since consumers still place a lot of weight on price comparisons between retailers, by introducing neo-generics retailers can rightly claim that they offer the lowest price on the market without compromising on the quality of existing private label brands. This allows the retailer to respond to consumers looking to save money and show that they too are conscious of economic forces on household incomes.

A sigh of relief

Another reason for a retailer to create a neo-generic range is to alleviate price pressure on existing private label ranges that would sit above it. Examples of this include ranges such as “Great Value” at Walmart in the US and “Tip” at European hypermarket Real. In both cases, these ranges sit close to other private label products on the shelf. Since human nature is to not go for the cheapest option when confronted with a broad band of different qualities, shoppers tend not to go with the neo-generic brand. Adding neo-generics into the mix can therefore be a way of driving shoppers towards the slightly more expensive private label brands.

A word of caution

While neo-generics can be a good way of regaining value shoppers and driving sales of existing brands, they must be considered in terms of the overall private label offering. Some retailers with a reputation for quality and freshness may not want to introduce value brands that distract from this. There is also no guarantee that neo-generic brands will increase overall sales or actually drive sales to the higher-tier private label products. Indeed, in a worst case neo-generics may end up cannibalising sales within the store. Effective collaboration with manufacturers and suppliers is still one of the best ways of innovating and driving down costs in private label, and retailers should work with their partners to come up with the best overall solution.

Conclusion

Neo-generics is an increasingly valuable tool in attracting consumer spending. However, each retailer is unique and needs to consider the overall impact of neo-generics and whether it is the right tactic for them.

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