Print

Please login or register.
1 Hour 1 Day 1 Week 1 Month Forever
Login with username, password and session length

[Bigron]

It's an Own Brand question, basically, but a specific example caught my attention today when buying vinegar:-
Sarson's 19.4p/litre Morrisson's 7.7p/litre

That's a big difference, so how come and how do supermarkets gain?

Ron.

[Lizzie Zoom]

The answer is the premium placed on branded goods.  A tin of Heinz Baked Beans will 'carry' the cost of advertising and promotions. The own brand supermarket version, that can come out of the same factory, does not carry those 'costs' as the big supermarket involved will ordered a massive quantity with them telling the manufacturer what they want to pay. Negotiations between the manufacturer and the buyers of the supermarket will take place that basically guaranty the price, therefore profit margin, that will be available subject to, say 100,000 units being ordered by the supermarket.

In addition, if the manufacturer want to increase their output at the factory of a product, and/or it is going to be promoted, they will encourage the national retailer to order 100,000 units with a large discount given so that profit margins are at least maintained for the retailer, with of course the expectation that an increased volume of the product will be sold, all at full margin. This all results in the cash margin being maintained all the time higher volumes of sales evolve. Selling 100,000 units with a retail price of 50p, and a margin of 5%, results in a higher gross profit than just 1,000 units with a retail price of £1, and a margin 10%. So if your supermarket can sell 100 times more own brand product than the branded version they can retail it at the far cheaper price and obtain a healthy cash margin, with extra customer footfall taken away from the competition in the process.

You may already appreciate Ron that the major national retailers have tremendous leverage over the manufacturer and can almost dictate the price they will pay. My company used to attract massive bonuses, tens of thousands of pounds, every time the amount of stock ordered exceeded certain targets in addition to the margins already agreed. If you remember Tesco's even had certain manufactures crying out about how that supermarket had squeezed their margins (ah, poor souls ) and refused to supply them with anymore stock. In the end the supermarket won through as the market dictates what price is applicable for a certain product, with customers choosing the 'cheapest' offers. Farmers have had this problem for some time, with some supermarkets at least paying more for milk. But, once again, the marker decides the true worth of a product, and the retailer decides what margin of profit they need to keep their business viable.

The retail market is not for wimps, and can be a harsh master. Only the leanest, profitable business will survive as has been witnessed, and will continued to be witnessed, for ever in our capitalist system.

[Field Marshal Dr. Opti]

That should satisfy young Ronald.....

[Bigron]

"Young" I like, dear Doctor; "Ronald" I don't - it's RON, unless my mother thought I had been naughty!

Understood, Lizzie and thanks. However, the supermarkets could just as easily sell a similarly vast quantity of branded goods?

On your point of price-squeezing, back in my apprenticeship days, there was a company across the way from ours who supplied shirts to M&S and other clients. M&S wanted ever-increasing quantities of shirts, until eventually M&S took their entire production and were this firm's only customer.
You can guess what came next: M&S dictated the price, getting lower and lower by turns.
That's how the company I was working for managed to buy the premises for expansion of their own business!

Ron.

[Andy B]

The answer is the premium placed on branded goods.  A tin of Heinz Baked Beans will 'carry' the cost of advertising and promotions. The own brand supermarket version, that can come out of the same factory,  ....

Not out of Kitt Green Heinz 

[Andy B]

.......
You can guess what came next: M&S dictated the price, getting lower and lower by turns.
 ....

M&S have a reputation for that. Barrs make (or made) M&S's cola and apparently M&S tried to dictate to Barrs what they wanted in terms of price etc. As M&S cola makes up a very small percentage of Barrs output, Barrs told them where to go.

[Nick W]

.......
You can guess what came next: M&S dictated the price, getting lower and lower by turns.
 ....

M&S have a reputation for that. Barrs make (or made) M&S's cola and apparently M&S tried to dictate to Barrs what they wanted in terms of price etc. As M&S cola makes up a very small percentage of Barrs output, Barrs told them where to go.

My Dad says that when he worked for Foster Clarks back in the 70s, their own brands had better quality control than the products made for the big contracts. They still made more profit on their own goods than the branded ones as they decided what they money was spent on. That's a common story; companies rely on turnover to keep going, but make their profit(the bit that matters) on smaller contracts. It's why I disagree with a lot of OOF theory about  branded goods for common items like oil, filters, plugs etc being better quality than the same supplier's own label.

[ronnyd]

"Young" I like, dear Doctor; "Ronald" I don't - it's RON, unless my mother thought I had been naughty!

Understood, Lizzie and thanks. However, the supermarkets could just as easily sell a similarly vast quantity of branded goods?

On your point of price-squeezing, back in my apprenticeship days, there was a company across the way from ours who supplied shirts to M&S and other clients. M&S wanted ever-increasing quantities of shirts, until eventually M&S took their entire production and were this firm's only customer.
You can guess what came next: M&S dictated the price, getting lower and lower by turns.
That's how the company I was working for managed to buy the premises for expansion of their own business!

Ron.

Ditto Ron lad.

[Lizzie Zoom]

"Young" I like, dear Doctor; "Ronald" I don't - it's RON, unless my mother thought I had been naughty!

Understood, Lizzie and thanks. However, the supermarkets could just as easily sell a similarly vast quantity of branded goods?

On your point of price-squeezing, back in my apprenticeship days, there was a company across the way from ours who supplied shirts to M&S and other clients. M&S wanted ever-increasing quantities of shirts, until eventually M&S took their entire production and were this firm's only customer.
You can guess what came next: M&S dictated the price, getting lower and lower by turns.
That's how the company I was working for managed to buy the premises for expansion of their own business!

Ron.

That would only happen Ron if the price on the branded goods is as cheap as the own brand versions, and could create the same volumes of sales and profit. You may have noticed that companies such as Aldi make an advertising advantage by showing what number of own branded / unknown brands products you can get from them for the price equivilant of just one branded product you can purchase from, say Sainsbury's or Asda. Companies like Aldi and Lidl are indeed growing on the back of customers going to them for those deals, and thus producing mass volume, but importantly not necessarily creating the same cash margins. As an old traditional retailer I will always say you should never aim to buy sales at the expense of profit, as there can only be one end, as witnessed by so many retailer failures recently; there will be more, if companies, desperate for sales increases, follow that policy.

However, after all that is said I personally always prefere to buy branded, well known, products and will not be shopping at the 'bargain', low budget supermarkets anytime soon. There is still a large number of customers who still have my mentality, and thank goodness are keeping the big four supermarkets going. The pressure on them to produce high, and growing percentages of like for like sales and still create healthy profits on their large store, CDC, expensive operations is certainly there though and that is why you will see mergers being attempted by the likes of Sainsbury's and Asda. They now have to be all things to all men, and women, whilst, still producing the all essential PROFITS they require. The online business is just another threat, or advantage for them, which, once more, only the strongest will survive. Departmental stores are now like dinasours of another age and cannot compete with the other forms of modern retailing. Debenhams and even John Lewis are now on borrowed time and will eventually fold. Even Marks & Spencer's have now only have their food operation to keep them going and as profits are further reduced by the efforts of the bargin end of the trade companies, will eventually fold.

As always it is maximum Sales increases coupled with the essential profit creation that is so crucial, and any retail business that cannot do both will not survive. Branded goods or no branded goods that is the bottom line of it all.

[biggriffin]

I go to different manufacturer all over the country, and you would be surprised who makes own brand stuff,, and how many make stuff for all of the supermarkets. Same product different supermarkets.

All I will say is, if you want shelf life for fresh produce, don't buy from the Germans.

[BazaJT]

Wasn't it Tesco that started out with the slogan/mantra "Pile it high sell it cheap"?

[Field Marshal Dr. Opti]

There are some wealthy deluded souls who will only eat Heinz beanz despite them being expensive tasteless and soggy.

I mention no names....

[STEMO]

There are some wealthy deluded souls who will only eat Heinz beanz despite them being expensive tasteless and soggy.

I mention no names....

Beans are supposed to be soggy. 

[Field Marshal Dr. Opti]

There are some wealthy deluded souls who will only eat Heinz beanz despite them being expensive tasteless and soggy.

I mention no names....

Beans are supposed to be soggy. 

Not that soggy......and not that expensive.

I suppose the cost of advertising does not come cheap.

[Field Marshal Dr. Opti]

......and while I'm at it.

The last tin of Heinz Ravioli I had was 90% juice.