Supermarkets Embrace Store Brands

By Allan Rotich Posted 02 May 2006 @ 07:25 pm EET     Print     Reprint     E-Mail     Comments

Nairobi (IBTimes.com) - Supermarket chains are growing bigger and dominating retail trade world-wide, and the bigger ones are even venturing into non-retail services like insurance and banking. This has sounded the death knell for smaller shops that can neither compete on price nor offer the wide variety of goods sold in supermarkets.

In Kenya, supermarket chains are bucking the international trend by repackaging some products under their own brands.

Nakumatt and Tusker Mattresses, two of the leading retail chains in the country, sell branded food items such as dry cereals (beans, lentils, rice and nuts). Nakumatt also has branded a range of spices, whole millet, and desiccated coconut, among others.

For its part, Uchumi has opened bakeries at some of its stores and sells baked goods packaged under its brand name. Speciality supermarkets have not been left behind. Our Price, a beauty and hair products retailer with several outlets, has introduced a range of hairbrushes, combs and foot scrubbers under its name.

“Nakumatt is a brand and it means quality, so the customer is assured of quality when Nakumatt puts its name on a product,” said Mr Thiagarajan Ramamurthy, director of operations at Nakumatt Holdings. “We buy food items in bulk then repackage in smaller pack sizes that are affordable and ready to cook.” He said the focus on food was because everyone buys it and this way they can target all classes of customers.

Mr Shadrack Mudiwo, head of marketing at Tusker Mattresses, says store brands give the supermarket mileage in terms of visibility and enhances the equity of the brand. “We are doing this to bond with shoppers and get a higher level of attachment to our consumers,” he said in an interview.

According to a global study by marketing research giant ACNielsen, supermarket own brands — also called private labels or store brands — accounted for 17 per cent of sales in the first quarter of 2005. In every region except Latin America, growth of supermarkets’ own brands outstripped that of manufacturers’ brands. In Africa, the study covered only South Africa.

Manufacturers in Kenya have no reason yet to be worried though, because own brands are still a very small proportion of sales volumes. For Nakumatt and Tusker Mattresses, they only account for a paltry 5 per cent and 3 per cent of sales volumes. “Most of the retail sector is not yet ready to manufacture its own brands or go into large-scale repackaging. It requires heavy investment in human resources, machinery and capital and is like running a separate arm of the business,” said Mr Mudiwo of Tusker Mattresses, which has 11 outlets.

For Mr Ramamurthy, branding of some products such as electronics and perishable foods like milk would need back-up guarantees that the company was not yet equipped to provide. “Our core business is buying and selling. The furthest we can go in this direction is to ask producers like Brookside to pack dairy products for us. Or introduce special packs for items like sugar and cornflakes, which would only be available at Nakumatt,” he explained. For such a venture to work, however, Mr Ramamurthy said the volumes would have to justify the added costs for manufacturers. This is only feasible if Nakumatt, which has 17 branches countrywide, expands. “We plan to have 30 branches in the next two years and go regional by 2007.” The chain will also hire an additional 1,500 workers to add to the current 3,000 and also plans to go public in 2009.

According to the ACNielsen study, the average private label product was priced roughly one-third below its branded counterparts. A comparison of prices in the supermarkets locally shows the difference in price is only a few shillings for both Nakumatt and Tusker Mattresses while Uchumi bread (white, brown and whole meal) was generally the same price as the others. “The Kenyan consumer has a certain perception of price vis-à-vis quality. If a product is too cheap it is considered to be of inferior quality. And because people are price conscious we have to compete within a certain price bracket,” said Mr Mudiwo. As for the Wal-Mart effect, where competitors and manufacturers alike fear big supermarket chains because of their purchasing power and ability to drive down prices to the detriment of smaller retailers, Mr Mudiwo said: “If anything supermarkets have made retail grow stronger because big chains only hold 12 per cent of the total retail trade. Dukas (shops) and kiosks still dominate.”

He said shops and kiosks in estates now offer better prices and service to customers and also stock variety. They are also getting neater, more spacious and many now offer self-service however small the premises. This way, he says, supermarkets have opened up freedom of shopping to the public.

“We don’t stock very small packages like Blue Band Kadogo, cooking fat or milk in Sh10 packs, or half a loaf of bread because we respect the other players. Kiosks will still have a role to play in the market,” he added.

Mr Ramamurthy said when formal trade expands it spawns many benefits including increase in production capacity of local manufacturers, and improved quality of packaging. In addition, the Government gets more revenues and consumers are assured of quality, availability and variety.

“African countries are basically service-based so it’s important that modern trade develops,” he said. “For instance, retail businesses anchor modern malls. Wherever Nakumatt is located there is improved infrastructure – parking, lights – which improves security and the supermarkets attract crowds that are beneficial to other businesses in the same area.”