Private Label: Untapped Opportunity for GCC Retailers

 GLOBALLY, retailers' own brands, also known as private label, are growing at a faster rate than traditional consumer goods brands. In France, for instance, market share for private label has reached about 28 per cent, whilst retailers in Switzerland, the United Kingdom, and Germany are seeing even higher private label market shares of 46 per cent, 42 per cent, and 32 per cent, respectively (see Exhibit 1). This means individual retailers' private label sales worldwide are on par with or higher than some of the most successful consumer packaged goods manufacturers, including Nestlé, Procter & Gamble, and Unilever. It's no surprise, then, that most retailers in the U.S. and Europe view private label as a critical way to differentiate themselves from competitors and generate customer loyalty.
It is surprising, then, that the development of private label in the Gulf Cooperation Council is still lagging so far behind the U.S. and Europe. Today, although many grocery retailers in the GCC may offer their own private label products, few are making them part of their overall company strategy— missing out on a significant opportunity. GCC grocery retailers are overlooking the fact that the mere offering of a private label range does not guarantee its success. Instead, private label strategies need to also be effectively defined.

Certainly, the retail landscape in the GCC is evolving. Modern trade is becoming more prevalent, with regional and international chains beginning to take precedence over the independent retailers that have long dominated the landscape. In Saudi Arabia, for example, modern trade retailers captured more than 40% of the food market in 2009, and are making even greater inroads in the UAE, where they achieved a more than 70% share in 2009. The market is steadily consolidating, with the top five retailers accounting for 13% of market share in Saudi Arabia and 36% in the UAE. What's more, the GCC grocery market is growing at 11 per cent per year, from US$43 billion in 2005 to $72 billion in 2010.
"Retailers are capturing ever-larger pieces of a rapidly growing pie: The GCC grocery market is growing at 11 per cent per year, from US$43 billion in 2005 to $72 billion in 2010," said Gabriel Chahine, partner, Booz & Company.
To maintain their position in this shifting landscape, regional retailers are making moves to gain scale, gradually shifting the balance of power away from multinationals.
These efforts to gain scale position retailers for strong plays in private label, just as the need for them to make such plays becomes more urgent. Growth in retail sales still outpaces GDP growth, but it has begun to slow down, leaving retailers focusing more intently on cash flow and profitability.
Still, thus far, however, private label is not yet a critical focus for regional retailers.
"In the GCC, private label accounted for just 3% of 2009 total grocery sales. Although retailers recognise private label's potential, they have not effectively tapped into its benefits. The opportunity for GCC retailers in private label is clear," said Karl Nader, senior associate, Booz & Company.

Benefits and challenges
Yet there are only a few categories in which GCC retailers have achieved parity with their peers in the U.S. and Europe— primarily commodities such as salt, sugar, disposable paper products, and food wrap. These categories have been a good launching pad for GCC retailers' efforts in private label, because consumers are less selective about them, they require little advertising and marketing, and suppliers for these categories are widely avAir Jordan