1. Trends in Retail Competition: Private Labels, Brands and Competition Policy A Symposium on the Role of Private Labels in Competition between Retailers and between Suppliers The Institute of European and Comparative Law in conjunction with the Centre for Competition Law and Policy Oxford, 9 June 2005 Sponsored by Bristows CCLP (S) 04/05 (I)

2. OxfordInstitute of Retail Management Private Label Their Role for Retailers & Their Impact Upon Competition Part I

3. OxfordInstitute of Retail Management Structure of Presentation 1.The Structure of Grocery Retailing 2.The Integration of Grocery Retailing 3.The Role of Private Label 4.How Private Label is Developed 5.The Impact Upon Competition

4. OxfordInstitute of Retail Management The Retail Revolution The Nature of Change 1.The Growth of Chains 2.Evolution of Large Formats 3.Dedicated Distribution Systems 4.Retail Chains as Retail Brands

5. OxfordInstitute of Retail Management The Retail Revolution Consequences of the Nature of Change 1.Growth of Chains 2.Large Formats 3.Integrated & Dedicated Distribution 4.Retail Brands  Increased buying power  Focus on price as competitive weapon  Decline in number of small stores  Shift to Out of Town  Exclusive Sites  The Application of I.T.  Control of Retail Stores  Speed & Frequency of Replenishment  Decline of Wholesaling  Differentiation by Format & Location  Private Label  Loyalty Programmes

6. OxfordInstitute of Retail Management Retail Concentration Market Concentration 2002: The Top Five Retailers CountryMarket ShareHHI Netherlands952394 Sweden952990 Austria932211 Denmark842502 Norway842500 Switzerland842535 France831619 Finland832529 UK791355 Germany761216 Belgium721128 Portugal54671 Spain51462 Greece45509 Italy31285 Median831619

7. OxfordInstitute of Retail Management Retailer Scope -The Virtuous Circle Asset Investment Supply Chain Dominance Private Label Fresh/chilled Differentiation Gross Margins Growth Price Competition Efficiency

8. OxfordInstitute of Retail Management Integration - Up-stream H.Q. CENTRALISED BUYING SUPPLY CONTRACTS WITH PRODUCERS SCANNINGSCANNING DAILY DELIVERY INTEGRATED STOCK CONTOL INTEGRATED I N F O R M A T I O N I N T E G R A T I O N

9. OxfordInstitute of Retail Management Consequences of Integration Ref. Private Label 1.Supply Chains Exclusive to Individual Retailers  Collapse of Wholesaling 2.Direct (and Potentially Exclusive) Contracts with Producers  Farmers  Manufacturers

10. OxfordInstitute of Retail Management The Model is Changing Stage 1 - The Classic Structure of Distribution Consumers (Shop in several stores) Stores (Can purchase from different wholesalers) Wholesalers Suppliers (Supply all wholesalers)

11. OxfordInstitute of Retail Management The Model is Changing Stage 2 - The Erosion of Horizontal Competition Consumers (Shop in one stores) Stores (Supplied by chain RDC) Distribution Centres Suppliers Branded Suppliers try to supply all chains. Chains seek exclusivity from P/L Suppliers TESCOASDASAINSBURY

12. OxfordInstitute of Retail Management The Model is Changing Stage 3 - The Emergence of Vertical Silos Consumers (Shop in one stores) Stores (Supplied by chain RDC) Distribution Centres Suppliers Branded Suppliers supply some chains. P/L Suppliers TESCOASDA SAINSBURY SAINSBURY

13. OxfordInstitute of Retail Management The Role of Private Label for Retailers 1.Differentiation – Reduces Price Competition 2.Customer Loyalty 3.Higher Margins 4.Consumer Value

14. OxfordInstitute of Retail Management Cost Differences: Brands vs. Private Label Suppliers Cost Saving10.6% Lower Supplier Margin18.8% Retailers Purchase Saving 29.4% Lower Retail Price 19.3% Higher Retail Margin 10.1% Source: UK Competition Commission

15. OxfordInstitute of Retail Management Differentiation Per Cent Sales in Private Label Products Safeway Tesco Sainsbury Asda Somerfield National Av. UK 47 51 54 36 45 Sources:Nielsen/ Competition Commission Aldi Rewe Tenglemann Metro Markant Germany 90 22 19 14 6 33 Nielsen Carrefour Auchan Intermarche LeClerc Casino France 20 16 29 18 23 22 Secodip

16. OxfordInstitute of Retail Management How Private Label is Developed  Product and Packaging Specification is Developed Jointly with Potential Supplier  Suppliers Asked to Tender for the Cost of Supply  Product Responsibility (Adherence to Spec, Safety etc) Passed up the Chain e.g. Sudan Scare  Concept of Vendor Assurance Contrasts with Concept of Brand Ownership

17. OxfordInstitute of Retail Management How Private Label is Developed In Store  Benchmark the Brand Leader  Look-a-likes  Category Segmentation  Space Allocation  Selective Listing of Brand Leader SKU’s

18. OxfordInstitute of Retail Management Cloning I £0.99£1.28

19. OxfordInstitute of Retail Management Cloning II £1.59£1.81