White brands: heroes or villains?

IE Focus | By Carmen Abril, Professor at IE Business School

Things are not often black or white, but rather tend to come in varying shades of gray. The world of white brands is no exception. They are no better or worse than other products, but they are certainly competitive.We are currently witnessing a controversial debate on white brands in Spain owing to the rapid growth they have enjoyed in recent months, where they have reached 38% of the sales of packaged large-consumption products.

As a result of this situation, which, on the other hand, is nothing new, many manufacturers, such as Danone, Nabisco and Kellogg´s, among others, have launched a massive advertising campaign to clarify certain concepts that consumers supposedly confuse regarding the manufacture of white brands in the hope that the message hampers their growth.

The importance of the issue and the controversy it has caused is worth taking a look at. First of all, we should start by giving this type of brand its correct name: if, by white brands, we understand undistinguished products based purely on their composition and ingredients and directly comparable with others, such as generic drugs, the name given to these products is incorrect.In most of our neighbouring countries, the correct name is “distributor brand”, since one of the main characteristics of these brands is their explicit or implicit association with a distribution group.

Thus, brands such as Hacendado, Carrefour, Auchan and Día are first of all “brands”, since they identify and differentiate for consumers and, secondly, they can be referred to as “distributor” since they try to associate their respective label with their own brands, which are sold exclusively at their establishments.

The strategic role played by these distributor brands is to generate consumer loyalty to the establishments at which they are bought and they are an important source of differentiation from competitors, as shown by the many studies carried out on the subject.

The reasons for their continuous and sustained growth in recent years have to do with economic factors, especially the concentration of distribution and globalisation; however, they are also related to changes in consumer behaviour. First of all, distributor brands offer a price differential in comparison with manufacturer brands that can vary between 30% and 60%, depending on the category of the product; this translates into an important saving for consumers. Secondly, the objective quality of many distributor brand products compare well with that of many leading brands. In a recent study in Germany, which made a technical comparison of quality levels in 50 different product categories, no difference was found between the distributed brand that was tested and leading manufacturer brands in more than half the cases.

It therefore comes as no surprise to find that distributor brands lead or are among the top three brands in categories such as fruit juices, milk, cereals and detergents, among others. The large size of the distributor brands means that they can have dedicated suppliers and, occasionally, a level of sophistication in technology and production that can be compared with that of large multinationals. Senoble in the dairy sector, McBride in the household goods sector and Icemaker Factory in Spain are examples of large businesses dedicated exclusively to manufacturing for third parties with the added offer of R&D support, because distributor brands also innovate. Which brand do Spanish consumers associate with the “environment-friendly” factor? Carrefour.

So, are consumers misinformed and do they consequently make the wrong choice? It seems obvious that they aren´t and they don´t. The fact is that consumers find products at half the price and, when they try them, they very often find no great difference with their usual brands. In times of crisis, consumers try these products more readily. What happens is that, once consumers try the distributor brands, they usually repeat the experience and when the crisis is over, a high percentage of them usually continue to consume them, as shown in the study on the evolution of these brands over the last twenty years. The reason seems obvious: if consumers repeat an experience, it is because they are satisfied.

So, what should manufacturers do? Provide consumers with an explanation on who manufactures what? Or perhaps convince consumers of the need to consume “brands”?

It would actually be logical for them to strategically reconsider whether the equation of value their brands are offering consumers is appropriate or whether it needs to be modified in view of the current economic situation. We must remember that manufacturer brands have increased their price differential considerably with regard to distributor brands in recent years. It would be fitting to ask whether this increase in the price differential is the result of relevant, differential innovation activities or whether it is simply riding the wave of a continuous launch of new products that is possibly differential but not particularly relevant and has led to the saturation of many categories and consumers.

There are indeed grounds for discussing whether distributor brands may be involved in unfair competition, especially as far as variety and the setting of prices are concerned. However, this would have to be examined in other forums. Don’t try to convince consumers that they are not doing what is right. Offer them something they think is better.

And by the way, guess which is one of the most recommended brands on social networks in Spain? Mercadona. Don´t be surprised – just ask yourself why.