The first glance at the growing impact of private labels on the upstream local food suppliers in Finland
The last twenty years has witnessed substantial changes in retailing across most European countries. Particularly, the increased prevalence of category management, the significant investment in new technology and improved logistics have enabled the supermarkets in the European countries acquired an increasing share of grocery markets. As a strategic tool, private labels (PL) has become increasingly important for European retailers to gain market share, loyalty of customers and reinforce the bargaining power toward suppliers and countervailing power against manufacturing brands. (Bonfrer and Chintagunta, 2004; Hansen et al., 2006; Groznik et. al. 2010 EU commission, 2011). The combination of recession and a retail food price spike during the last 5 years provides even more opportunity for PL growth as increasingly price-sensitive customers shift to PL alternatives.1(Volpe, 2011) According to statistics from Private Label Manufacturer Association (PLMA), the market share of PLs accounts for 17 to 48% of the groceries market in the EU in 2012. Many consumers see private label not only a trade-down but more often as another branded options. (Nielsen, 2010) In Finland, the sales of private labels have been growing significantly during the last five years. However, the total share of the sales is still lower than in the EU countries on average. PL share is commonly positively correlated to concentration levels in food retail. (Lincoln and Thomason, 2009). Table 1 presents the concentration of national grocery markets in a number of EU countries versus the market shares of PLs based on the volumes obtained from PLMA. Figure 1 displays the total market share of PLs including food and non-food in Finland calculated in value. Clearly, Finnish grocery trade is the most concentrated amongst EU members of states. Even though the market share of PLs in Finland has not reached as high level as the other European countries such as Germany and UK, the market share of PLs in food sector based on sales value, has been steadily grown from 7.6% in 2003 to 12% in 20123(See Figure 1). Given the close link between concentration levels and PL share, the expectation that PL market share in Finland is projected to increase by between 3- 5% points yearly in the coming five years. Compared to the current level of 12 percent, this entails that PL market share is set to over 20% in value in the coming 5 years. The growing importance of PLs has spawned an academic literature empirically investigating the factors that facilitates its success (Cotterill et al, 2000; Chintagunta et al, 2002; Richards et. al., 2007; USDA, 2011) different countries (Cordeiro, 2007; Kilic and Hakan, 2009). One of common consequences of high concentration and growing PLs sales is a growing imbalance of bargaining power within food supply chains, i.e. the power of supermarkets over their suppliers. In Finland, the economic and social effects of such imbalanced bargaining power on producers and processors are increasingly recognized (FCA, 2012)4, however, the empirical research related to PLs has been very limited (Delvecchoio, 2001). Amongst the limited publication related PLs, many concentrated on retailers and consumer’ welfare being (Gabrielsen and Sorgard, 2007; Perrin 2006; Uusitalo and Rökman 2004; The Economist Intelligence Unit: Industry report, 2010). However, very limited research (Suvanto et.al, 2006), stood into suppliers’ shoes.