Question

Freshmax, the country’s leading grocery retail chain, stocks many fast moving consumer goods (fmcg) brands marketed by New Zealand and Australian manufacturers as well as offering their own private label range of foods under the Freshies brand. The Freshies brand offers good value and cheaper prices. Soon, Freshmax will add the Simply Perfect brand range, another private label range, designed to cater for the growing demand for organic and natural foods. The growth in retailer-owned private labels or ‘house-brands’ that compete alongside manufacturer brands is interesting as those private label brands may hold up to 20% of overall retail sales and are often in the top three brands of 70% of supermarket product categories. Manufacturer brands are often required to provide a substantial marketing communication programme in order to retain their shelf space. That is to say, the so-called national brands must promote their brands, for example, through mainstream media advertising, cooperative advertising with the retailer through store mailers, offering temporary price reductions to the retailer and developing sales promotions including in-store displays on aisle ends. Private label brands, which are often produced for the retailer by the same manufacturers against which the private labels then compete, tend to receive little promotional support. Typically, private label brands are positioned alongside national brands on the shelves but are sold at substantially lower prices.

Interestingly, manufacturers may feel forced to enter into an agreement to produce products for a large retailer to be sold under the retailers own private label brand. The choice may be that if one manufacturer does not provide the product, its main competitors may very well do so, potentially jeopardising their own long term access to sales via the retailer. Even with some cannibalisation of a national brands’ sales by a private label brand which is produced by the affected manufacturer, the additional sales may make the combination of the two profitable. In that case, it may make economic sense for a manufacturer to produce a retailer’s private label brand to compete against its own brands. Since private label ranges were first introduced there have been a number of developments. Some stores have as many as three private label brands; one very low price, one mid-tier brand that is as good as or slightly better than established national brands, and a premium label that may include gourmet products, and top of the range quality, including organic foods. If you’ve priced organic foods, you know they are more expensive compared to conventional/nonorganic eggs. In the non-organic/conventional egg section at Freshmax, a dozen regular Chooky eggs at Freshmax costs consumers $4.70, and Freshies eggs sell for $3.99 per dozen. Two organic egg brands, Naturalegg and Egganic sell for $8.99 per dozen and $7.49 per dozen respectively. The new Simply Perfect organic eggs are expected to be priced at $7.00 per dozen. Studies have shown that overall, the average price of organic foods is 85% more than conventional foods. However, if prices get too high, consumers will not purchase the organic options. An important factor in retailing organic food is the cost of organic farming. Organic costs much more than conventional farming, and those higher costs are passed on to consumers. Suppose that a conventional egg farmer’s average fixed costs per year for conventionally farmed eggs are $1 million per year, but an organic egg farmer’s fixed costs are three times that amount. The organic farmer’s variable costs of $1.80 per dozen are twice as much as a conventional farmer’s variable costs. In responding to the launch of the new Simply Perfect range, Naturalegg and Egganic will potentially need to reconsider their pricing, and the sales volumes required to break even. One way of responding to the launch might be to review what proportion of sales are offered to retailers for household consumption. Retailers like Freshmax are only one type of channel or outlet for the producers of organic foods such as eggs. Organic farmers have the opportunity to use multichannel distribution networks, so that their produce may be consumed by different consumer and business customer segments. Egg producing corporations like EggsRus, PremiumEggs and Org Eggs sell their eggs to the food manufacturing industry for inclusion in sponge cakes, pancakes, pavlovas, gourmet mayonnaise, and in body building protein supplements. They also sell eggs to caterers for inclusion in food at conference venues, hotels and restaurants, and to businesses that provide foods to hospitals and prisons. Customers may also be overseas businesses as the fake statistics in the table below indicates.

Question:

Complete a SWOT for Freshmax (the grocery retail chain) market.

Strengths (internal)

Weaknesses (internal)

Opportunities (external)

Threats (external)??

Answer 1

ANS- The SWOT for Freshmax (the grocery retail chain) market is given below-

Strengths-

• Freshmax is the country's leading grocery retail chain.
• The private label range of foods under the Freshies brand offers good value and cheaper prices.
• Addition of the private label range namely Simply Perfect Brand will help to cater the needs of the growing demand of organic and natural foods.

Weakness-

• If the cost of organic food rises then people would not buy the products and thus Freshmax would have to suffer substantial loss because of including the Simply Perfect Brand range of products.

Opportunities-

• The retailer owned private labels brand or the house brands hold up to 20% of retail sales and are often in the top three brands of 70% supermarket product categories. So Freshmax could include more products from the manufactures to be sold under private label brand so as increase it sales and moreover if one manufacturer does not give the product, there are various other manufacturers who will give products to sell under private label.

Threat-

• Competition from the manufacturers brand with their own private label brand.