The expansion of private label foods - opportunity or threat for Hungarian food processors?

Abstract

THE AIMS OF THE PAPER

The market share of private label products is remarkable among food products in Europe and in Hungary as well. Private label products are also of major importance for retail chains, as --they make a significant contribution to consumers’ loyalty to a given chain. Facing concentrated retail market, most suppliers have weak bargaining power also regarding the private label products. For this reason, our research was aimed to explore the experiences of Hungarian food processors regarding private label products, including reasons and motivations behind participating in their production.

METHODOLOGY

Besides the review of relevant literature, our research was based on a questionnaire survey conducted in 2018. The questionnaire was sent to about four thousand food processing companies. Responses were received from 157 companies, of which 68 produced private label food products for retail chains.

MOST IMPORTANT RESULTS

Private label products are direct competitors of manufacturer brands and are therefore an indispensable factor in the Hungarian food supply chain as well. The Hungarian food processors most often mentioned capacity utilization, increase of market share, constant high-volume production and predictable turnover as advantages of private label production. The most common disadvantages were low profitability, exposure to trade and product substitutability. Among those companies which did not participate in private label food production, the reason for it was not only the lack of sufficient production capacity but also the lack of intention Besides these, the protection of their own brand was an important factor.

RECOMMENDATIONS

The impact of private label production on the manufacturing industry cannot be clearly assessed as either a positive or a negative phenomenon. It depends on the particular situation and strategy of the given company, what advantages it can take and what disadvantages it can endure in exchange. Companies are typically conscious about the extent – a certain proportion of their turnover – to which they can commit themselves to the production of private label products. Therefore, the opportunities for external intervention are limited, although supporting an ethical relationship between suppliers and retailers seems to work in most cases.