Private Label International - Fall 2003

Dm Builds World of Private Brands

BY KARSTEN KNOTHE

Dm stores promote the alverde line of all-natural personal care products and P2 cosmetics with colorful brochures offered at point-of-sale displays.

DM-drogeriemarkt is developing a diverse group of private label lines with distinctive packaging graphics not tied to the leading manufacturer brands.

Drugstore chains are a fast-growing retail channel-thanks in great part to their extensive and competitively priced private label ranges. Dm-drogeriemarkt, the second largest such chain in Germany, is on the forefront of this development. Its PL brands emerge as brands in their own right in their respective categories.

Drugmarkets Prosper

Are all consumers are a lazy bunch who just want their shopping get done and over with as quickly as possible?

Not so in Germany, it seems. Here, consumers are more than happy to forego the convenience of one-stop shopping at large supermarkets. Instead, in their hunt for the best deal on offer, they pick and mix their weekly shopping from a number of different outlet types.

The never-ending rise of discounters is one example of these shopping patterns.

Another is the development of self-service drugstore chains, commonly called drogeriemarkt-meaning drugmarkets. For several years, leading drugmarket chains have enjoyed healthy growth in the upper single digits or even in the double digits, whilst overall retail sales stagnated.

The leading drugmarket chain clearly is Anton Schlecker with a turnover of some EUR5.3 billion in 2002. Other important players include Dm-drogeriemarkt (EUR1.9 billion), Ihr Platz and Rossmann (some EUR1 billion each).

Retailing in Germany, like in most other countries, is going through a process of growing concentration. But the main drugmarket chains such as Schlecker, Dm-drogeriemarkt or Rossmann are not part of larger organisations, but rather represent leading independent retailers.. Thus in the top 30 of German grocery retailers compiled by Lebensmittelzeitung, Schlecker ranks 10th, Dm-drogeriemarkt ranks 16th, Ihr Platz ranks 20th and Rossmann ranks 23rd.

The development of private label ranges has become increasingly important for all drugmarket operators in recent years. Today, consumers can choose a private label alternative for almost every common manufacturer-branded product.

Given the large size, it would be an obvious choice to have a closer look at Schlecker's PL range. However, Schlecker pursues a very simple PL strategy: almost uniquely for the German market, the PL brand for its entire range is derived from the retail brand: AS (short for Anton Schlecker). In product design, AS products tend to be very reminiscent of leading manufacturer brands, whilst they are placed next to them on the shelves, offering huge discounts compared to the price of similar products by the market leaders.

Dm's Distinct PL Brands

From a marketing point of view, there is a lot of diversity in the PL range of Dm-drogeriemarkt, the second largest drugmarket chain. Dm-drogeriemarkt is trying to build a world of PL brands which are separate from its retail fascia brand, although the dm logo is also printed on its PL products. Their packaging designs are not necessarily reminiscent of leading products, although there are examples where similarities are more than striking. But in other cases Dm brands follow design concepts which are completely separate from the leading manufacturer brands.

Dm-drogeriemarkt was founded in 1973. It is still owned by its founder and his business partner. In 2002, it had some 617 outlets in Germany - 52 more than in 2001. This is a 9.2% increase in the number of outlets - at the same time its German turnover increased by 12% to EUR1.8 billion. Hence, turnover increases are not just due to expansion, but were also generated in existing outlets. Its market penetration is not equally strong across all Germany, focused to Southern and Western Germany.

Dm-drogeriemarkt's PL range is also available internationally as it has 389 outlets in Austria, 37 in Northern Italy, 89 in the Czech Republic, 36 in Slovakia, 43 in Slovenia, 132 in Hungary and 46 in Croatia. Overall, Dm's turnover increased by 11.7% to EUR2.6 billion last year.

Dm-drogeriemarkt has more than 10 own-brand ranges, which include a total of more than 1,000 products accounting for some 20% of its sales.

Just five years ago, Dm had just 100 PL products accounting for some 5% of its sales.

Although both figures are impressive, they also indicate some limitations as the number of products increased by the factor of 9, whilst their share in overall sales increased "only" by the factor of 4.
Branding is on a functional basis- different brand names for different product categories. Thus far, all of Dm-drogeriemarkt's PL brands are in the economy price bracket if compared to the price of similar manufacturer brands. In other words, no premium sub-brands have been introduced within respective PL category ranges.

A possible exception could be the "natural" PL brand alverde, which, of course, retails at higher prices than traditional "chemical" ranges. However, compared to similar manufacturer brands, alverde still is considerably cheaper, and there is no alverde premium sub-range, either.

Dm's Best-Known Brand

Sundance is possibly one of Dm's best-known brands, as suncare products in general are a category with a particularly high private label penetration. Price is an important reason: A 250 ml bottle of SPF 12 sun-milk by a branded manufacturer such as Nivea costs as much as EUR5.95, whilst a 200ml bottle of Sundance SPF12 sun milk costs just EUR1.95 -equivalent to a discount of more than 50% on the unit price per litre.

Apart from their low prices, PL suncare ranges also enjoy a good reputation with regard to quality. There were many press reports suggesting that PL sun care products do match the quality of branded products. Thus Sundance have received a number of the coveted "Very Good" and "Good" certificates during quality controls carried out by respectable consumer watchdog magazines Stiftung Warentest and Oekotest.

Sundance was first introduced in 1996, and currently consists of some 60 products. Although the colour scheme of its bottles are similar to Sara Lee's delial, the packaging design follows a distinctive concept of its own.

Last year, Sundance was quick to follow the trend into the new segments of mousse-based products and oil sprays with the introduction of a sun-protection foam, an after-sun foam and an oil spray. This year, two new Sundance additions were rolled out in April: a sun protection milk and a after-sun balsam for children.

Another range following a unique packaging design with no obvious reference to any branded product is Das Gesunde Plus (the healthy plus) consisting of dietary supplements, tea and some dietetic healthfood products such as energy bars.

Product prices can be very low: For example 40 Vitamin C 300mg Depot tablets within SmithKline Beecham's Abtei range cost EUR4.45, whilst the Das Gesunde Plus equivalent costs EUR2.45.
Line extensions in 2003 included three new snack bars based on whey (in three flavours: cappuccino, red berry and vanilla) as well as two new energy bars (banana and pear yoghurt flavours). Another addition were lollies based on glucose, targeted at school children as an energy booster.

Babycare is a particularly sensitive area for PL manufacturers, as many parents rate confidence in established brands higher than price considerations. Nevertheless, there seems to be a great deal of trust in Dm's Babylove range, not least on the basis of 6 "Very Good" and 2 "Good" ratings in quality tests by Stiftung Warentest and Oekotest.

For nappies, Babylove is the best-selling brand in its outlets according to Dm. This is not surprisingly if one compares prices: a 52 pack of Babylove is EUR8.45, compared to EUR9.95 for a 42 pack of Pampers. This is a unit price of EUR0.24 compared to EUR0.16.

At the beginning of the year, Dm carried out a re-launch of the nappy range. New features includes improved absorbency, hypo-allergen skin friendliness, new fitting forms and new variable closing systems for easier use. Furthermore, the range was extended by the new XXL size for babies weighing more than 16kg.

One of the most distinctive PL ranges is alverde, whose main selling point is its naturalness rather than just its low price. Initially a facial care and cosmetics range, it was extended by body care products in December 2002 and now consists of 40 different products.

They do not contain synthetic fragrances nor conservation agents and no animal-derived ingredients except bee's wax.

New products includes body lotions and bath and shower products. Products of the newly launched body care varieties were introduced in three innovative fragrances (Wild Rose & Sanddorn, Ocean Algae & Citrus, Orange Blossom & Ginger), whilst oil products are based on sesame oil.

Balea is Dm's body care range consisting of a number of sub-brands including Balea Hair, Balea Face and Balea Young Face (facial care), Balea Vital (mature skin care), Balea Bath, Balea Body, Balea Med (soap-free products), Balea Fuss (foot care), and Balea Men.

Apart from the Balea name, which is not worlds away from Nivea, the packaging design of some (but not all) of these products can still be very similar to branded equivalents (also the reference point is not always Nivea).

However, some moves are being made to give Balea products a stronger own identity-for example, with the greater use of photos on the packaging.

As with all the other categories, the price differences beg the question why anyone still bothers to buy branded products. Balea shampoos cost EUR0.75 for a 300 ml bottle, whilst 200ml and 250 ml bottles of branded products can cost more than EUR2.00. A 50 ml tub of Balea night cream (very similar in design to Nivea Visage) costs EUR2.45 compared to EUR4.45 for Nivea, or Balea shower gels are available at EUR0.55 for 300 ml, compared to EUR1.25 for a 250 ml bottle of Palmolive.

It is worth noting that products such as Balea shower gels or shampoos are not just basic-fragrance and neutral varieties, but also come in interesting fragrances.

The hair care range saw the addition of three new conditioners this spring: Grapefruit & Hibiscus hair for oily roots and dry ends, Aloe Vera & Algae Extract for dry and broken hair and Cocos & Milchprotein (milk protein) for coloured hair.

Also, five new styling products were launched in the last few months. These include Balea Forming Water, Balea Spray Gel, Balea Forming Cream, Balea Hair Wax and Balea Shine Gel Wax.
Another example of innovative fragrances are three new body lotions currently available as limited editions (Milk & Honey, Cocos and Waterlily).

Denk Mit is a comprehensive range of some 80 household care products including textile care, dishwashing products, toilet and bath care products and surface care products. In niche areas such as fabric fresheners, Denk Mit is the only competing brand to Procter & Gamble's Febreze. However, Febreze costs EUR3.55 for a 500 ml bottle, whilst Denk Mit costs EUR1.25 for a 500 ml bottle.
General trends in the laundry care markets include laundry detergents, which are more effective at lower temperatures and offer better stain-removing capabilities and greater color protection.

Dm followed these trends with the launch of improved formulas for its Denk Mit laundry detergents in January: the universal detergent was given a new kraftformel, (power formula) whilst the color washing detergent was given a new color protection system.