Private label developing strategy for Saigon co.op

MBMM PROGRAM PHAN LÊ NHẬT TRƯỜNG PRIVATE LABEL DEVELOPING STRATEGY FOR SAIGON CO.OP FINAL PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT Project tutor: Dr... • To analyze the pote

MBMM PROGRAM

PHAN LÊ NHẬT TRƯỜNG

PRIVATE LABEL DEVELOPING STRATEGY

FOR SAIGON CO.OP

FINAL PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT

Project tutor: Dr ĐẶNG NGỌC ĐẠI

Ho Chi Minh City

2007

I commit this is my own study I think that this is a first project mentioning about Private Label in retailing in Master course All figures and results detail stated in this project are true

PHAN LÊ NHẬT TRƯỜNG

I would like to express my deepest gratitude to my Project Tutor, Dr Dang Ngoc Dai, for his valuable guidance, continuously advice, encouragement and constant support throughout this project His comments and suggestions which helped to do this project not only in academic but also in practice

I also would like to thank my mentor very much, Ms Tran Thi Kim Quyen – Vice General Directors in Saigon Co.op who has a lot of great ideas to advise me, it is very very helpful, logical and practical

I would like to extend my gratitude to the Vietnam – Belgium Master in Business and Marketing Management

Ho Chi Minh City, Vietnam, May 2007 Phan Lê Nhật Trường

CHAPTER I: INTRODUCTION 01

1.1 Problem statement 01

1.2 Project objectives 02

1.3 Scope and limitation 02

1.4 Research methodology 02

CHAPTER II: THEORETICAL BACKGROUND 03

2.1 Definition and concepts of PL products 03

2.2 PL trend in the world, special in the retail industry 04

2.3 Some retailers and wholesaler in Vietnam 06

2.4 Benefits from PL products 06

2.4.1 Intangible benefits 06

2.4.2 Tangible benefits 06

2.5 Saigon Co.op’s situation of PL products 07

2.5.1 Organization 07

2.5.2 Marketing activities 07

2.5.3 Planning for PL products 07

2.5.4 Policy or rules of PL developing at Saigon Co.op 07

2.5.5 Quantity of PL products that Saigon Co.op has 08

2.6 Advantages of Saigon Co.op when making PL products 08

2.6.1 A familiar Co.opMart trade-name 08

2.6.2 A large distribution 08

2.6.3 Having ISO certificate 09

2.7.1 Personnel and professinal skills 09

2.7.2 Board of Directors’ supporting 09

2.7.3 From manufacturers 09

CHAPTER III: EXTERNAL AND INTERNAL ANALYSIS 10

3.1 External analysis 10

3.1.1 Economic conditions in Vietnam 10

3.1.2 Vietnam’s population 10

3.1.3 Consumer trend in Vietnam 11

3.1.4 Market research 11

3.1.4.1 Consumers’ awareness about PL products 11

3.1.4.2 Consumers’ evaluation about PL products 12

3.1.4.3 Which categories customers frequently use 13

3.2 Internal analysis 13

3.2.1 SWOT analysis 13

3.2.1.1 Strengths 13

3.2.1.2 Weaknesses 14

3.2.1.3 Opportunities 14

3.2.1.4 Threats 14

3.2.2 PL sales in 2005 and 2006 15

3.2.2.1 Comparison GM% between PL and all categories 15

3.2.2.2 Comparison GM% between PL and specific category 15

3.2.2.3 Quantity of SKUs of PL products 16

3.2.2.4 Which categories have best GM% 16

4.1 Product strategy 17

4.1.1 Group 1 17

4.1.2 Group 2 17

4.1.3 Group 3 18

4.1.4 Group 4 18

4.1.5 Group 5 18

4.2 Producing strategy 19

4.2.1 Cooperating with foreign manufacturers to make PL products 19

4.2.2 Cooperating with domestic manufacturers 19

4.2.3 Saigon Co.op makes PL products by themselves 19

4.2.4 Cooperating with regional manufacturers 20

4.2.5 Cooperate with big manufacturers 20

4.3 Pricing strategy 20

4.3.1 Pricing strategy for Group 1 20

4.3.2 Pricing strategy for Group 2 20

4.3.3 Pricing strategy for Group 3 21

4.3.4 Pricing strategy for Group 4 21

4.3.5 Pricing strategy for Group 5 21

4.4 Distribution and displaying 21

4.5 Marketing strategy 22

4.5.1 Advertising strategy 22

4.5.2 Promotion strategy 24

4.6 Personnel strategy 25

4.7 Bonus policy 25

Figure 01: Private label is growing around the world 04

Figure 02: Private label market Share in the world 2005 05

Figure 03: Private label share in Asian Pacific 05

Figure 04: Period of GDP per capita 10

Figure 05: Retail sales value of goods and service in year 1996 – 2005 10

Figure 06: Market share between traditional markets and modern distribution 11

Figure 07: Top ten of product groups bought by consumers in 2006 13

Figure 08: GM% of PL and all categories 15

Figure 09: GM% of each category in average 15

Figure 10: Comparison GM% between PL and related categories 16

Figure 11: Number of SKUs in 2005, 2006 and end of March 2007 16

PL : Private Label

GM : Gross Margin

SKU : Stock of Keeping Unit

WTO : The World Trade Organisation

1 ACNeilsen (2006), Vietnam Private Label 2006, Malaysia

2 Ashok Ranchhod (2004), Marketing Strategies, Pearson Education Malaysia Sdn

Bhn, Malaysia

3 General Statistic Office Tinh hinh kinh te xa hoi nam 2006, http://www.gso.gov.vn

4 Ogenyi Omar (1999), Retail Marketing, Redwood Books Ltd, Great Britain

5 Philip Kotler, Gary Armstrong, John Saunders, Veronica Wong (2001), Principles of

Marketing, Third European Edition, Rotolito Lombarda, Italy

6 Statistical Office In Ho Chi Minh City (2006), Statistical Yearbook 2005, Ho Chi

Minh City

Co.opMart trade-name occurred in 1996 After eleven years, there are 21 Co.opMart supermarkets in which 14 Co.opMart supermarkets in Ho Chi Minh city and 7 Co.opMart supermarkets in other provinces So far, Co.opMart is a biggest supermarket chain in Vietnam Co.opMart is belonged to Saigon Co.op, Saigon Union

of Trading Co.operatives Everyday there are about 80,000 customers shopping at all Co.opMart supermarkets through POS Co.opMart’s customers are people from 20 to

55 years old, low or middle income Co.opMart has the loyal customer program that attractive 251,000 customers joining in which there are 89,000 customers becoming member of Co.opMart

Private Label (PL) brands were traditionally defined as generic product offering that competed with national brand Often the lower price alternative to the real thing, PL carried quality Yet, they still grew and prospered by providing consumers lower priced options for what was often a low involvement purchase decision Retailers continued to push more and more PL products into different categories of the marketplace because they represented high margins and the promise of profitability with little to no marketing effort

The key to successful marketing management for retailers is to understand the contribution and role of their proprietary or “own” brands in the long term business strategy and marketing mix of the retail store and consider both the supply side and the demand side of the equation Effective category management can enable retailers to solidify and optimize supply chain relationships Strategic brand management goes

aisle and segment within the store

The objective of this proposed project is to develop PL products for Saigon Co.op

• To analyze the potential of PL products for retailing, specially for Saigon Co.op

• To analyze PL as a tool to increase awareness Co.opMart’s image from customers

• Making difference from competitors when developing PL products

• How to develop PL products for Saigon Co.op better

The trend of PL products of the big retailers is forward increasing PL products can help retailers are different from others or can get more gross margin

This project includes five chapters in which

Chapter I: Introduction, mentioning about problem statement; project objectives;

scope and limitation, Research methodology

Chapter II: Theoretical background mentioning about definition and concepts of PL

products; to know the PL trend in the world; benefits from PL products; clearly understand situation of PL products in Saigon Co.op; advantages and disadvantages of Saigon Co.op when making PL products

Chapter III: External and internal analysis mentioning about economic conditions,

population, income per capita and consumer trend in Vietnam Presenting about market research through my survey, knowing about consumers’ awareness, evaluation about PL products SWOT analysis, some analysis about current PL products such as

PL sales, which categories have best GM%

producing, pricing, distribution and displaying, marketing, promotion, personal strategy and bonus policy

CHAPTER I: INTRODUCTION

1.1 Problem statement

Private Label (PL) products are very popular in the world From a consumer perspective, PL is more acceptable than ever PL products are important to retailers Throughout the U.S., retailers use PL products to increase business as well as to win the loyalty of their customers PL products give retailers a way to differentiate themselves from the competition

In the trend of development, almost hypermarkets, supermarkets, drug stores and discounters today offer PL products to consumers In United Kingdom, PL products now account for about 39% of products sold in supermarkets, compared to 25% in the USA Wal-Mart, for instance, has a 40% PL representation in their stores Safeway retailer has more than 2,500 PL products,

From above demonstration, we can see that foreign retailers have a lot of experience

to develop PL products Vietnamese retailers’ PL products are underdeveloped, a big pie waiting Vietnamese explorers Saigon Co.op has 111 SKUs of PL products for three categories such as Industrial Food, Houseware and Garment account for 0.21% of all SKUs Saigon Co.op’s PL products are contributing 0.68% of all sales in retailing, it

is too small for a supermarket chain as Co.opMart A big potential to develop PL products in order to bring higher GM% to Saigon Co.op From above reasons I would like to choose this project in order to develop PL products for Saigon Co.op Through this proposed project I hope Saigon Co.op can apply to develop PL products

1.2 Project objectives

The objective of this proposed project is to meet the following issues

• To analyze the potential of PL products for retailing, specially for Saigon Co.op

• To analyze PL as a tool to increase awareness Co.opMart’s image from customers

• To make difference from competitors when developing PL products

• How to develop PL products for Saigon Co.op better

1.3 Scope and limitation

This study is implemented at Saigon Co.op in Ho Chi Minh city, Vietnam This project has been taken from view point of marketing to develop PL products The marketing strategies include product strategy, manufacturing strategy, price strategy, distribution and displaying strategy, communication strategy, promotion strategy, personnel strategy

In this project I did not mention about physical distribution such as inventory, logistic, warehouse and transportation

CHAPTER II: THEORETICAL BACKGROUND

2.1 Definition and concepts of PL products

According to the Private Label Manufacturers Association, “private label” products encompass all merchandise sold under a retailer’s store brands That label can be the store’s own name or a name created exclusively by that store In some cases, a store may belong to a wholesale buying group that owns labels, which are available to the members of the group These wholesaler-owned labels are referred to as controlled labels

PL products are available in a wide range of industries from food, cosmetics to web hosting They are often positioned as lower cost alternatives to regional, national or international brands There are different kinds of PL which can be categorized

• Store brands - The retailers name is very evident on the packaging

• Store sub-brands - Products where the retailers name is low key on the packaging

• Umbrella brands - A generic brand independent from the name of the retailers’ name Umbrella brands are used in different product categories

• Individual brands - Name used in one category

• Exclusive brands - Name used in one category, but to promote “added value”

products within the category

For the consumer, PL products represent the choice and opportunity to regularly purchase quality food and non-food products at savings compared to manufacturer brands, without waiting for promotional pricing PL items consist of the same or better ingredients than the manufacturer brands because the retailer's name or symbol is on

the package, the consumer is assured that the product meets the retailer's quality standards and specifications

2.2 PL trend in the world, special in the retail industry

PL brands now account for one of every five items sold every day in U.S supermarkets, drug chains They are achieving new levels of growth every year Historically, PL products were seen as low price, low quality In recent years, however, companies have started using PL products to market higher quality items

For American consumers, PL are brands like any other brands In a nationwide study

by The Gallup Organization, 75% of consumers defined PL brands as “brands” and ascribed to them the same degree of positive product qualities and characteristics such

as guarantee of satisfaction, packaging, value, taste and performance that they attribute to national brands Sales of PL across Europe increased to record levels PL market share has surpassed 39% in United Kingdom France and Spain, where PL now accounts for one of every three products sold Kroger has more than 10,000 PL products In April 2006 the trade publication PL Buyer honored Kroger with “Retailer

of the year” due to its success in PL

Private label share of sales (%)

39 26.9

24 20.8 18.6 17.6 15.6 11.1

29.7 25.8 11.3

16.8 17.8 16.2 14.1 8

United Kingdom

Belgium Germany France Netherlands

Spain United States

Italy

2002 1997

Figure 01: Private label is growing around the world Sources: AC Nielsen; Information Resources; Canadian Imperial Bank of Commerce

Europe maintained its position as the most developed PL region with an aggregated PL share in value sales of 23% for the 17 European countries included in the study North America, which ranked second in regional PL shares, saw a significant growth of PL sales, up 7% The share of PL in this region is currently at 16%

Private label share in the world (%)

Figure 02: Private label market Share in the world 2005

0 0

2 4 6 8 10

Australia Hong Kong Japan Singapore Taiwan Thailand South

Korea Malaysia Philippines

Private label share in Asian Pacific (%)

Figure 03: Private label share in Asian Pacific

Source: ACNielsen

Growth and success in worldwide, throughout Europe, PL is winning the loyalty of more and more consumers every day PL is achieving unprecedented acceptance with shoppers

2.3 Some retailers and wholesalers in Vietnam

Maximark, BigC, Citi-Mark, Vinatex have no any PL SKUs Metro Vietnam has 7 brands for PL items such as Aro, Natura Verde, Quality, Aro, Steinbach, Buget and Watson In which Aro, Natura Verde, Quality brands for dry food and processed food; Aro, Steinbach brands for houseware; Buget brand for dynamos or electronic generators; Watson brand for houseware, electronic appliance; Four Seasons brand for cookies, bread

2.5 Benefits from PL products

2.5.1 Intangible benefits

• Enhance the retailer's image and strengthen its relationship with consumers Retailers know that consumers can buy a national brand anywhere but they can only buy their PL products their stores

• Enhance varying levels of consumer loyalty to retailer Winning the loyalty of more and more consumers every day

• Making difference retailers from competitors

• Enhance perception of overall store pricing

• PL is a means of advertising for the store

2.5.2 Tangible benefits

• More freedom and flexibility in pricing

• More control over product attributes and quality

• Higher margins or lower selling price due to cut advertising and promotional costs

• Increase profits for retailers and improve value for their customers

• Capturing and maintaining customers at our stores

2.6 Saigon Co.op’s situation of PL products

2.5.1 Organization

The current PL Division is belonged to Purchasing Department This Department has one Manager and five Deputy Managers in which one Deputy Manager is in charge of Purchasing Support Division Each another Deputy Manager is responsible one category as Exhibit 1 But Deputy Manager 4, she is in charge of the Health and Beauty Care Division and PL Division at the same time It takes her a lot of time, no more time to research or consider about PL

2.5.2 Marketing activities

Every month Saigon Co.op has one Co.opMart post with 12 pages in normal month or

16 pages in special month, for instance 30th April, National day 2nd September, New Year, Luna new year, opening new store, etc But PL products information only takes one third of a page It is a small space for PL, not attractive and impressive

No advertorials, no advertising on television, radio, newspaper, etc mentioned about Co.opMart’s PL products Inside and outside Co.opMart has no posters, panels, flyers, etc informing about PL products

2.5.3 Planning for PL products

Saigon Co.op has a plan for developing PL but it is too general, not has a detail developing plan for each category and how many items in every year

2.5.4 Policy or rules of PL developing at Saigon Co.op

When any new PL product launching on the market, after three months this product will be assessed If it had good sales, it will be continued to develop otherwise will be

stopped Addition, for Industrial Food, before launching, each product will be tested and after each six months it will be again tested by authorized organization If there are any complaints from consumers about quality of PL, Saigon Co.op will answer and solve this issue When receiving products from manufacturers, Saigon Co.op had well controlled about quality, volumes and expiry date

2.5.5 Quantity of PL products that Saigon Co.op has?

Up to now, Saigon Co.op has 111 SKUs account for 0.21% of all SKUs in which has 46

SKUs in Industrial Food category; 8 House-ware SKUs; and 57 Garment SKUs Sale contribution of PL products is too small account for 0.68% of the Co.opMart’s total sales Saigon Co.op has three PL brands, Co.opMart brand for Industrial Food and Houseware category; one store sub-brand, Lucky-Co.opMart brand for cookies; and SGC brand for Garment category

2.6 Advantages of Saigon Co.op when making PL products

2.6.1 A familiar Co.opMart trade-name

Co.opMart trade-name occurred in 1996 After eleven years, there are 21 Co.opMart supermarkets in which 14 Co.opMart supermarkets in Ho Chi Minh city and 7 in other provinces Consumers are more and more familiar to Co.opMart trade-name, Co.opMart’s turnover is increasing 28% in each year Co.opMart had became biggest retailer in Vietnam received the retail Asia Pacific Top 500 awards hosted by Retail Asia Magazine and Euromonitor in year 2004, 2005 and 2006

2.6.2 A large distribution

Everyday, there are 80,000 customers shopping at Co.opMart through point of sales I think it is a large number of customers According to Saigon Co.op’s the developing

strategy, in 2015 Saigon Co.op will have 100 nationwide Co.opMart supermarkets, it is one of advantages to develop PL products Have more distribution units lead to purchase large volume from manufacturers

2.6.3 Having ISO certificate

Co.opMart is first retailer getting ISO 9001:2000 certificate After getting ISO, Co.opMart has better control on products, service, inventory, displaying and process, getting more belief from customers

2.7 Disadvantages of Saigon Co.op when to make PL products

2.7.1 Personnel and professinal skills

Employees who work relate to PL products are not trained knowledge on PL

2.7.2 Board of Directors’ supporting

The PL developing strategy will be not successful if not receiving support from Saigon Co.op’s Board of Directors Board of Directors should recognize the importance of PL developing and benefits from PL as well It will not be developed if Saigon Co.op has

no a clear policy to develop PL products In-depth intervene to responsibility of PL division, it is not good for developing because it takes a lot of time For instance, to name a brand taking 5 or 6 months

2.7.3 From manufacturers

Many manufacturers does not recognize benefits when cooperate with retailers to produce PL products The benefit is to get large volume from retailers creating stable work for their companies Therefore, Saigon Co.op is difficult to find manufacturers to produce PL products

CHAPTER III: EXTERNAL AND INTERNAL ANALYSIS

3.1 External analysis

3.1.1 Economic conditions in Vietnam

Economic conditions deeply influence on consumption Vietnam is successful in organising the APEC Year 2006 Vietnam joining WTO and enable the U.S to approve the permanent normal trade relations with Vietnam

Vietnam’s GDP growth rate during 1990 to 2006 During 2000 to 2006, Vietnam’s GDP stably developed with 7.5% in average Income per capita is increasing, increase in income leads to increase in purchasing power

1991 1995 2000 2004 2006

GDP per catita (USD)

1991 1995 2000 2004 2006

Figure 04: Period of GDP per capita Source: General Statistics Office

Retail sales value of goods and service in Vietnam is increasing every year It is a good signal, good opportunity for the retail industry

Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Figure 05: Retail sales value of goods and service in year 1996 - 2005(Unit: VND Billion)

Source: Statistical office of Ho Chi Minh city

3.1.2 Vietnam’s population

With a population of 84.7 million people, Vietnam is attractive and potential for consuming According to Vietnam Commission for Population, Family and Children, 45.88% of Vietnam’s population are under 24 years old and 61.39% of population are

under 34 years old Meaning that Vietnam’s best consumer years old are still young, strong purchasing power

3.1.3 Consumer trend in Vietnam

Traditional trade still takes a highly nationwide percentage, 88% in year 2004 and 87%

in 2005 Explaining this situation, Hanoi capital, Da Nang province, Ho Chi Minh city and Can Tho province have a lot of department stores, hypermarkets, supermarkets and convenient stores while other provinces have no any modern trade

Market share (%)

Traditional trade Modern trade

Figure 06: Market share between traditional markets and modern distribution

in modern trade

3.1.4 Market research

3.1.4.1 Consumers’ awareness about PL products

In my market survey, 69.3% of consumers said they have not known Co.opMart’s PL products yet, it is too high; 2% of them known Co.opMart’s PL products but not bought yet; and 28.7% of them known Co.opMart’s PL products and have bought and continue

Year

buying It means that only 30.7% consumers shopping at Co.opMart to know about Co.opMart’s PL products From this result, communication is important to introduce information to consumers

3.1.4.2 Consumers’ evaluation about PL products

In this survey, 27.7% of consumers buying PL products, 92.9% of them bought Industrial Food, 7.1% bought Garment

Pricing of PL products, 32.3% of consumers said price of PL products is normal; 61.3%

of consumers satisfy price of PL products; and 6.5% of consumers absolutely satisfy Consumers believe the price of Co.opMart’s PL products Quality of PL products, 3.2%

of consumers did not satisfy; 19.4% of consumers is normal, 54.8% of consumers satisfy and 22.6% of consumers absolutely satisfy It means 77.4% of them satisfy with Co.opMart’s PL products, it is high percentage

About convenience when using products, 3.2% of consumers did not satisfy; 16.1% of consumers is normal; 51.6% of consumers satisfy and 29.0% of consumers absolutely satisfy It means 80.6% of consumers satisfy with convenience when using PL products, this percentage is high because almost current PL products are simple products, easy to use

Nowadays, consumers are more and more take care they health so they consider about hygiene food In this study, 86.2% of consumers satisfy with hygiene of PL products It

is good signal to develop industrial food, fresh food, processed food and frozen food

65.4% of consumers does not buy PL products from other retailers because Mark, Big C, Citi-Mark have no PL products

Maxi-83.9% of consumers satisfy with information on PL products, 70% of consumers satisfy with package designing In order to reduce cost, PL products should be a basic designing

Consumers consider prestige of brand when buying products 79.3% of consumers satisfy Co.opMart’s prestige, it means they believe Co.opMart trade-name

3.1.4.3 Which categories customers frequently use

From our market survey, top ten of product groups that consumers usually buy when sopping in modern trade

1 Detergent, dishwashing liquid,

air freshener

3 Milk and products from milk,

nutritious food

Figure 07: Top ten of product groups bought by consumers in 2006

Source: Saigon Co.op

3.2 Internal analysis

3.2.1 SWOT analysis

3.2.1.1 Strengths

• Distribution: many Co.opMart supermarkets, big chain in Vietnam now

• Well-known brand, image in consumers’ mind

• Many reliable and well-known suppliers, good relationship with them

• Position: low, middle income consumers, suitable to current situation in Vietnam

• Has large number of loyal consumers, more and more increase every year

• Big investment in hi-technology, IT

• Be a first supermarket chain getting ISO 9001:2000 certificates, better control in product, management

• Lower price compared to competitors

3.2.1.2 Weaknesses

• Employees who responsible for PL products are not well trained on PL

• Perception and investment from board of directors on PL is not consistent

• Communication between Co.opMart and consumers about PL is poor, lack information on PL for consumers

3.2.1.3 Opportunities

• Market share of modern trade is around 13% of nationwide retailing

• Internet users are increasing, it is an opportunity to introduce PL on website

• Many foreign manufacturers coming Saigon Co.op can cooperate with them to produce PL

• WTO integration makes shopping trend and lifestyle will be changed, so busy at work and studies, no time for purchasing, shopping In order to save their time, they will buy fresh food or ready food for they meals at supermarkets

“lowest price everyday”

• Competition will be strict, Co.opMart’s market share can be reduced