ÚOHS: Private label brands are becoming a competitor of branded products

ÚOHS: Private label chains are becoming competitors to branded products

Shopping in a shopping center – illustrative photo.

Prague/Brno – Retail chains with their private brands are becoming a competitor of common manufacturers' brands. They have the opportunity to decide on the amount of margins and the placement on store counters. This follows from the published conclusions of the investigation of the Office for the Protection of Economic Competition (ÚOHS), which the office presented on Tuesday. The investigation dealt with the food market for five basic commodities. The Agrarian Chamber of the Czech Republic criticizes the business strategy of the chains for private brands, according to which the products of Czech producers are discriminated against. She has already contacted the ÚOHS about it.

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The office's investigation concluded that there is no violation of economic competition on the Czech market, i.e. neither abuse of a dominant position, nor any indication of possible cartel agreements. In the period from 2018, the office also examined the growth in the share of food sold under the brands of retail chains. In the Czech Republic, it is, for example, the Jarmark Kaufland brand, Clever in Billa or Pilos stores, Pikok or Argus in the Lidl chain.

The authority focused on chicken, milk, eggs, butter and flour. The authority noted a growing share of private brands in the case of fresh milk, where the ratio is now 75 percent of own brands compared to 25 percent of so-called branded products, i.e. brands of food manufacturers. For long-life milk, the ratio did not change significantly, the share of chain brands is 70 percent. The opposite is the case with butter, where these products make up only a quarter of the assortment. For flour, own brands make up 80 percent of the assortment and there are big differences in prices.

The difference in the prices of private brands and regular products was rather low or negligible for the foods that the ÚOHS investigation dealt with, there is only a significant difference in the case of flour. The authority said there is a wide variation in traders' margins for chicken. At the beginning of February this year, the average absolute margin for one kilogram of frozen whole chicken was CZK 14.81 for brands from manufacturers, and CZK 4.18 for own brands.

“In the case of the private brands of merchants, it is clear for the examined product that the amount of absolute margins in CZK represents less than half of the absolute margins achieved for the product under the manufacturer's brand at each examined time point,” the results of the investigation state. In the case of milk, the authority stated in its conclusions that private brands have significantly lower margins. “As a result, branded products may be gradually segregated from the market in the future,” he wrote.

According to the Agrarian Chamber, traders are gradually reducing orders for branded products from Czech producers in favor of private brands, which they have delivered for lowest possible price. At the same time, deliveries for their brands are conditional on the purchase of traditional products from suppliers, the chamber previously stated.

Deputy chairman of the office Kamil Nejezchleb said on Tuesday that private brands are a specific area that deserves further monitoring. He also stated that there is no dominant trader on the Czech market, but the authority described the market structure as oligopolistic. “There is clearly significant market power of retail chains and their ability to negotiate, which is why there is regulation in the form of the Significant Market Power Act,” he said.