The outlook for the Iranian retail industry in post-covid

The retail industry has changed by consumer buying patterns due to the Corona crisis. One of the most important changes has been the decrease in customer loyalty to some brands in the market, including national and international luxury brands, and at the same time the increase in the desire to buy proprietary brands (store brands).

Proprietary brands(store brand) are traditionally brands that are produced and packaged by manufacturers under contract or affiliated with a retail company and are offered under the brand of that retail store. The focus of these brands is mainly on the price component. There are different ways to present products with a specific brand. The first method is that the manufacturer presents the product with certain specifications and standard packaging, but under the brand and label of the retailer.

In the second method, the manufacturer presents the product with certain specifications and under the retail brand; The difference is that the retailer has the right to choose the type of packaging. In fact, the manufacturer designs and executes the packaging of the desired product according to the opinion of the retailer. In the third method, the retailer provides its desired specifications to the manufacturer and the manufacturer produces the product according to those specifications. The product is then delivered in the standard packaging of the manufacturer or according to the packaging intended by the retailer. The most important thing in this method is saving resources, time and investment for branding.

Prior to the Corona outbreak, the popularity of proprietary brands in the world was largely due to the more economical price of such items. According to Nielsen Institute studies over the last two decades, the production and use of proprietary brands in terms of financial value in the entire retail sector, the number of items offered under the proprietary brand in chain stores and their share in total items in the household shopping cart from chain stores It has been increasing significantly. The spread of the Corona and its economic consequences have also accelerated this process. The source of the increasing desire of customers to buy proprietary brands in times of Corona crisis can be traced to factors such as lack of access to certain brands (national and international), consumer savings in costs and lower prices of these products. The most important items offered by proprietary brands in the world are mainly in the category of consumer goods in circulation, including products such as milk, cheese, fresh eggs, food, packaged meat, bread and sweets, medicines and food supplements, cellulose products, pet food and Ready-to-eat foods and seafood are such that the Corona crisis can be seen as an opportunity to develop dedicated brands in the retail industry, especially in the field of consumer goods.

In Iran, due to the increasing sensitivity of consumers to the price of goods in recent years, the tendency to buy specific brands (stores) is increasing. However, despite the opportunities in the development of these brands in the country’s retail industry during the Corona outbreak, there are obstacles to its realization. The present report, published by the Institute for Business Studies and Research, seeks to answer the questions of how the trend of acceptance of exclusive brands in the retail industry of the world and Iran has been and whether this trend will continue after the end of Corona globalization or not?

Advantages and disadvantages of proprietary brands in retail

Offering proprietary brands to retailers is cheaper and more profitable than offering the brands of other companies. Retailers typically select manufacturers who have excess production capacity and are willing to produce products for them at the lowest possible cost. On the other hand, the costs of proprietary brand development, including R&D costs, advertising, sales promotion and distribution channels of these proprietary brands are also low, and as a result, retailers can take advantage of low costs and margins. Acceptable profits, both to satisfy consumers and to make reasonable profits while promoting their brand. In addition, offering exclusive brands is a way for retailers to differentiate themselves from their competitors.

Of course, retailers need to differentiate their own brand from unbranded products in the market. These products, their anonymous products, come in standard, low-cost packaging that are, in fact, copies of well-known and official products. Some marketing experts believe that 50% of proprietary brands have problems because many consumers still prefer well-known brands to proprietary brands. In addition, it should be noted that the production and supply of some product groups do not have the necessary attractiveness and economic efficiency for the owners of specific brands.

Status of Retail Brands in Iran and the Impact of Corona outbreak on It

Despite some valuable measures taken by the top chain stores in Iran (especially those that are already active in the field of production or later entered the field of production), the share of store brands in the modern retail market in Iran is still less than 1%. The supply of items of proprietary brands in Iran is limited and sometimes to stable and continuous repair and only to items such as cellulose products (including paper napkins), canned food (tomato paste, jam, etc.), rice, etc. that are related to the brand are available in some chain stores. Of course, the private chain stores of some companies, such as Shirin Asal, Golrang, Mihan, etc., which produce and supply part of their production items with their company brands, are noteworthy in this category, but the point is that these goods are only for The supply is not produced in their own store, but is also available in other chain stores. While a proprietary brand is a product that is produced only for sale in a branch of a specific store and with the brand of the same store. Other stores that offer exclusive branding include Hyperstar. It should be noted that the penetration rate of modern retail in Iran is about 10 to 15 percent, which is much lower than the value of this index in some developed countries (at least 50 percent). Among the most important challenges in the development of proprietary brands in Iran are the lack of price competition between proprietary branded goods and branded goods in the market (lack of significant price difference), economic inefficiency of ordering the production of some items for retailers in the form of proprietary brands and unprofitable supply, consumers’ distrust in consuming some store brands and consumers not taking risk to try them due to the health and safety of the products offered (mainly food), the impossibility of evaluating and comparing the quality of goods by consumers to buy branded goods in comparison to similar products with well-known brands. In addition, interviews and studies show that the popularity of consumers to buy proprietary brands in Iranian chain stores is not very significant and therefore retailers are not very willing to produce, order and offer proprietary brands in their stores. Also due to the uncertainties of the Corona outbreak and its ambiguous outlook, it is not possible for retailers to plan accurately and strategically for this issue.

Suggestions for manufacturers

Based on existing studies and experiences, the following suggestions can be made for manufacturers.

A) Entering the market of exclusive brands necessary for the new world: Manufacturers of the country should consider entering the market of proprietary brands as one of the potentials for expanding their business. Because especially in the Corona era, proprietary brands have become more attractive to consumers.

B) Establishing long-term bilateral relations and interaction with retailers: Manufacturers of proprietary brand products must establish continuous and long-term relationships with retailers. The best way to build these relationships and mutual benefits is to develop strategies to complement the product groups offered in retail with proprietary brands.

C) Collaborate with retailers to improve their proprietary brands: Manufacturers can help develop their own brands in the retail sector by offering suggestions to their customers (retailers) to improve their own brands. In addition, making significant quality and price propositions requires careful pricing so that customers understand that higher prices mean higher quality.

Suggestions for retailers

During the Corona outbreak, price and health are the most important criteria for consumers in choosing a product. Therefore, retailers should pay attention to the reasonable price of the product (and at the same time pay attention to the appropriate quality) in adopting strategies for supplying goods with a proprietary brand and in their cooperation with manufacturers, so that customers, even in the post-crown era, choose their proprietary brands to buy. And remain faithful to them. Otherwise, the customer will change their behavior after Corona to buy the usual brands. In this regard, based on the results of scientific studies in this field, retailers should consider the following key areas to determine the position and differentiation of their own brands.

A) Prioritize creativity and innovation: Retailers must continue to focus on pre-epidemic consumption trends in the development of proprietary brands, while keeping abreast of new trends in consumption patterns due to the Corona outbreak. For example, consumers’ interest in using plant-based products or healthy snacks has not changed. Meanwhile, national brands continue to innovate in this product group, but it seems that this attention has been neglected by specific brands in Iran. In addition, retailers need to consider the new needs and inclinations of consumers during the Corona and post-Corona outbreaks in order to take advantage of the opportunities created to create a competitive advantage. For example, if the virus spreads and businesses return to normal, consumers are more likely to become accustomed to living at home and looking for tips on how to celebrate holidays, birthdays, and parties at home in smaller groups. This provides a good opportunity for retailers to plan for the introduction and supply of innovative products of specific brands, taking into account the new needs of consumers and being inspired by the existing conditions.

B) Strengthening online shopping platforms for specific brands: Proprietary brands are typically not well represented online and are often lost among other areas of digital content. Retailers should take advantage of the opportunity to increase the popularity of online shopping during the epidemic and pay special attention to strengthening the online supply of their own brands. The country’s major retailers need to ensure that proprietary brand representations are optimized in digital searches. Also, if buyers have national brands in their shopping cart, proprietary brand suppliers should be able to use proprietary brands as a substitute for existing goods by providing promotional incentives.

C) Informing about the advantages of proprietary brands: Price is still the main advantage for consumers to buy proprietary brands. In this regard, the issue of price should be a distinctive attraction for customer, and large retailers and branded chains should inform their customers about this distinction in a proper way.

D) Use of new solutions to increase the attractiveness of proprietary brands: In this regard, for example, retailers can offer a variety of complementary products alongside their own branded products by offering them in a single package. In this regard, offering branded food products with appropriate and related options among vegetables, fresh protein and desserts, can be a completely new and attractive food package for buyers. Another way to attract customers to repeat the purchase of proprietary brands and try new products of these brands is to provide coupons for various goods offered by proprietary brands.

F) Identify the existing capacities in the market of proprietary brands: If the data obtained from market research confirm the existence of the necessary capacity to produce proprietary brands, the country’s manufacturers should also work closely with the country’s major retailers to enter this field as one of the new features of production and distribution. In other words, while establishing win-win relationships with retailers, manufacturers must formulate long-term relationships with retailers by formulating strategies to expand the production of product groups with proprietary brands.

In this regard, innovation and providing appropriate options to retailers to supply these products in terms of product features, price, packaging, etc. can be considered. The goal of these measures is ultimately to attract the attention and trust of consumers to buy store-specific brands, which benefits both the manufacturer and the retailer.

For example, using the store capacity of fruit and vegetable markets, especially for high-traffic consumer products such as dairy products, protein products, and… can be a good option for effective cooperation between the two sectors of production and distribution in the context of taking advantage of proprietary brands in fruit and vegetable stores. Because there is a platform for this mutual cooperation and, consequently, for the benefit of the people.