National brands in hard discounters: market expansion and bargaining power effects

Abstract

In this paper, we analyse the strategic role of the recent introduction of national brand (NB) products by hard discounters (HDs) in the French food retailing market and its impact both at the retail and manufacturer levels. We use a structural econometric model of vertical relationships and consider the competition between mainstream retailers (MSRs) and HDs, and between NBs and private labels (PLs). We apply this model to the French dairy dessert market, which is characterised by a high penetration of PLs and a high concentration at the manufacturer and retail levels. Using a counterfactual analysis, we show that the introduction of NBs by HDs clearly increases hard discounters’ profits. Consumers benefit from this strategy. Moreover, we find an increase in the profit of manufacturers of NBs but at the expense of MSRs. We also show that the introduction of NBs by HDs does not only act as a means to attract different consumer groups and extend their market share through a variety effect. It also serves to improve their bargaining position with respect to their PL providers.

Brand strategies: Enhancing manufacturers' bargaining power in grocery retail through cross‐category complementarities

“…Tough bargaining and the distribution of bargaining power between grocery retailer and manufacturer are widely observed and highlight the importance of the management of retailer–manufacturer relations for the success in grocery retail 1 . From the retailer side, typical strategies to generate bargaining power include the establishing of buyer groups and retail alliances (Caprice & Rey, 2015), or the right placement of brands, for instance, competitive private labels or national brands in discounters that may improve retailers' threat points in negotiations (Bonnet et al, 2022). On the other side, manufacturers deploy strategic measures to enhance their brand performance (e.g., Hyvoenen et al, 2010).…”

“…Still, given their models' complexity and necessity to fully account for all supermarkets products, it is likely to underestimate the complementarity if the full product range is not available. Furthermore, Bonnet et al (2018) or Richards et al (2017) provide further evidence on the relevance of externalities and their impact (with Richards et al, 2017, even analyzing local specialties) but do not capture the overall shopping basket, such that there may be an underestimation of the total size of the complementarity.…”