Why “PB” store brand products are cheap and getting cheaper

Over the past few years, supermarkets like Aeon and Ito-Yokado (and convenience stores like 7-11) have placed ever greater numbers of “private-branded” products on their shelves. Americans will be more familiar with the term “store brand” as symbolized by the suspiciously labeled cereals often with off-putting imitations of the Trix rabbit. In Japan they are simply known as “PB” (ピービー or プライベートブランド another example of marketing lingo making its way into everyday Japanese). According to Wikipedia, reforms of the supply chain behind private brands (moving production from smaller manufacturers to more sophisticated larger firms) in the middle of this decade has led to a “boom” of higher quality private-branded items starting around 2006. In this recession, the PB goods are reportedly boosting their market shares as Japanese people give up on traditional brands.

 02_px250A light-hearted economic piece from Tokyo Walker c/o Yahoo News Japan notes that some PB products, specifically those from Aeon’s “Best Price by Top Value” (what a mouthful!), are getting even cheaper than before. For example, they have started to offer “tissue refills” aka tissues without any cardboard boxes or extra packaging.  Other no-frills products include laundry detergent with no plastic spoon and instant ramen with the powder already mixed in instead of coming in separate plastic pouches.

In Japan, the private-branded stuff tends to be of shockingly high quality to the point that there is little reason to pay extra for the fancy packaging of brand names. I haven’t lived in the US for about three years now, but I grew up calling store-brand food the “third world” version (the poor families drank “third world soda” and so on). However, that may be changing – A blog post at FT.com seems to show that the US is moving closer to the Japanese model, or at least Japan-owned 7-Eleven hopes so: 

Interestingly, Jeff Schenck, the head of franchising for 7-Eleven in the US says [consumption of store brand goods] is more driven by distribution patterns. Big consumer goods companies such as Procter and Gamble have a greater influence over supermarket supply chains in the US than in Europe.

They are often allowed to stock the shelves in supermarkets, in return for incentive payments (known as slotting fees) to retailers, and to control the way products are displayed.

Mr Schenk said 7-Eleven’s steady development of its own supply chain was one reason why it was now confident in the potential of 7-Select products, such as its own line of potato crisps. “We call it taking our stores back,” he said.

As well as rolling out more private label goods, 7-Eleven is developing a new franchising model, which involves persuading owners of existng corner stores to convert to the brand in return for giving 7-11 a share of the revenues.

This is a less capital intensive model than its traditional practice of acquiring leases or building stores itself, before getting local franchisees to run them.

(Photo courtesy Nikkei BP)


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