Tug of war over labels as brands fight for supermarket shelves

The war of words between suppliers and supermarkets over Sh40 billion debt has seen some brands pullout of shelves of some supermarkets.

Suppliers say the debt is straining their cash flows, pushing some to bankruptcy.

Local retailers who supply fresh produce and processed products also say they are not willing to hold it anymore?

Since Nakumatt’s launch of its Blue label in 2013, manufacturers have become apprehensive that the new packaging has been eating into their market share, eroding their brand premiums. They say they are getting unfair treatment from retailers.

In a memo seen by the Financial Standard, members of the Kenya Manufacturers Association have threatened to pull out of Nakumatt deal, a situation that is becoming apparent when you walk into their outlets.

Nakumatt Chief Marketing Officer Mr Andrew Dixon in a past interview said they continue to enjoy a cordial relationship with our suppliers’ with an almost round the clock engagement commitment.

“We have actively engaged the suppliers seeking their support in the current circumstances. We are glad that many of them are supportive as they appreciate the challenges at hand and our commitment to address their plight at our earliest opportunity,” he said.

“The retail outlets who also own private brands seem to have a competitive edge over the manufacturers’ brands in various fronts since they control what products they stock, where they are displayed on the shelves and which brands they feature in their local magazines or circulars,” a University of Nairobi Research on Nakumatt’s Blue Label reads.

The research titled, Transferability of Brand Equity To The Blue Label Products; A Case Study Of Nakumatt Supermarket In Narobi Kenya says that the retail stores also charge manufacturers brands slotting fees - payments demanded by retailers before they accept new products and find slots for them on the supermarket shelves.

“Additionally, the retail store gives its private brands better display, visibility and shelf-space, compared to the manufacturer’s brands, yet these brands are competing for the same share of the wallet,” the analysis reads.

Eric Munywoki, an analyst at Sterling Capital says manufacturers want to know the units they sell, to expand their footprint and to track the consumer preferences. They also want to maintain brand premium that gets lost once a brand is repackaged. “Brand premium makes a price difference that is why some suppliers feel they are getting less money for the same brand, just because it is repackaged,” Mr Munywoki said.

Manufacturer’s stock

Mr Munywoki however says unlike selling a brand, the personal label provides instant cash to suppliers since the retailer has to buy the product rather than hold the manufacturer’s stock for up to 180 days.

Uchumi supermarkets is also planning to roll out 200 franchises across the country and launching a private label, the Red Label targeting the ‘Kadogo’ economy, the low end market, which Uchumi believes will propel its revenues.

The Red Label, unlike Nakumatt’s Blue Label, will not be placed in premier outlets but channeled through the Uchumi Express shops and retail mini-shops.

Complimentary role

“We have already rolled out for rice and ndengu but our line will be restricted so that we do not compete with our suppliers but compliment them,” Uchumi Chief Executive Officer Dr Julius Kipng’etch told Financial Standard.

The strategy may work for Uchumi since the genesis of private brands in the fast moving consumer category were introduced in our local market through the “kadogo” economy, where retailers repackaged products in smaller packages for resale to cater for the needs of the low income consumers who could not afford the branded products.

“This included but was not limited to repackaging products like sugar and cooking fat,” the research states.

When Nakumatt launched its range of products, it boasted that the Blue Label would directly support industrialisation efforts, while providing a lifeline for local manufacturers.

This was to put the firm at a vantage point, allowing it to reach out to small and large manufacturers.