CHAPTER ONE

1. INTRODUCTION

In the UK, for nearly two thirds of consumers, own-label is an important reason to shop in a particular store. Value for money, availability and the breadth of products on offer are the key factors attracting customers to own label products.

(Mintel Report, 2007).

Own-label brands give consumers the opportunity to find something new at a supermarket, while branded is the same whichever store a consumer buys from. Consumers are increasingly careful about their grocery shop, using forward planning and budgeting to control the amount they spend. Shopping habits have become more price-focused with rising numbers of consumers looking for the lowest prices and special offers. Retail brands do not yet command the same degree of brand loyalty that the big brand names do, even though many consumers do agree that taste and quality are often on a par.

(Mintel Report, 2008).

According to Mintel report (2006) when it comes to choosing brands over own-label products, familiarity and trust are important criteria. Europe is the most developed region of the world for own label groceries and in Europe, own label is growing faster than manufacturer’s brands. Own-label brands and ranges can span all categories, something manufacturers’ brands cannot do. This presence builds trust and strengthens own-label branding. Retailers are able to suppress prices below competitors’. The scale and flexibility of own-label production can also lead to a quick response to changing consumer needs and occasions. Consumer buying behaviour has remarkably influenced by the current credit crunch/recession. (Mintel Report, 2006)

The UK is also experiencing a large increase in immigration. In October 2005, National Statistics reported that a record 582,000 people came to live in the UK from elsewhere in the world. It also predicted that the population might increase by up to 7.2 million over the next 25 years, with more than half the rise being attributed to immigration. This will boost overall demand for all retail goods. Own label or private brand can be hard to establish and costly to stock and promote. However, they also yield higher profit margins for the reseller. And they give resellers exclusive products that cannot be bought from competitors, resulting in greater store traffic and loyalty.

(Mintel Report, 2006)

The study is an investigation in to the current issues concerned with consumer buying behaviour for branded and own-label food. Consumer buying attitude has been greatly influenced by the current credit crunch and nine out of ten consumers thinking their financial situation has got worse over the last 12 months.

(Mintel Report, 2008)

This study will investigate the factors that influence buying behaviour of consumers shopping at an ALDI store. Factors such as price, quality of products, family size, culture, particular food product, financial background, gender and different age groups of consumers will be considered. Two thirds of consumers are looking out for deals/promotions, over half only buy what they need and just under a third go to discounters or cook from scratch more often. (Mintel Report, 2008).

According to Foley (2008) ALDI is a rapidly grown discount supermarket and growing rapidly, pulling in thousands of new customers trying to save a few pounds on their weekly shop. ALDI’s big boast is that it carries a limited range i.e. just over 1000 products (and only 15 brand names) compared with the 25,000 product lines in a supermarket such as Tesco, but buys in huge numbers and gets top quality. ALDI rigorously controls costs and their stores are all basic. There is no fancy flooring or fixtures. The lighting is definitely not designed to enhance the products. “You don’t take the shop home, only the food”. It is the same product but it doesn’t cost more because of its decoration. In order to save money; over four in ten consumers buy more own-label value lines, buy own-label products more often or have switched to cheaper brands. (Foley, 2008).

Individuals aged between 15-34 shows the greatest growth in the tendency to look for the lowest prices. Between 2006 and 2011, the number of people over 65 is projected to increase by 10.1%, increasing their proportion of the population as a whole from 21.6% to 23.4%. This obviously means that the proportion of the population who are retired, on fixed incomes, and, therefore, managing on tighter budgets will increase, this should maintain interest in lower-cost, own-brand goods. Furthermore this research will also focus on quality of branded and own-label food products from a consumer perspective.

Assumptions that an own label is a ‘cheap’ version of the manufacturer brand; is not evident. The gap in quality that was evident over a decade ago has been reduced in recent years. This is supported by Chaney, 2004 who concluded that every sale places the retailers’ highly valued name at risk and this has meant that there is increasingly little difference in the quality level of own brands compared to manufacturers’ brands. (Chaney, 2004).

1.1 Aims and Objectives

1.1.1 Aims

The study aims to investigate consumer buying behaviour with regards to branded and own-label food products using ALDI as a case study.

1.1.2 Objectives

1. To carry out a literature review on consumer behaviour with regards to purchasing food and the current issues concerned with branded and own-label products.

2. By use of a case-study and questionnaire determine consumer behaviour with regards to branded and own label food products.

3. To compare and contrast the quality of own label and branded foods from a consumer perspective.

4. To analyze the primary data collected in the light of the secondary data in order to identify the key issues that influence consumer behaviour and the purchasing of own-label and branded food products.

CHAPTER TWO

2. LITERATURE REVIEW

2.1 Introduction

The aim of the literature review is to evaluate critically current data from research relevant to the aims and objectives of the project and evaluate the findings.

2.2 Evaluate critically the UK food retail market

Seth and Randall (1999) stated that supermarkets across the developed world have been a key feature of the second half of the twentieth century, and the UK supermarket in its own right has, and in a world context, has been both important and distinctive. The UK is today often seen as the world’s most innovative retail market. Presentation and range, 06 goods including adventurous new chilled food and meal solutions are product fields that the rest of the world is still discovering; this has lead to researches such as, suggesting that it is difficult to fault UK sourcing energies or innovative drive. Next there is own-label. This plays an increasingly important and developmental role in this respect. They also mentioned that supermarket’s activities have affected our lives and changed them as substantially as probably any other single influence. Supermarkets are universal, their customers drawn from all elements in society, from richest to poorest. It has been calculated that today the average British citizen will spend two years of their life or 3 percent of a normal waking life inside the doors of a supermarket.

According to Embargo (1996), the average UK household spends over £50 per week on food. Between us this amounts to 43 billion spent throughout the year. This is about 12 percent of total consumer expenditure, and a massive 85 per cent of this is spent in supermarkets. Embargo (1996) also stated that the British supermarkets are a 20th-century invention, offering the shopper unprecedented variety and convenience. From humble beginnings as a stall in Leeds or as West End Dairy, they have grown to dominate food retailing. Over 80 per cent of consumers regularly shop in supermarkets for food and basic household goods.

According to Embargo (1996), one of the most significant trends in supermarket retailing is the growth in own-label sales relative to branded products. Own-label lines, sold under the supermarket’s name, have become an effective way for the big stores to increase profits and build customer loyalty. Own-brand options are available for the majority of foods, offering consumers a wider choice of goods than ever before.

(Embargo, 1996)

According to Verdict Research (UK Food & Grocery Retailers 2009 (April, 2009), in 2008 food and grocery specialists defied wider retail market gloom, increasing their combined sales by 5.0% to £124.1bn. Grocers performed especially well with sales ahead by 5.6% their strongest growth since 2001.

Food price inflation has driven market growth. Higher energy costs, a series of crop failures and growing food demand from China pushed UK food & grocery inflation up to 6.4%. Even price-keen grocers experienced their highest rate of inflation in 17 years at 4.7%. (Verdict Research, April 2009)

According to verdict Research, April 2009) the credit crunch and subsequent recession, plus inflation have had a profound impact on consumer behaviour and the wider dynamics of grocery retailing. Price, or more specifically value, now sits firmly at the top of the consumer agenda. Customers are searching for the best prices and increasingly switching to own label or alternative brands. (Verdict Research, April 2009)

According to Verdict research i.e. UK Retail Futures 2013 (April 2009), though food & grocery will significantly outperform the wider retail market, the recession is resulting in an unprecedented change in consumer behaviour. The discounters are enjoying impressive growth, while the major grocers focus on enhancing value credentials, leading to what we believe will be long-lasting changes to the grocery market.

Verdict believes two key drivers will inhibit growth in food & grocery over the next five years. Firstly, with consumers more cautious and trading down, value growth will slow. Secondly, grocers will find it tougher to open new stores especially superstores, with space and volume growth easing as a consequence.

(Verdict Research Retail futures, April 2009)

Grocers are focusing more effort on developing their own-brand offers, either through lower prices or through the introduction of new ranges to build scale, increase choice, promote value credentials and boost margins.

(Verdict Research Retail futures, April 2009)

2.3 Evaluate critically Factors that affect UK food retail market

According to Kathawala (1989), quality may mean different things to different people, for instance, Juran defines quality as “fitness for use” while Crosby defines it as “conformance to requirements”. Their definitions imply a quality standard equated to that of satisfying the customers’ demand. Deming defines quality as “surpassing customer’s needs and expectations throughout the life of the product”. Feigenbaum indicated the ever-changing and elusive nature of quality when he defined it as “a moving target”. Kathawala (1989) mentioned, a comprehensive definition of quality would include all four aspects,

“Conformance to requirements, surpassing customers’ needs and expectations throughout the life of the product, quality is a moving target, quality is fitness for use”.

(Kathawala, 1989).

Armstrong and Kotler (2007) stated that, quality has a direct impact on product or service performance; it is closely linked to customer value and satisfaction. He claimed, in the narrowest sense, quality can be defined as “freedom from defects”. But most customer-centered companies go beyond this narrow definition. Instead, they define quality in terms of creating customer value and satisfaction. According to Armstrong and kotler, (2007) The American Society for Quality defines quality as the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs. Similarly, Siemens defines quality this way: “Quality is when our customer comes back and our products don’t”.

(Armstrong and Kotler, 2007).

According to Solomon (1996), consumer satisfaction or dissatisfaction is determined by the overall feelings, or attitude, a person has about a product after it has been purchased. Solomon (1996) also mentioned that, product quality affects customer satisfaction, which in turn, results in increased profitability among firms who provide quality products. Consequently Quality is more than a marketing buzzword. Customers want quality and value. Especially because of foreign competition, claims of product quality have become strategically crucial to maintaining a competitive advantage. Consumers use a number of cues to infer quality, including brand name, price and even their own estimates of how much money has been put into a new product’s advertising campaign.

Solomon (1996) mentioned that, one way to define quality is to establish uniform standards to which products from around the world must conform. This is the intent of the International Standards Organization. Seth and Randall (2000) stated that, the supermarkets know that they rely absolutely on their customer’s confidence in the safety of the food they buy. They work hard to deserve that confidence, and their record shows that they do.

According to Smith (1997) “Quality is about listening to our customers and delivering more than they expect. It’s about paying attention to the smallest details and getting it right first time, every time. Most important, quality is a continuous process that involves every employee. By making small improvements every day, we can make real progress and deliver increasingly higher levels of customer satisfaction. Quality allows us to measure and compare our performance against the best in class. It sets the standards for our support services and enables us to focus training and development on the most important areas”.

According to Solomon (1996), “Perception is the process by which physical sensations, such as sights, sound, and smells, are selected, organized, and interpreted. The eventual interpretation of a stimulus allows it to be assigned meaning. A perceptual map is a widely used marketing tool that evaluates the relative standing of competing brands along relevant dimensions”. (Solomon, 1996) As a result consumers have a particular perception of a particular product, they expect and know what to expect from branded. Therefore the non-branded product must as far as possible meet these perceptions if it is to compete with the branded product. A cheaper product may compensate for some variation but the own brand product must be recognisable by the consumer.

Almost every business has a trading name, from the smallest market trader to the largest multi-national corporation. Only a minority of those businesses however, have what could be classed as a ‘brand’ or a ‘brand name’. Branding is a word commonly referred to by advertisers and marketing people.

Armstrong and Kotler (2007) stated that, “a brand is a name or symbol that is commonly known to identify a company or its products and separate them from the competition”. They go on to say a well-known brand is generally regarded as one that people will recognise, often even if they do not know about the company or its products/services. These are usually the businesses name or the name of a product, although it can also include the name of a feature or style of a product. The overall ‘branding’ of a company or product can also stretch to a logo, symbol, or even design features (E.g.: Regularly used colours or layouts, such as red and white for Coca Cola.) that identify the company or its products/services. (Armstrong and Kotler, 2007).

For example: The Nike brand name is known throughout the world, people can identify the name and logo even if they have never bought any of their products. However, not only is the company name a brand, but the logo (The ‘tick’ symbol) is also a strong piece of branding in its own right. The majority of people that are aware of the company can also identify it (or its products) from this symbol alone.

The clothing and running shoe company Adidas is well known for using three stripes on its range of products. This design feature branding allows people to identify their products, even if the Adidas brand name and logo is not present.

(Armstrong and Kotler, 2007).

2.4 Strengths and weaknesses of own-label food and drink.

Table 1: Strengths and weaknesses of own-label food and drink, as stated by Mintel, (2006).

According to Business Services (2009), the main benefit of branding is that customers are much more likely to remember a business. A strong brand name and logo/image helps to keep a company image in the mind of potential customers. If a business sells products that are often bought on impulse, a customer recognising a brand could mean the difference between no-sale and a sale. Even if the customer is not aware of selling of particular product, if they trust that brand, they are likely to trust unfamiliar products. If a customer is happy with your products or services, a brand helps to build customer loyalty across the business. For example Marks and Spencer is recognised by consumers as offering a specified standard of quality they therefore assume if they buy any food product from Marks and Spencer the product will be of the same quality standard. (Business Services, 2009).

A strong brand will project an image of a large and established business to potential customers. People usually associate branding with larger businesses that have the money to spend on advertising and promotion. The creation of effective branding can make business appear to be much bigger than it really is. An image of size and establishment can be especially important when a customer wants reassurance that particular brand will still be around in a few years time. (Business Services, 2009).

A strong brand projects an image of quality in the business; many people see the brand as a part of a product or service that helps to show its quality and value. According to Business Services (2009), if you show a person two identical products, only one of which is branded, they will almost always believe the branded item is higher quality. Over time the image of quality of an effective branding business will usually go up. Of course, branding cannot replace good quality, and bad publicity will damage a brand (and businesses image), especially if it continues over a long period of time.

For example: The Sunny Delight drinks brand was one of the biggest in the UK just a year after its launch. However, constant bad publicity about the quality of the product has severely damaged the image of the brand, and sales have dropped for each of the past several years. (Business Services, 2009).

A strong brand creates an image of an established business that has been around for long enough to become well known. A branded business is more likely to be seen as experienced in their products or services, and will generally be seen as more reliable and trustworthy than an unbranded business. Most people will believe that a business would be hesitant to put their brand name on something that was of poor quality.

(Business Services, 2009).

If a business has a strong brand, it allows you to link together several different products or ranges. A brand name can be used on every product or service a company sell, meaning that customers for one product will be more likely to buy another product of same brand.

For Example: Sony sells televisions, music equipment, consoles, camcorders, DVD players, video players, and etc all under the Sony brand name. Creation of separate brand names for product ranges allowing people to see brand name, and then use the range brand name to work out what they wish to buy. For Example: Cadbury’s makes a range of confectionary under many different sub-brand names such as Dairy Milk, Boost, Flake, and Time Out. All of these are sold under the product brand, but all feature the Cadbury’s brand name on the packaging. (Business Services, 2009).

A strong brand is memorable, but people still need to be exposed to it, this often requires a lot of advertising and PR over a long period of time, which can be very costly. There are also costs involved with the creating of a brand image or logo (Paying for a designer, printing new letterheads/business cards etc.), and although most of these are only one off costs, they are still relatively large for most small businesses. The exposure of a brand can be left to word of mouth, this will save money, but will also greatly slow down the exposure that the brand receives. (Armstrong and Kotler, 2007).

One of the main problems with many branded businesses is that they lose their personal image. The ability to deal on a personal basis with customers is one of the biggest advantages small business have, and poorly designed branding could give customers the impression that a business is losing its personal touch. (Business Services, 2009).

Every brand has a certain image to potential customers, and part of that image is about what products or services a company sell. If a company is known for selling just one product and want to sell another product, will that company be able to do so effectively? If a company sell computers, would that brand name be suitable for selling vacuum cleaners? If a brand is focused too strongly on one product, it can limit the ability to sell other products. (Armstrong and Kotler, 2007).

The process of creating a brand will usually take a long period of time. As well as creating a brand and updating your signs and equipment (e.g. stationary, vehicles etc), it need to expose to potential customers. It is commonly shown that people need to see an advert at least three times before they absorb it, which means that a company will need to advertise and promote the brand for a considerable amount of time before it will become well known. (Business Services, 2009).

The continuing development of own-label brands can be largely attributed to ownership concentration in the retailing industry by multiples such as Tesco, Sainsbury’s and Asda. The two leading supermarkets, Tesco and Sainsbury’s have exploited this branding strategy to the extent that 50 percent of their sales are their own-label products. The supermarkets are committing considerable finances to their own-labels to increase their penetration. (Chaney, 2004).

In marketing own-label brands the retailers have several advantages over manufacturer brands. Own-label brands can access the prime shelves as this space is controlled by the retailer. Manufacturer brands generally have to pay for the privilege of displaying and merchandising their goods. Furthermore, retailers, unlike the manufacturers, have knowledge of competitors’ sales figures and promotions. (Chaney, 2004).

2.5 Evaluate literature that relating to consumer behaviour

According to Colla (2003), discount food retailing has experienced considerable expansion over the last ten years and currently occupies an important position in the European retail industry.

According to Shine et al (1997), Consumers have become increasingly interested in nutritional issues over recent years. This interest in nutrition is fuelled by a number of factors including lifestyle, ageing population, dietary and safety concerns. The consumer is influenced by various sources of information such as the family/household, social network, “popular media”, and government dietary guidelines

Shine et al (1997) also stated that majority of consumers consider diet to be a very important component of their lifestyles and regard nutrition as a positive attribute of food products. Increasing consumer interest in nutrition has led to an increased interest in nutrition labelling. Nutrition labelling was found to have an impact on consumer purchase decisions. Of those consumers who read nutritional labels, 81 per cent use them in their evaluation of food products.

According to Baltas (2001), Nutrition labelling of food products has received considerable attention in the marketing literature due to increasing consumer interest in health and diet issues. He also stated, nutrition labelling of food products is intended to enable informed consumer choices and stimulate the consumption and production of healthful products. The effectiveness of nutrition labelling depends also on the organisation and presentation of the information, implying the importance of regulatory issues.

Baltas (2001) stated that in the UK, more than 80 percent of surveyed individuals claim that they look at labels and that label information affects their purchase decision. Most consumers also use information on nutrition labels the first time they purchase a product and this then becomes a source of new knowledge they can draw on in subsequent purchases. Baltas (2001) also stated nutritional attributes are, of course, only a subset of objective and perceived characteristics such as price, taste and brand name determining consumer preferences. Their relative importance for the determination of consumption patterns may vary not only over people, but also across product categories and purchase occasions.

According to Mintel, (Food Packaging UK, 2008) the most important consideration for consumers is that the packaging to compost is not always realistic.

Mintel also stated, Four in five shoppers agreed that the food inside was not accurately depicted on the packaging. Nearly as many confirmed that it was sometimes hard to tell how much food was inside the packaging. (Mintel, Food Packaging UK, 2008).

Shoppers at discounters; Morrison’s and the Co-op found it harder to tell the quantity of food from the packaging it looks as though these supermarkets could be more accurate in their own-label packaging. Consumers should be able to take a good look at the food item they are buying to get an idea what it looks like and how much it contains.

(Mintel, Food Packaging UK, 2008).

According to Mintel (2006), significant differences are evident between the attitudes of men and women towards food packaging. Almost two thirds of women, compared to just over half of men, say that labelling is important when deciding what to buy. Women’s role as the key grocery purchaser in many households has removed the need for men to study labels more carefully when choosing what to buy. However, growth of one-person households is expected to bring men’s attitudes towards packaging more in line with those of women, as an increasing number of men take responsibility for doing their grocery shopping.

According to Mintel Report (Food Packaging, 2006), “Consumer attention on the environmental impact of packaging is set to continue, with further debate anticipated on the sustainability of different packaging systems and the environmental impact of reuse, recycling and incineration. Biodegradable plastics are already emerging and a gradual wider acceptance of the concept is expected, while the pressure to engineer improved performance whilst utilising less material resources will continue to exercise packaging manufacturers”.

According to Montgomery (2008), a study by the Co-operative Bank revealed that more than a third of people surveyed are making cuts in their weekly shopping spend. “We’re typically spending £68.33 per adult on the weekly supermarket shop, compared with an average of £89.88 in 2007”. Montgomery stated that, it’s no surprise that the likes of Tesco, Sainsbury, Waitrose and Asda are feeling the pinch. (Montgomery, 2008).

She also explain that the two key items to have dropped off our shopping lists are flowers and magazines, while next on the hit list is bottled water, expensive handwash and CDs, followed by wine, teeth whitening products, fabric conditioner, unsliced bread and nail polish. (Montgomery, 2008).

Emma Thomas, from the Co-operative Bank, commented: “People are being more conservative in their spending and are finding that cutting back on luxury items can help make a difference. Developing a household budget is essential to keep spending in check and to identify ways costs can be trimmed”. (Montgomery, 2008).

“Thanks to the credit crunch, the budget supermarket chains, such as Cost-cutter, Aldi and Lidl, have been transformed from the haunt of cash-strapped students to the savvy housewife’s favourite”. (Montgomery, 2008).

Montgomery (2008) stated that, sales at Cost-cutter (budget supermarket) have grown by 6.2% so far this year. Lidl came out as the cheapest supermarket after a recent survey carried out by “Which?” magazine. Montgomery (2008) explains that in a price comparison of a typical shopping basket, the publication found that Aldi was 3% more expensive, while Tesco was 21% more expens