Introducing specialist private labels: How reducing manufacturers’ competing assortment size affects retailer performance

Abstract

Grocery retailers are increasingly introducing specialist private label products, leading to competition with manufacturers’ national brand products. In turn, retailers might consider reducing specialist national brand assortment size, but how this affects retailer performance is unclear. To address this question, this research analyses store-level scanner data before and after the launch of a specialist organic private label (OPL) line in 13 product categories. The results indicate that OPL introduction leads to significant reductions in organic national brand (ONB) assortment size. This amplifies OPL success by strengthening the positive relationship between OPL assortment size and OPL market share. However, while reducing ONB assortment size can amplify OPL success, it decreases overall sales in the category. A key contextual factor is the degree of organic product penetration in the category assortment. When organic penetration is lower, the beneficial effects of reducing ONB assortment size for the OPL line are weaker and the harmful effects for the category stronger. These findings provide novel insight into how disinvesting in national brand assortments when launching specialist private label products helps and harms retailers. That is, retail stores may be better off not reducing national brand assortments because doing so can result in a ‘larger share of a smaller pie’, especially when penetration of products with the specialist attribute is low.