MarketLine Blog

The driving force behind Aldi’s success: Phantom Brands

Discount supermarket Aldi reported a 65% jump in pre-tax profits in September 2014. More than 95% of Aldi’s products are own label, but many of its products lack direct reference to the retailer.

As discussed in the MarketLine case study, Supermarket private labels: growth following economic downturn; market share for retailer brands has increased rapidly over the years, most notably in the UK, Spain, Germany, Italy and the Netherlands.  After years of consistent market share increases, private label now has its strongest competitive position ever.

Of particular interest is the increasing number of private label products that do not include the retailer’s name on the packaging. These products have been categorized as ‘phantom brands’ as they lack any distinct reference to the retailer’s core brand. Phantom brands do not rely on the association with the retailer, but on their own brand name instead.

Phantom brands gained popularity in Germany over a number of years, specifically within grocery discounters such as Aldi and Lidl. Products bearing the company name would create a dull store environment and make consumers feel they are limited to one brand. So-called phantom brands were seen as a way of tackling this problem and the strategy is now widely used. For example Aldi’s successful Moser-Roth,  which is a gourmet chocolate brand introduced in 2005, is sold as a premium, private label product by Aldi’s leading supplier with no reference to Aldi itself.

Phantom brands are a marketing strategy to entice consumers. By creating a multitude of different brands to market private label products, rather than labelling them with the house brand name, retailers can lessen consumer perception that the products are cheap, budget items.

In the UK, phantom brands are a relatively new phenomenon and have provided supermarkets such as Tesco with another opportunity to compete with branded products. Tesco introduced a range of discount brands in 2008 which included ‘Trattoria Verdi’ Italian foods which were placed at the premium end of the spectrum. Tesco are developing ‘venture brands’, which are high priced premium products. This allows retailers to charge a higher price for products as customers do not associate the phantom brand with the retailer.

Phantom brands are contributing to narrowing the gap between private labels and branded products further and consequently, consumers may find it difficult to differentiate between private and branded labels. This should see the trend towards using them grow.

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