Building brands, piggyback-style
At a disadvantage in Western Europe for lack of established reputation and unpronounceable names, local brands still have a chance to make it big.
Ryszard Wojtkowski, partner at the country's largest venture capital firm, Enterprise Investors, which is also an LPP shareholder, points out that local success story LPP, now owner of a chain of shops and two well-known fashion brands, actually began life way back in 1991 as a small wholesale clothing producer.
Local firms shouldn't turn their noses up at the prospect of producing for private label, he goes on to say, but rather take advantage of the opportunities it can offer. Producing for hypermarkets can help producers for retail in other sectors besides clothing, such as food and drink, by generating the necessary capital, in terms of both cash and skills, for the producers to develop their own brands.
To Wojciech Sokół, director of the corporate department at hypermarket chain Tesco, the theory is appealing.
"Hypermarkets have so often been demonized as destroyers of small shops," he says. "Much less attention has been paid to the role that hypermarkets have played in modernizing the attitudes and practices of small producers."
Grzegorz Swirski, director for Central Europe at private equity firm Advent International, however, points out the downsides. Producing for private label means not only low margins, but can also put a producer's success entirely at the mercy of the retailer's whim, he says.
It's a view reflected by Wojciech Kobus, director of tomato and pickled cucumber producer Siechnice. Though he's happy with a current arrangement where Tesco accounts for 20 percent of the company's sales, he says, "If sales through Tesco were over 50 percent, it could be risky, as with supermarkets you are always in danger of losing your contract to a more competitive offer."
Despite its disadvantages though, many successful local firms, from LPP to instant-cappucino producer Mokate, which now has a 70 percent share of the local market, have used incomes from private label production as a trampoline from which to launch their own brands.
LPP itself, however, is skeptical that the strategy, which undoubtedly spawned so many brand successes in the '90s, can still work for companies starting anew in today's more competitive market.
"Back in the '90s, it was a very different story," says Dariusz Pachla, vice president of LPP, which has recently spread its wings into neighboring markets. "For one thing, TV advertising back in the '90s was relatively cheap," he says. In LPP's experience, starting out in the CEE region's maturer markets these days involves more hard work than it did 15 years ago. While making an impression in 'Old Europe' is yet tougher and more costly still.
Ryszard Wojtkowski, partner at the country's largest venture capital firm, Enterprise Investors, which is also an LPP shareholder, points out that local success story LPP, now owner of a chain of shops and two well-known fashion brands, actually began life way back in 1991 as a small wholesale clothing producer.
Local firms shouldn't turn their noses up at the prospect of producing for private label, he goes on to say, but rather take advantage of the opportunities it can offer. Producing for hypermarkets can help producers for retail in other sectors besides clothing, such as food and drink, by generating the necessary capital, in terms of both cash and skills, for the producers to develop their own brands.
To Wojciech Sokół, director of the corporate department at hypermarket chain Tesco, the theory is appealing.
"Hypermarkets have so often been demonized as destroyers of small shops," he says. "Much less attention has been paid to the role that hypermarkets have played in modernizing the attitudes and practices of small producers."
Grzegorz Swirski, director for Central Europe at private equity firm Advent International, however, points out the downsides. Producing for private label means not only low margins, but can also put a producer's success entirely at the mercy of the retailer's whim, he says.
It's a view reflected by Wojciech Kobus, director of tomato and pickled cucumber producer Siechnice. Though he's happy with a current arrangement where Tesco accounts for 20 percent of the company's sales, he says, "If sales through Tesco were over 50 percent, it could be risky, as with supermarkets you are always in danger of losing your contract to a more competitive offer."
Despite its disadvantages though, many successful local firms, from LPP to instant-cappucino producer Mokate, which now has a 70 percent share of the local market, have used incomes from private label production as a trampoline from which to launch their own brands.
LPP itself, however, is skeptical that the strategy, which undoubtedly spawned so many brand successes in the '90s, can still work for companies starting anew in today's more competitive market.
"Back in the '90s, it was a very different story," says Dariusz Pachla, vice president of LPP, which has recently spread its wings into neighboring markets. "For one thing, TV advertising back in the '90s was relatively cheap," he says. In LPP's experience, starting out in the CEE region's maturer markets these days involves more hard work than it did 15 years ago. While making an impression in 'Old Europe' is yet tougher and more costly still.
