Intracategory competition, entry probability, and private label share: Evidence from organic food retailing in Australia

The purpose of this study is to examine the entry probability and performance of private labels at an organic food retailer. For a growing sector with unique market structure and category characteristics, it examines how competitive factors affect the attractiveness of a product category for private label entry by an organic food retailer and how the manufacturer brand assortment that the retailer stocks affects private label share. This study analyses store level crosscategory data from an independent organic retailer and field data on retail competition. The findings show that organic private label stockkeeping units are more likely to be present in categories with supermarket competition. They also show that concentration of shares amongst manufacturer brands (as measured by the Herfindahl index) negatively affect the probability that the retailer will enter a category with a private label stockkeeping unit (SKU) but positively affects the share of that private label SKU. Although the results arise from a fairly small sample of around 30 categories, the focal retailer offers a unique opportunity to examine several private label decisions at the store level. Future work could examine in greater depth the competitive interaction between supermarkets and organic retailers and the effects of such competition on their assortment decisions. By extending private label research beyond the conventional supermarket industry, this study conducts a pioneering test of the effects of competition between retail formats on the likelihood of private label entry.