One of the best private label strategies I have seen was run by Kmart in the first half of the nineties. The range was three tiered; commodity, mainstream and premium.

The bottom end was cheap and cheerful things like envelopes and potting mix. The mainstream group included many brands of apparel and hardgoods — mid priced socks and jocks and cheap electricals. The premium range was designed to compete with national brands. Some of the premium brands competed well, with customers seeming not to realise that they were only available at Kmart.

The Australia’s Choice food and beverage range borrowed heavily from the President’s Choice range sold by Loblaws of Canada. Kmart employed the Mullens, two of the world’s best developers of house brand ranges who had done the work for Loblaws. House brands cause grief among the big brands. Coca Cola was unhappy with Kmart, and even less so when AC vending machines began to sell cola in shopping centres.

But being Coles, an inevitable management shuffle resulted in a change of direction, resulting in Kmart moving back toward national brands.

The pendulum has swung. Coles is again talking about a three tiered range. However all will be recognisably house brand. This may result in customers perceiving house brands as inferior quality. Aldi, a company built on a house brand offer, might be seen as downmarket, but it is a space Aldi is happy to occupy. Bur even Aldi sells most products under labels such as Ocean Royale or Port View – which are not instantly recognisable as house brands.

Get it right, and private labels are a way to drive profit by increasing margins and building loyalty. However, some areas always seemed off limits. Cosmetics? Software?

Taking on Coca-Cola is one thing, but Microsoft? Coles might follow UK retailer Tesco who this week launched house brand software.

Tesco will sell six packages, including office software, security systems, a photo editing tool and a CD/DVD burning tool. Each title will cost less than A$50. Prices for some will be less than 10% of the Microsoft equivalent.

As the titles will also be available from the Tesco online store, I guess they will soon be in the Australian market too.