Private labels or store brands have been found to trigger customer loyalty. The basic objective behind introducing private labels is to offer quality products at lower prices compared to the national brands.
India is considered one among the top five emerging retail destinations in Asia and 11th promising retail destination globally. This is largely due to the expansion strategies adopted by business groups like the Future Group, the Tatas, the Goenkas and the Rahejas. The ever increasing retail clutter has forced retailers to differentiate themselves—introducing private labels has been one such differentiation strategy.
Retailers basically go for imitating national brands in terms of quality and packaging. Although there are instances where store brands are successfully introduced, there are several challenges involved as far as introducing and sustaining store brands are concerned. Worldwide experience shows that as retailers become more powerful, they have increasingly focused on their own brands at the expense of manufacturer brands. Another factor driving retailers towards foraying into store brands is the current economic slowdown, globally.
Companies are also stepping up the introduction of private labels as margin on the products can be as high as 30 per cent compared with 10 per cent on branded products. The slowdown is also forcing consumer preference towards cheaper products, a trend also known as down-trading, which in turn is also helping boost sales of private labels.
Taking on the might of MNCs with its private brands, the Future Group, India’s top retailer, is now poised to pit itself in a big way against the manufacturers like HUL, Bombay Dyeing and Samsung in categories ranging from FMCG to apparels to consumer durables. Some of the Group’s top private labels include John Miller, Indigo Nation, DJ&C in apparel, Tasty Treat, Care Mate, Fresh ’n Pure in FMCG and Koryo and Sensei in consumer durables. Rival Reliance Retail is entering the store brand segment in a major way. Interestingly, Reliance Retail derives around 80% business in the large format stores from private labels, particularly in the garments business. While its private labels in the commodity foods segment are Reliance Value and Reliance Select, it is launching, in a phased manner, private labels in the nonfood FMCG category. It has launched floor cleaning products under the Expelz label and Sudz washing powder recently.
Others like More of AV Birla Group and Westside of Tatas too are stepping up their presence in this arena. However, retailers face slew of challenges. First and foremost, there is a lack of supply chain sophistication among Indian retailers. Most retailers still exchange information manually with suppliers. Indian retailers are yet to implement bar-coding techniques properly, let alone sophisticated technologies such as radio frequency identification (RFID). There is also a lack of integrated IT systems, coupled with low overall IT spending.
As is evident, Indian retailers have a long way to go before they can be compared with international retailers such as Tesco and Wal-Mart, in terms of technology and supply chain sophistication. Further, while it is widely acknowledged that the ‘real' potential in Indian retail lies in rural areas, the rural retail scenario continues to be unorganised and highly fragmented. While FMCG manufacturers – such as Hindustan Unilever and ITC – continue their efforts to solve the rural ‘retail jigsaw' through projects such as Shakthi and e-Choupal, major retailers have tended to stay away from the rural scene.
In light of high access costs due to infrastructure bottlenecks, along with absence of a successful rural retailing model, the above trend is likely to continue in the coming years. Therefore, the Indian private label market is expected to be largely confined to urban areas (metro cities), with some growth also coming from semi-urban areas (tier II towns). Therefore, unless retailers pay attention to these issues, they will be unable to develop successful private label portfolios.
n India, private labels or in-store brands presently contribute to a turnover of Rs. 700 cr. There are various retail entities that have launched their private labels in the recent past and most of them have been either from the food or from the apparel industry. There are certain definite advantages of store brands. First, through store brands, a retailer assumes greater control over the development process of a product which allows him to gain more control over his business.
Private label strategy is an effective option for a retailer in case he wants to market high products. Savings in terms of production cost is another critical advantage. There are no competitors in the market for any in-store brand which motivates sales people to sell the product to customers. At the moment, private labels do not have a dominant market share as they account for less than 5 per cent of the retail business and still have a long way to go. But Indian retail is extremely hot and it offers a proposition that can’t be seen anywhere else in the world. Only in China and India can retail chains have as many stores as they have in the US. In no other country can one imagine companies having 5,000-6,000 stores of their own.
Global Experience
There has been a significant increase in private label brands in the recent years worldwide. In Europe, private label goods now account for about 45% of products sold in supermarkets, compared to 25% in the US. Wal-Mart, for instance, has a 40% private label representation in their stores. Pacific Rim countries, such as Australia, Singapore, and Japan, also have significant presence of private labels on their store shelves. The general feeling is that in times of recession, private labels increase their market share, but tend to maintain that market share as economies recover. All these suggest that the future of private labels is bright in India.
N Janardhan Rao, Lead Economist
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