Today, the retail customer is flooded with choice - be it in household articles, packaged food,
clothing, and so on and so forth. While there are brands that are recognized in specific
categories, the retail chains themselves have jumped the bandwagon and offer more choice
across categories.
The private label
For instance, Big Bazaar has its own range too - Tasty Treat covers processed foods categories
like soup, noodles, corn flakes, ketchup, among others; Sach range of toothpaste and
toothbrushes; John Miller for men's apparels; Premium Harvest covers staples and pulses;
Fresh & Pure range of ghee and atta; and Caremate for personal hygiene and Clean Mate for
home care categories.
And all have added new products in the existing ranges, or plan to add new ranges in the
coming years.
From the customer's perspective
why private labels are introduced: "Better profit margin - typically, retailer gross margins on
private labels are 25-30 percent higher than those on manufacturers' brands. Greater leverage -
presence of Private Label in a category allows the retailer to negotiate a better margin on
manufacturers' brand. Loyalty to stores - Private Label helps in differentiating the retailer from
other retailers and manufacturers resulting in consumer loyalty towards the specific retail
chain. Higher consumer profitability - consumers get better deals in terms of lower pricing as
compared to the manufacturers' brand. Top quality Private Labels enable retailers to
differentiate themselves from other stores and be a destination store."
"From a business perspective, Private Label is a long term vision for any retailer as it provided
additional margin to the business. Private Label is able to provide 10-15% incremental margin
over national brands. A good quality product available to the customer at a great price is the
predominant factor influencing customer purchase decision. A tactical promotion on a periodic
basis helps in generating and maintaining customer engagement. Feasters Instant Noodles gives
a strong competition to established brands in our stores."
Competing for shelf-space
This then brings up the question of objectivity. A retailer with his own brands is naturally
interested in promoting his products. How do other brands fare then?
"Unlike in the West, India is not a saturated market, and with an expected growth of 8-10
percent over the next 10 years, India is clearly going the consumption route. Every five to six
years, a 100 million consumers would enter the middle class, giving indication of how much
growth and scope is ahead. Private Brands like all brands are participating in India's growth.
India is under-branded and under penetrated in many categories. Clearly, Indian market has
scope for more brands and all brands can co exist.
Manufactured and private labels don't necessarily compete with each other. Worldwide
experience shows that as retailers become more powerful, they have increasingly focused on
their own brands. In India private label has become core to every retailer's strategy.
The reason for the rush, according to him, is not far to seek. According to industry experts,
private label margins range from 30-40 percent in the FMCG space to 40-60 percent in apparels
and 15-20 percent in electronic goods. In most cases, these margins are 5-10 percent better
than the mass-market brands these retailers sell. Hence, in India too, retailers are focusing
more and more on developing their in-house brands, but not necessary on a competitive front.
It is more of fine-tuning their mixtures of private labels and brands for broader range of
products, depth and price points; offering private labels at different prices--a strategy that can
build market share, not just bigger margins--and mixing them with brands, plays into some
retailers' strategies to offer a full range of merchandise in good, better and best levels of
quality. Successful private labels also force manufacturers to revise their products to maintain
their brands' unique qualities. "So, it is more of a peaceful coexistence”.
Focusing on core strength
Manufacturing, marketing and brand management are a spectrum away from retailing and
merchandising. Therefore, for retailers, it is imperative that they have experts that cover both
ends of the spectrum. Promotion and creating visibility become essential as well as having an
R&D team that studies consumer requirements and fills their need.
A few of the factors that influence entry into certain categories include size of the category,
margin realization potential, quick turnaround, availability of well established third party
manufacturers and consumer research with customers. Most of the times, retailers partner
with vendors who follow stringent quality controls, providing the retailers with private label
products but freeing them of manufacturing worries.
What becomes critical though is correct sourcing - the only difference being, in this case, the
sourcing is at the beginning of the product lifecycle rather than that of the finished product.
This also helps in ensuring that all the products required by the customer are always available in
the stores, improving fill rates.
For the retailer, finally, it is creating store loyalty that is top agenda. And they do what it takes
to achieve this. Having their own label is one more step to building that loyalty.
