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Private Labels and their increasing importance for Indian retailers
Submitted by bhanu on Sun, 05/10/2009 - 01:53.
This article is about private labels, their importance, a comparison of global and Indian scenario and the trend that we are likely to see in India. Private label products are typically manufactured or provided by one company for offer under another company's brand. In retail world it usually means a manufacturer (which can be the retailer itself) making products exclusively for a retailer, which are to be sold under retailer’s own brand name. Key benefits for a retailer of having its own successful private labels are depicted in the following figure
Apart from these benefits, the retailer also gets a chance to test its product marketing capabilities, track the categories more closely and do the long term category planning. Lets have a look at one such example, around 2 years back, country’s largest organized retailer Future Group(Big Bazaar) had a tussle with PepsiCo’s Frito-Lay. The company decided not to accept the unilateral terms of Frito-Lay (which had more than 50% market share in potato chips category in those days), and instead took the bold step of removing all the company products from its shelves. This actually proved to be a blessing in disguise for the company as its own private brand “Tasty Treat” filled the void and in fact emerged as a category leader cornering around 16% of business across big bazaar stores. Now, the group also has its own cola brand with the same name (“tasty Treat Cola”) which gives a tough competition to the two cola majors. Buoyed by these successes the company now plans to launch other FMCG products and is even offering its products to the open markets and other retailers.
Kishore Biyani, CEO, Future Group, said, “We started out as a fashion brands company. But then we experimented with lot of brands on the food side, like tasty bytes, cola and butter. After the success of Cola we thought why can't don’t launch our toothpastes, detergents?”
In store labels are at least 5-20% cheaper across various categories. This is because they cut out middlemen costs and pass on the benefit to the consumer. But this is not only about price any more; private labels have come a long way over the last three decades. Globally, the biggest change has been the entry of premium private labels. By offering high quality products, many private labels are actually charging more than the regular manufacturers. These retailers have realized that by having top quality private labels they can differentiate themselves from other stores and be a destination store. For instance, Tesco in Europe has a range called the Tesco Finest line. It does have a Tesco Value line, which is cheaper, but the Finest line only sells premium products at premium prices. Tesco’s Finest chocolate, for instance, sells at a premium over, say, Cadbury’s.
Globally, own label brands contribute to 17 percent of retail sales with a growth of 5 percent per annum. International retailers like Wal-Mart of USA and Tesco of UK have 40 percent and 55 percent own label brands representation in their stores, respectively. In India also, retailers are increasingly putting their weight and marketing muscles behind their private labels. The worsening economic condition has also forced them into looking for ways of combating increasingly intolerant manufacturers and retaining higher profits through means like private labels. Financially strained consumers are also more likely to try these ‘value for money’ products. Here is a status check on some of the major Indian Retailers:
Leading Retailers and their private labels:
Private Labels of Future Group(Big Bazaar):
Apparels: John Miller, Bare, DJ&C, Indigo Nation, RIG etc
FMCG: Tasty Treat, Fresh n Pure
General merchandise: Dream-line
Consumer durables & electronics: Sensei and Koryo
Future Brands, the group’s wholly-owned subsidiary, plans to launch sportswear, lingerie and beauty products in the next 3-4 months along with FMCG products such as toothpaste, soaps and detergents among others.
Private Labels of Aditya Birla Group (MORE):
Food products: ketchups, jams, honey, carbonated drinks, chips, cookies under the brand ‘Feasters’
Detergents/Dishwasher: ‘110%’, Shampoos/ soaps: ‘Enriche’ etc
Private Labels of Reliance Retail:
Staples and food items: brands like ‘Reliance Select’ and ‘Reliance Value’ are being used
Dairy products: ‘Dairy Pure’
Reliance Retail has plans to set up a separate company for supply side, called Reliance Foods.
Both Future Group and Reliance Retail are exploring ways to supply their private labels in food and groceries to kirana stores and small retailers in the country to supplement their revenues
Private Labels of RPG(Spencer’s):
Food: Smart Choice
Fashion: Island Monks, Mark Nicolas in the men’s and women casual/formal wear, Puddles for infants and Little Devils for kids below 14 years. Asankhya (ethnic and fusion wear for men and women). Scorez (men and women sportswear), Detailz (men and women basic)being the other contributors
Home: Maroon Cookware
Electronics: Jerat Electronics
Private Labels of Vishal Retail:
FMCG: ‘V-Fresh’ and ‘V-Needs’
Garments: Zeppelin and Kitaan Studio(Mens Shirts & Trousers), Blues & Khakis(Mens Trousers), Fizzy Babe and Jasmine (Ladies & Kids Girls), Zero Degree (Kids Boys). Among there other apparel brands they have Paranoia, Soil, Chlorine, Massa Bay(Trousers and Bermudas) and Fume.
Consumer durables: Zeppelin etc
A word of Caution: Despite all the positives, retailers should be cautious about not overdoing this, especially in India where public is still new to the idea of private brands and still share much stronger bonds with the age old marketed products. The emphasis should be on creating an irresistible value proposition and no chain should create a setup that denies the customer the right to exercise their choice. A coke lover might cancel his whole purchase if he can’t find his favorite brand (considering that anyway he will have to go to another shop now), moreover too many similar brands in same category or a single brand stretching to too many products and value segments will also create confusion in consumer’s mind. If the retailers fall into the trap of using too many private labels, they will end up losing customers. Many retailers have suffered due to this; Sainsbury is a classic example. The UK-based retail chain was a mainline traditional retail chain, but when it used too many private labels, customers did not find regular brands at its stores, and as a result, sales dropped.