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The business of private labels in Indian retail

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The business of private labels in India has seen a sharp upward incline with offline as well as online retailers pumping in resources to strengthen their growth. There has also been a collaborative effort in this space with retailers stocking private label brands of industry competitors at their stores. Here is a look at the current dynamics and opinions of key retailers in this space…

Aptly setting the context for the story, Customer Care Associate and MD – , Govind Shirkhande says, “A private brand affords retailers a distinct differentiation from the crowd. With private brands, retailers have full control on design, pricing, merchandise assortment, stocking, and distribution. By studying customers’ shopping habits and preferences as well as global fashion trends, we are able to immediately inject these insights into our brands to improve their productivity. Finally, private brands give retailers a higher margin.”

Understanding the Market

On the dynamics of the private label business in India, Business Adviser Tea Trading Division of Aditya Birla Group, , says, “Growth potential for private labels is immense as it is directly related to the growth of modern retailing. Private label brands are margin generators. India’s share is around 10 per cent as opposed to around 40 per cent in European countries. It is envisaged that in the next two decades, 50 per cent of Indian retail will be occupied by private label.”

Shirkhande says private label brands have an edge with regards to
understanding the customers better, especially those that have a loyal set of customers attached to them. By means of data mining, the retailer is in a better position to narrow down on merchandise and products that sell better than the others and also the trends that are in vogue. Little wonder then that we have almost all retailers bringing out their private label – and this is across categories and genre – be it food, fashion or furniture!

Online players too own and market private labels. Amazon is all slated to jump on the bandwagon by launching its own fashion line soon. Electronic retailers like Croma and Vijay Sales too are onboard the private label train with an exhaustive line across categories – from washing machines to air conditioners.

To hear it from an online player, Founder and CEO, Craftsvilla.com, Manoj Gupta: “Private labels are an opportunity to create branding in a category which does not have any strong existing brands – a largely unbranded category like ethnic wear. They offer lower prices to consumers while supplying products that are similar in quality and design to known brands. They also have a higher margin as compared to marketplace commission. For example, private label margins can be as high as 40-50 per cent in ethnic category compared to 20 per cent commission we get from marketplace sales.”

The Business of Private Labels

Shoppers Stop has STOP, Lifestyle has Melange and online e-tailers like and Jabong too have their own private labels, all of which have been witnessing good traction. Fashion and lifestyle e-tailer is targeting 35 per cent of its revenue from its private labels over the next 12-18 months. At present, offers 11 of its own private brands to shoppers, which contribute to 20 per cent of the overall revenue. According to a news report in Business Line, besides the 11 private labels, is also experimenting with a technology insights based, in-house brand called which was created and launched six months ago.

Head – Myntra Fashion, Abhishek Verma says, “Based on customer insights gleaned from our platform, we launch new fashion collections under the Moda Rapido brand once every four weeks. This process normally takes other brands a few months to execute. We are still in the process of experimenting with this tech-led fashion brand.”

Beauty e-tailer Nykaa has gone big with its private label as well. It is expected that Nykaa.com will report a revenue of Rs 240-300 crore by March 2017 with the sales amounting to Rs 80- 100 crore.

Salon chain B:Blunt has a private label, has Ikonic which is into supplying professional styling tools.

Online grocery delivery website – supported by supply chain optimization and an increased proportion of high margin private label products – has private label products that account for 33 per cent of revenue and are projected to reach 40 per cent by the end of this year.

According to a news report, online furniture and home décor store aims to be profitable by the end of this year joining a number of single category online retailers that are heading in the same direction. Sharp growth in its home décor, private label and home design business are helping the Mumbai-based startup move closer to profitability, even as it adopts a more calibrated approach to discounts.

According to MD, Godrej Nature’s Basket, , “Each retailer may have a completely different rationale for its private label portfolio and must decide the role that it wishes the assortment to play.”

“The range offered must be consistent with that rationale. If the objective of the range is to displace national brands then it must compete on metrics that make it do so. Private label category enjoys much higher sales contribution in the international markets. The phenomenon is relatively new in India. However its growth in India in the last few years has been robust and therefore quite exciting Indian retailers have realized the importance of what the private category provides to its business,” he adds.

Quality control is an important factor that makes retailers opt for a private label besides offering a competitive price. Like Khattar says, “In our case the role is to offer customers the experience of high quality products and we have been attempting to do just that through our products. The fact that consumers like what we have been doing is what has made the range and our effort successful and the fact that it actually gives a higher margin is like the icing on our cake.”

Reiterating the point on price, MD & CEO, Savemax, Vaibhav Singhal shares, “Consumers are smart and always look for good bargains, they would not compromise on quality. They are aware about things and will buy if and only if the private label matches or exceeds the quality of other brand available in that category. This is especially true for food brands. The customer trust has to be earned and then they will adopt your brand.”

Roy adds, “Consumers prefer to buy Private label due to their low pricing. However these days, retailers are not offering a low quality product at a lower price but are creating new level of differentiation. The challenge faced is to maintain better pricing and quality for a value conscious customer.”

Brand Speak

Sharing details on the private labels by Shoppers Stop, Shirkhnade says, “We have private brands such as Stop, haute curry, Kashish, Life, Elliza Donatein and Vettorio Fratini–each of these have USPs and a brand story/ positioning that set it apart from the national/international brands. For instance, internationally, fl orals have made a big comeback this Spring Summer 2016 and you will find the same reflecting in the current season’s collection in our brand Stop.”

The journey of Shoppers Stop’s private label began in 1994 with the launch of STOP. This was at a time when modern department stores were still making an entry into India. The very fact that Shoppers Stop has not only managed to further grow STOP but also add more private labels in its kitty, accentuates the strength of this business model.

For Godrej Nature’s Basket, entering into the space of private labels was based on addressing needs of their patrons. Khattar explains, “As a retailer we cater to discerning customers who are looking for products and options that offer high quality and are different from the tried and tested products offered by national brands and available dime a dozen with conventional stores. We are completely driven by this need to offer high quality options to our customers.”

The niche food retailer, currently offer a wide assortment of approximately 400 high quality SKUs across 4 brands as part of their private label portfolio which include confectionery, chocolates, chips, flavored nuts, teas, gluten free pastas, roasted seeds/ seeds blends, supergrains like quinoa, buckwheat, roasted/ baked snacks, healthier cooking mediums like olive oil and canola oil, some of the fi nest ingredients and sauces and an all-Indian ethnic range of products including Indian digestives, mouth fresheners, murrabba’s and candies, real dried fruit candies, Indian style bakery products, pickles and snacks.

On the success the private label brands have achieved, Shirkhande says, “Our private brands have been very successful since they each correspond to a fashion-gap in the current mix. In fact we have extended a few of these brands into the accessory category in order to provide a complete wardrobe solution to customers. Moreover, given our strong play in accessories – almost 36 per cent of our sales mix stems from this category – we were confident of this product extension.”

He explains this an example: “While Haute Curry started off as a ethno-fusion wear brand, in the last four years, we have extended the brand into footwear, accessories, bags and deos. So today, a customer can build an entire fashionable Indian ensemble using haute curry merchandise. Similarly, we have extended Stop, Kashish, Elliza Donatein and Life into newer categories.”

On changes adopted over the years to their private label portfolio based on the response received, Khattar says, “We have received a phenomenal response for our private label range. We have seen consumers demand and accept more unconventional flavors and tastes at one end in indulgence products while also demanding healthier alternatives in more conventional product categories. So at one end there is demand for flavors like wasabi, salty caramel, honey mustard or bar-be-que in products like potato chips, nachos and cashews; at the same time we see unprecedented interest in products that promise superior benefits. For instance in alternate low carb grains like quinoa or amaranth, in infused or mono fl oral honeys or seed blends targeted at specific health conditions, etc. One can almost visualize a virtual redefinition of the Indian palate.”

At Shoppers Stop, according to Shirkhande: “Our private and exclusive brands are currently at 17.2 per cent of the total sales mix.”

Where the manufacturing at Shoppers Stop is outsourced, Shirkhande says, “Our designing and sourcing is handled by our talented team of designers.”

At Godrej Nature’s Basket, currently private label contributes to approximately a tenth of the overall business. Khattar modestly adds, “Private label is still very nascent in our portfolio and our objective with this range of products is to give our consumers – product, flavor, taste or benefit options, which they do not necessarily get from leading brands.”

Singhal talks about the in-house brands at Savemax and the journey encompassed sharing, “Initially we had launched only high quality unpolished pulses but as we got good traction we introduced other grocery and bakery products under the brand. As per customer demand and feedback, we have updated the packaging recently and have introduced more depth in the product line. The customers have loved the quality, taste and prices of Purani Dilli products and prefer them over other brands.”

According to Singhal, Purani Dilli by Savemax was launched in 2012 with the aim of providing quality food products at wholesale rates to the consumers. He adds, “With Savemax’s strong pedigree in commodities, we believe that this is an opportunity that we can explore. At the moment pulses, rice and spices are available at all stores under the Purani Dilli label. Since 2014, we have expanded the Purani Dilli label to offer savories, cookies and other bakery products.” The company is working to make this brand available in other channels too. He shares, “At the moment we are building the capability for the same.”

Purani Dilli contributes about 25-30 per cent in grocery and about 10-12 per cent of overall sales of the stores at Savemax. Singhal adds, “The contribution of Purani Dilli in grocery has grown to 25-30 per cent from 15-18 per cent in two years. This has largely been through concentrated effort in addressing the customer needs.”

Reaching Out

For a private label, the best marketing and promotion initiatives can be achieved in-store and that is what retailers usually engage in. Another key initiative is reaching out to their loyal set of customers through the newsletters and SMSs, especially during the EOSS period.

Highlighting the marketing initiatives undertaken by Shoppers Stop for its private labels, Shikhande reveals, “Shoppers Stop has been known for its distinctive tongue-in-cheek black and white advertising. However, we have deviated from this path for our private brands. In order to promote our private brands’ stories, we have designed a different colorful advertising campaign which retains the signature Shoppers Stop style and chic imagery while showcasing the USP of the individual brands.”

In the current fiscal, according to Khattar, Godrej Nature’s Basket has nearly doubled the sales of their private label to their total sales. He shares, “We also sell this range through popular market places. The response to the range even on these sites has been quite exciting. We are still exploring opportunities to take this range further in cities where we are currently not present.” On the marketing initiatives undertaken, Khattar shares, “We have engaged in a host of in-store promotions for our private label range. This includes in-store branding through posters and shelf talkers at various focal points in the store. The pick up and choice by the end consumers has been largely on its own and not supported by aggressive promotions.”

Singhal talks about Purani Dlli’s marketing initiatives stating, “We have promoted the brand through regular paper ads. We have also given it to consumers under special schemes.”

Recently, Lifestyle International Pvt. Ltd. signed up Bollywood celebrity as its brand ambassador for its private label brand – Melange by Lifestyle which is their contemporary ethnic wear brand. This well accentuates the importance given to the private label by the retailer. Commenting on the association, Managing Director, Lifestyle International Pvt Ltd,  said, “Melange by Lifestyle has emerged as a preferred contemporary ethnic wear brand for modern women who have a keen sense of style and dress in a manner that amplify their individuality.”

To ensure a better brand recall and visibility at the store when it comes to private labels, Roy accentuates the need for concentrated efforts on packaging to make the differentiation and create an impact. He says, “It is important to have continuous research and innovation in packaging and product differentiation.”

Way Ahead

Chairman & MD , Arvind Singhal is of the opinion that the market potential for private label can be better tapped. According to him, “I think that very few organized retailers have succeeded so far, with the notable exception of Future Group and to a limited extent, Reliance Retail (Trends format in particular). I feel that in the coming years, e-tailers will have a better chance to succeed with their own private labels once FDI policy on e-tail allows such e-tailers to have inventory models rather than pure market place.”

On the viability of private label in the online space, Gupta is of the opinion, “Private label is one of the strategies for profitability but not necessarily the only one. Private label can also be risky strategy since the retail pain points of product merchandising, inventory, warehousing and dispatch can be operationally very heavy for the marketplace.” On the do’s and don’ts that a retailer should ideally keep in mind when it comes to private labels, he minces no words when he says, “Private label should only be ventured into when there is clear margin expansion opportunity or opportunity to offer consumer experience in a controlled manner like higher quality products, faster service etc. Private label should not compete with other sellers on the marketplace platform and should have clear Chinese walls between in house brands and brands/products from other sellers. Sellers should not feel they are competing with the marketplace platform itself.”

Shirkhande concludes highlighting the potential of private labels saying, “Private brands are a great way to differentiate oneself from the crop. When given the right treatment, fashionable private brands can be vehicles of customer loyalty. We have many customers who have been consistently shopping with us owing to their affinity for our private brands. So, it is a huge opportunity for retailers such as us.”