What can we expect in the coming years?

Private labels are products that are manufactured by the retailer itself, rather than a manufacturer who generally markets them through separate retailers. As is evident, private labels are mostly prevalent in organised retail. Europe is the largest market for private label products globally. Within Europe, the United Kingdom is the largest private label market by size, followed by Germany. Private label penetration in the United Kingdom is close to 37 per cent currently, and is forecast to exceed 40 per cent by 2011.


The UK private label market: Key success factors

The most important factor that promotes private label growth is retailer concentration. Retailers of private labels can compete with giants such as Coca Cola and Procter & Gamble, only if they have a national footprint and sufficient market share. This is the reason that the fragmented retail scenario in the United States has been unable to match the United Kingdom in terms of private label growth. The UK retail market is consolidated, with the top four retail chains such as Tesco and Sainsbury occupying majority of market share. This gives them enough presence and resources to compete with manufacturers of established brands, in aspects like advertising, innovation and supply chain.

Another important success factor has been the dynamism and innovativeness of UK retailers. Faced with intense competition from other players, they have continuously re-invented themselves, and modified products to suit changing consumer demands A case in example is Sainsbury, which in face of increased competition from Tesco, changed its private label image from ‘low price' to ‘premium quality' in the food category. The diversification of UK grocery retailers into other categories also provides an instance of this dynamism.


The success of private labels in the United Kingdom can be gauged by the fact that consumers have started accepting private labels in the ‘premium' category. Private labels have consistently emerged on top in terms of quality, in various consumer surveys. In the United Kingdom consumers associate private labels with innovation, and have very strong private label loyalty.

Figure 1: Private label matrix – Position of India vis-à-vis UK


Key expected trends in the Indian private label market: Mapping against the UK

The retail industry in India is still nascent, as compared to matured markets such as the United Kingdom. The retail market in India is currently estimated to be close to USD 200 billion. This is expected to grow at more than 40 per cent per annum during 2007-09. Unlike the United Kingdom, the Indian retail industry is highly fragmented. Organised retail constitutes a meagre 3 per cent (USD 6.4 billion) of the retail market in India. Its share is estimated to reach 9 per cent, or USD 23 billion, by 2010. As indicated by these figures, organised retail would still be a marginal component of the total market in the near future.

Figure 2: Private label maturity curve


Based on analysis of the Indian retail industry, along with mapping it against matured markets such as the United Kingdom, expected future trends in the Indian private label market have been isolated. These are discussed below.

Structure of Indian retail is intrinsically not amenable to private labels

Private labels constitute less than 5 per cent of the total Indian retail market. As discussed earlier, a key factor for growth of the private label market in any country is sufficient penetration and muscle of organised retailers. The highly fragmented nature of the Indian retail market makes it intrinsically unsuitable for private labels. Further, most organised retailers today have a far better regional presence, as compared to a national footprint. Although most players plan to ramp up their national presence as part of their future strategy, there are several hurdles in the way. These include factors such as real estate and distribution costs, regulatory issues, and lack of skilled manpower.

Therefore, unless major Indian retailers ramp up their national presence and attain sufficient penetration and resources, the private label market will not take off in India.