Private Labels are a win-win solution for retailers and customers in the current retail market structure. While retailers expect better bargaining power with their vendors, in turn better margins and control over their merchandise mix, customers get a wider range, better quality and good prices for the products.
The growth of private labels is directly linked to the growth of modern retailing. Retailers need to gain customer confidence in its offerings so as to successfully introduce private labels. Private label’s share in the modern retail in India is about 7%, but it is as high as 40% in European countries, and as low as less than 1% in China.
What are Private Labels and why use them?
Private label products are commonly referred to as name brand, store brand, own label, retailer brand or generics. These are brands owned by the retailer rather than the producer or manufacturer. Private labelproducts are found in almost all food and grocery categories.
Recently, retailers have been aligning private label brands with identified consumer trends, such as premium and indulgence, everyday value, health and wellness, and organic and ethical (Collins & Bone, 2008). Similarly, Reliance Retail and Food Bazaar offers a range of PLs to suit various consumer needs.
The reasons why retailers choose to offer private labels include generating additional margins by by-passing branded suppliers as the power shifts from national brands to retailers; filling gaps in their product range which may not be currently addressed by branded suppliers; including a product variant or a size option in that category and using private labels to differentiate their store’s product range from competitors; and create a distinctive advantage This helps in improving profitability and loyalty to the retailer.
The Increasing Acceptance of Private Labels in India
Indian retailing has seen a lot of ups and downs over the last few years. With the increasing growth of the organised retail sector, private labels or store brands are also increasingly accepted by the Indian organised retail market. The recession has significantly given a thrust to private labels, thus favourably affecting the private label sales of almost all major retailers like Reliance Retail, Future group, Aditya Birla Retail, Bharti Wal Mart Retail, Hypercity, Infiniti Retail, Trent, Shoppers Stop etc., offering private label in their merchandise mix.
Though the growth of private labels was seen across categories, growth in grocery was prominently seen in supermarkets at 15% and hypermarkets accounting for 30% of total value sales.
Introduction of private labels in categories such as apparels and footwear, toys, electronics and appliances enable retailers to expand their offerings. Even Apollo Pharmacy and Guardian Pharmacy entered into their private labels in 2010 in health, beauty and personal care products.
The private label market in India is currently estimated at Rs 13 billion, which accounts for 10-12% of organised retail in India. Retailers such as Pantaloon, Trent, Shoppers Stop and Spencer’s have increased focus on private label retailing. Private labels constitute 90% of Trent’s, 80% of Reliance’s and 75% of Pantaloon’s overall sales. Aditya Birla Retail plans to increase the share of own brands in sales from the present 3% to 10% in the next 2-3 years.
According to industry estimates, private label margins for electronics goods are up to 20% higher compared with average national brands. This rises to 30-50% when it comes to clothing. Department stores tend to price their products at par with standard-priced products of some leading brands in India, while electronics and appliance specialist retailers, as well as health and beauty specialist retailers, generally price their products lower than the respective leading brands in order to generate volume sales. (Euromontior, 2012)
Low Pricing is Moving Consumers toward Private Labels
It has been reported that mid- to higher-income consumers in developing countries are often the first to try and accept private label as low-income shoppers are more cautious in their purchase and need higher levels of trust in a product. Though the lower income households purchase more private label goods in both edible and non-edible categories than the other two income brackets, it is also true that national brands still constitute the bulk of their market baskets.(Nielsen Homescan, 2012)
Consumers prefer to buy private label products mainly due to their low pricing and prefer to buy such products from large chained retailers, which also offer a wide variety of private label products with better quality (Euromonitor, 2012). Consumers in India prefer private labels over national brands due to availability and price benefits in that category.
According to the Technopak’s Private Label Report 2012, food and grocery segment is a key driver for PLs accounting for 20-25 percent, and sometimes even 40 percent, of all categories in Private Labels. Margins in private labels in staples like sugar, groceries can range between 15-25%.
Future Impact of Private Labels
Many retailers have increased their profits by offering private label products since there are huge margins to be achieved from private label products, which are 30-40% higher margins than branded products. Retailers are not any more offering low quality products for a lesser price, but they are creating new level of differentiation, better pricing for a good quality product and new merchandising and promotion strategies.
One major advantage to the retailers in India, and which works in favour of private labels, comes from the fact that Indian consumers are less brand conscious and more quality and freshness conscious. Most major retailers have introduced private labels not only in food and grocery products, but also in apparels and accessories, consumer durables, toys, healthcare, and home furnishings. The Future group plans to increase its private label portfolio by adding more than 60 products to its private label range.
(Source: An article by Mudra Institute of Communications, Ahmedabad -MICA in India Retail Report 2013)