The spurt in demand for packaged food, including staples, and the changing dynamics of customer’s shopping preference, where they are more comfortable shopping in a super / hypermarket, has led to a multi-fold growth in the business of private labels.
A collaborative effort in this space has been seen with retailers stocking private label brands of industry competitors at their stores.
Here is a look at the current dynamics and interviews with key retailers in this space:
Understanding the Market
On the dynamics of the private label business in India, Business Adviser to the Tea Trading Division of Aditya Birla Group, Subrata Roy says, “The growth potential of 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 the private label.”
Private label brands have an edge with regards to understanding of 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 the best selling products.
The Business of Private Label
To take a quick look at what is happening in the online space, players like BigBasket.com and Naturesbasket.co.in have an array of products under their private label. BigBasket has gone a step ahead and branded wet groceries as well. It saw a five-fold increase in monthly revenues over the last 18 months, supported by supply chain optimization and an increased proportion of high margin private label products. Its private label products currently account for 33 per cent of revenue and are projected to reach 40 per cent by the end of this year.
According to former managing director – Godrej Nature’s Basket, Mohit Khattar, 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,” Khattar says.
Quality control is one of the important factors that makes retailers opt for having a private label besides offering a competitive price. As 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 icing on the cake.”
Reiterating the point on price, MD & CEO Savemax, Vaibhav Singhal states, “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.”
The power of private labels can be seen from the fact that a lot many players have now got into a collaboration mode. It is not unusual to see Future Group’s private label stocked at local supermarket. In fact, according to a news report, Future Group will sell about a dozen of its own brands at Star Bazaar outlets. This is indeed a rare initiative.
CEO Future Group, Kishore Biyani, was quoted saying, “We would distribute our products through large modern store formats to reach more consumers and this journey is starting with a group like Tata.”
Future Group’s retail outlets have products being specially produced / manufactured for them by a FMCG company set up by them – Future Consumer Enterprise (FCEL). Brands from FCEL include – Golden Harvest, Tasty Treat, Clean Mate and Care Mate.
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 four brands as part of their private label portfolio which include confectionery, chocolates, chips, flavored nuts, teas, gluten free pastas, roasted seeds/ seeds blends, super-grains like quinoa, buckwheat, roasted / baked snacks, healthier cooking mediums like olive oil and canola oil, some of the finest 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.
Khattar reveals, “Godrej Nature’s Basket is soon preparing to launch a fifth brand as well.”
On changes adopted over the years to their private label portfolio based on the response received, Khattar shares, “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 barbeque 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 floral honeys or seed blends targeted at specific health conditions, etc. One can almost visualize a virtual redefinition of the Indian palate.”
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.”
Meanwhile, 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 says, “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.”
In the online space; newsletters are the best way to reach out to people and then there is of course the incentive offered through loyalty programmes. In the offline space, the shelf talkers and dump displays do the trick.
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.
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.”
To ensure a better brand recall and visibility at the store when it comes to private labels, Subrata Roy of Aditya Birla accentuates the need for concentrated efforts on packaging to make the differentiation and create an impact. “It is important to have continuous research and innovation in packaging and product differentiation,” he concludes.