When retail started its ascent in India, consumers were thrilled by the advent of brands they had only seen or read about. Some of these, however, were priced beyond the reach of the average wallet. To offer consumers a wider choice, some retailers introduced private private labels, which appealed to their preferences and budget. Over the years, not only have these labels gained widespread acceptance, they have also grown to become individual entities of their own.
In today’s dynamic world where consumers seem to be shaping choices, private labels have comfortably entrenched themselves in their hearts. The advent of online retail has also spurred its popularity. Today, we see more and more e-commerce players in categories beyond apparel such as food, grocery and electronics offering a competitive range in quality and pricing, attracting a significant number of buyers who are as happy to own a private label or store brand.
According to an FICCI–PWC report, Shaping Consumer Trends, private labels have found both a footing and favour with the value-seeking consumer. Some examples include Big Basket, whose private labels contributed 35 per cent to revenues in 2015.
Another example of success is online furniture and home décor store, Pepperfry. The brand is all set to boost its profits by the end of this year, is moving closer to profitability fuelled by sharp growth even as it espouses a more regulated approach to discounts.
Private Labels Evolve
Private Labels marked their entry in the retail landscape as store name labels created to offer price-sensitive consumers an option to large established but expensive brands. Over the years, they were developed and built to address consumer needs that were unheeded by the larger national brands. Today, it is not surprising to see store shelves across categories displaying private labels and large brands comfortably next to each other. Retailers realised that by doing this, not only did it increase the width of offering for their consumers, it also naturally extended the big brands’ credibility to these products.
The past few years have witnessed a dramatic change in consumer behaviour. Their needs have evolved and with it, their expectations. This has trickled down to private labels who have also progressed from fulfilling a functional need of price and convenience to moving up the value chain and addressing higher order needs around safety, wellness and gratification.
The shift has also changed the consumer perception of private labels. No longer are these considered low cost options to popular brands. Private labels are now high quality alternatives that fulfill any price point. They have graduated from being a compromise to an informed choice.
Private labels began their journey by cautiously treading across low investment categories like food and grocery and finding success in them. Today, we see high investment categories such as electronics and fashion launching their own labels which are as successful.
What is the reason for this sudden infusion?
An Indiaretailing study found last year that retailers across categories concurred that while private labels helped address consumer needs, they also provided high margins to retailers. Almost all retailers, online or offline, were expecting private labels to contribute between 20-40 per cent to their overall sales.
While private labels are gaining traction and often stand in the way of large FMCG as well as reputed national and international brands, there is no data to indicate their share in the overall buy basket of the consumer. We are yet to understand consumer loyalty in this category. As they move up the value chain, do they graduate to the more expensive brands that they can now afford, or do they stay married to private labels?
Still the prospects for retailers are bright and shiny. This is evident in the fact that most retailers are now donning the avatar of a brand manufacturer. They are increasingly creating a complex private label portfolio to fulfill ever-changing consumer demands.
When private labels first made their appearance, they were assigned a smaller share of mind by the retailer. Marketing investments were minimal, if not non-existent. If the consumer chose a private label, it was basis his or her comparison and analysis with a similar or better offering (to large national brands) at a better price. Familiarity with the store and the store brand were the reassurance of quality. For the retailer, the absence of heavy marketing spends combined with healthy margins provided a double income benefit and helped profitability.
The scenario is different today. Leading e-commerce player Myntra has created a fashion brand, Roadster, which has a position akin to other large names. Huge investments have been deployed towards its marketing and brand building. Other brands are following suit.
Does this eat into the retailer’s profitability?
As retailers increasingly enter the domain of what was once traditional product brand marketing, it creates a host of new challenges and opportunities.
Private labels in India make up for almost 10 per cent of the retail business in India. The consumer is waking up to this world of new choices. However, large brands are not giving up the battle without a fight. Brands such as Cadbury and other F&B players are fighting back by introducing smaller, bite-size SKUs.
Clothing brands are shifting towards more value driven products. Some categories such as electronics and home products are fighting on innovation. Each large brand manufacturer is putting their might behind their brands to win back the consumers they have lost in this price war with private labels.
Private labels are growing. This however does not mean that they are pre-destined to achieve unprecedented growth and very high market shares. Unlike in the UK, retail in our country is fragmented and not as consolidated. Private labels will have to work really hard to make their mark. Yes, India is a value-driven market, but private labels which depend on price to win their war may find long term sustainability and growth a challenge. Private labels allow for better margins, better control over the products a retailer sells, better control over the instore experience. All of these, however, have to be woven together through well-thought out strategies that will ensure success.
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