Online private labels are expected to grow 1.3 to 1.6 times faster than e-commerce platforms and continue to generate 1.8 to 2 times higher margins than external brands, according to a study by KPMG in India and Retailers Association of India.
The study titled ‘The online private label growth paradigm’ says that online private labels will continue to be a driver for profitable growth for e-commerce marketplaces.
The rise of private labels comes against the backdrop of exponential growth in the e-commerce market in India.
Between FY16-19, the e-commerce market grew at a compound annual growth rate of 29.8 percent to reach Rs 1.4 lakh crore and is projected to grow at an estimated 30 per ent in the period for FY19-23.
The e-commerce market in India accounted for 2.3 percent of the overall retail market and 21 percent of the organised retail market in 2019. Its share in organised retail is set to grow to around 28 percent by FY22.
“With a gradual shift from unbranded to branded, online retailers are also launching their own private label brands, thus providing consumers with a much wider choice of products and channels to choose from,” said Harsha Razdan, Partner and Head for consumer markets and internet business at KPMG in India.
“If one takes a long-term view, the journey of private labels gradually moving to brands will be shaping the future of retail,” said Razdan.
The study says online private labels allow platforms to attract new consumers, improve consumer stickiness and thereby, increase market share. Big e-commerce players, across product categories, attribute greater than 50 percent of their private label sales to repeat purchases.Online private label purchases in categories such as apparel, grocery and cosmetics see repeat purchases exceeding about 60 to 65 percent, indicating that having a strong private label strategy will be a good initiative.
Private label growth and their higher profitability translate to better valuations, the study says.
Besides, private labels offer supply chain efficiencies and greater product customisation abilities that later translate into higher margins. For instance, a leading grocery marketplace improved its category margins by launching premium labels in organic and superfood categories.
KPMG in India held discussions with more than 25 online and offline retailers with a pan-India presence across seven product categories to identify the trends underlying private label growth.