Companies

Cost pressures push retailers to focus on own labels

Bindu D. Menon New Delhi | Updated on June 08, 2011 Published on June 08, 2011

raj-jain   -  Business Line

GROWING TREND





With pressure on margins and costs becoming a reality, retailers, both listed and unlisted, are training their sights on private, or own, labels. Most companies are bringing more products under the private label ambit and these are poised to grow anywhere between 14 and 30 per cent in the next two-three years.

“The country is ready and the customer is ready for shopping at modern retail. Customers are looking for deals and a good shopping environment. With the price rise that we have seen, people are looking for brands that are good. It is here that private labels come into play,” Mr Raj Jain, President, Wal-Mart India and CEO, Bharti Wal-Mart, said.

Private labels are brands owned, merchandised and sold by retailers themselves. They are also sold at least 5-20 per cent cheaper across various categories. The margins in private label for retailers range from 15-20 per cent in consumer goods, around 20 per cent in electronic goods and 30-70 per cent in apparel as compared to established brands.

Explains Mr Jain, “The role of a private label is to provide quality products that are as good as branded ones but come at cheaper prices. And for that, the market in tier 2-3 cities is big. We have about 4-5 brands and 175 suppliers. They are more in food, textile and apparel, among others.”

Industry trackers say the rise in private labels is also on account of the lower margins being offered by big FMCG players. “The margin tussle with FMCG players is real. Retailers find it unrealistic to stock their SKUs (stock keeping units) given the high rentals in play. It makes selling the product unviable. Private labels by virtue can give good returns as they are sourced directly from the vendors and eliminate the middle men”.

Mr Thomas Varghese, CEO, Aditya Birla Retail, too endorses this view. Says he: “At present, our private labels contribute 19-20 per cent to the total business. We see this growing to at least 30 per cent in next two-three years.” Aditya Birla's portfolio of private brands comprises 54 categories and 300 products including processed food, home care, personal care and cereals.

The Raheja-owned Shoppers Stop's private label sales were up by 24 per cent. In a recent analyst call, Mr Mark Ashman, CEO, Hypercity, said in apparel, particularly, the company is focusing on a private label push.

Published on June 08, 2011
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