Wooing buyers with private labels

Natasha Dhoot, a homemaker in suburban Mumbai, has something to cheer about even when soaring inflation is pinching the pockets of every middle class consumer. Of late, she has been saving quite a significant amount on her monthly shopping budget after she started buying private label products, which are at least 25-30 per cent cheaper than national brands.

Private label products or services are those manufactured or provided by a company under another company’s brand. These are promoted within the store and are never sold outside.

Fast catching up

The trend of private labelling is fast catching up among the Indian retailers such as Shoppers Stop, Future Group, Tata’s Croma and Aditya Birla Retail’s More as consumers seek quality products at affordable prices. Besides, rapid technological and socio-economic changes over the last decade have affected the buying behaviour of consumers, forcing retailers to innovate and build new brands (private brands) across various price points to attract more buyers to their stores. They have not only created new labels but have customised and localised those products to suit Indian tastes.

For example, Future Retail’s supermarket chain Food Bazaar created Tasty Treat brand under the fast moving consumer goods section. It created offerings relevant to different regions and States with different curries, tomato ketchup, biscuits, cornflakes and noodles under this brand. While it has Kasundia, a very common mustard preparation used as a condiment, mostly for the east Indian market, it has Tasty Treat Khakra and Thepla for Gujarat, Basundi for Maharashtra and several other traditional Indian savouries and sweets. It entered the personal care segment with the Sach brand of toothpaste and Caremate brand for the home care segment. It also retails several private label brands in apparels and consumer durables.

A Nielsen study said that food continues to dominate the private label market at 76 per cent of total sales. Packaged grocery, for example, has a particularly dominant position, as it pulls in 53 per cent of total sales. While segments within the foods category such as packaged rice, packaged atta (wheat) and pure ghee have garnered the highest value in sales, a few private label segments are generating sales that are stronger than their modern trade equivalents.

In the non-food category, household cleaners hold the top position, accounting for 48 per cent of private labels. Personal care, fabric care and the general category are other segments that contribute significantly to non-food private label sales.

In a recent study, Rabobank said that the market share of private label products in India will more than double in the next few years, driven primarily by the food category. Currently, it is at 4.5 per cent. By 2020, the share will increase to over 10 per cent. What is driving the growth of private labels? Marketers and retailers feel that the pricing, which is lower than national brands, is a big advantage.

Most retailers have come out with a private labels in each and every category of products being sold in a departmental store or hypermarket. For most retailers, 20-30 per cent of overall sales come from private brands. In India, Shoppers Stop and Kishore Biyani’s Future Group have pioneered the launch of private labels. Shoppers Stop launched its first private label ‘STOP’ in 1994 and has since then has added around 10 exclusive brands. It forms about 17 per cent of Shoppers Stop’s total range.

Govind Srikhande, Managing Director, Shoppers Stop, said, “Up-to-date styles, top-notch quality, accessible prices all work for private brands in India. The triggers are similar in the West too. However, retail markets in the West are mature and private brands often supersede national brands in such markets. We are not too far behind and should see a similar trend in a few years.” The Mumbai-headquartered national retailer has been investing heavily on its private brands. It advertises new collections in store as well as uses mainstream media and online social media.

Besides these campaigns and acceptance among consumers, rising inflation has boosted the appeal of private labels because of their lower pricing. According to a salesman in a Food Bazaar outlet, consumers tend to downtrade during challenging times. Consumer durables, staples and home care segments are driving the private label segment.

This was one of the reasons why Tata’s consumer durable retail venture Croma launched its own label in 2008.

Higher profit margins

Ajit Joshi, CEO, Croma, said a private label allows higher profit margins to the retailer as supplies can be managed at lower costs. The products have been aggressively priced - a rung lower than the market leader - but at a par with other brands on offer.

He added, “the response from consumers have been encouraging and with close to 10 per cent share of our top line, our in-house brands are doing extremely well, and we would like to introduce more innovative products across categories.”

Jamshed Daboo, CEO of Star Bazaar, a hypermarket chain, says about 30 per cent of sales are from their private label range.

Retailers feel that though there is a huge scope in selling private label products, organised retail is still at a nascent stage and constitutes just six per cent of the total Indian retail market. However, in the last few years, it has been growing at a faster pace due to an upsurge in the number of malls and rapid urbanisation that has helped attract more value conscious customers towards value-for-money private labels.

>priyanka.pani@thehindu.co.in

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