What’s in store for brands

Recently, I walked into the neighbourhood outlet of a pharmacy chain and couldn’t h’lp notice the wide range of OTC products that were available under the pharmacy’s own brand.

What’s more noteworthy is the prime placement and visibility that these ‘store brand’ products receive within the store. A quick examination of just a couple of these products on display reveals what a great ‘value for money’ they offer compared to similar products offered by the popular ‘name brands’.

Store brands are among the fastest growing and most popular items on sale today. In the US, store brand growth has surpassed that of national/international name brands. The reason: They provide more choice and help customers save money.

Future of retailing, brands

Large-scale organised retail may be relatively new to India, but the retailers have been quick to latch on to the latest trends and techniques adopted by the best in the world.

Almost every organised retail chain in the country — irrespective of what they deal in — be it electrical/electronics (Croma) or groceries (Reliance, More) — sport ‘store brands’ or ‘private labels’. These are products that are manufactured by third-party suppliers to the specifications of the retailer.

Retailing is a tough business and customers can be quite fickle and demanding. Organised multi-brand retailers have realised that the vagaries and complexities involved in running their businesses are simply not worth it if they are going to keep selling other peoples’ brands and earning a wafer-thin margin for displaying them. The real money is in using their captive customer base to sell their own-brands.

According to Nirmalya Kumar, Professor of Marketing at London Business School, “As retailers have become more powerful and global, they have increasingly focused on their own brands at the expense of manufacturer brands. Rather than simply selling on price, retailers have transformed private labels into brands. Consequently, manufacturers such as Johnson & Johnson, Nestle, and Procter & Gamble now compete with their largest customers: Major retail chains such as Carrefour, CVS, Tesco, and Walmart.

The growth in private labels has huge implications for the traditional national brands. Yet, brand manufacturers still cling to their outdated assumptions about private labels.”

A few relevant statistics

Here are a few statistics pertaining to the US market that may be relevant for India in times to come.

Store brands contribute anywhere between 15 per-30 per cent of total sales in leading US supermarket chains.

A survey by Food Marketing Institute found that retailers are heavily focused on boosting the quality of their store brands to build customer loyalty and improve profits –– since retail gross margins are higher on store-branded products (~35 per cent) versus comparable nationally advertised brands (~25 per cent). It appears that store brands are the rule, not the exception — with nearly all grocers (~97 per cent) carrying store brands.

The recent economic downturn seems to have increased consumer preference for store brands, since they can be 20 to 30 per cent cheaper than popular national brand counterparts.

But studies indicate a demographic shift as well. What used to belong in the shopping basket of lower-income and middle-income households now attracts more affluent households too.

Gaining Trust

While Indian multi-brand retailers have latched on to the concept of ‘store brands’ — the key to get maximum returns from the model is ‘volumes’, which is a function of scale and quality, especially since store brands tend to have lower pricing power compared to their national/international counterparts.

The easy part is the growth in volumes that comes as scale increases. The tough part is quality and gaining trust.

Until Indian customers are convinced about the quality of ‘store brand’ products, they may not be willing to switch from their existing favourites. This is particularly true in the case of health and personal care products.

(The author is a business consultant. The views are personal. Feedback can be sent to >perspective@thehindu.co.in )

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