The Tatas may soon make a grand entry into consumer electronics. Does that sound like a challenge to LG, Videocon or similar brands? Perhaps yes, maybe no. The respected business house is planning to get into the business of private label goods as part of a strategy to boost its organised retail business in which the brands will be theirs but not the manufacturing.
Unlike an Indica (car) or Voltas (air-conditioners) which Tata group companies manufacture on their own, private labels involve importing or outsourcing the manufacturing to other entities but taking ownership for brand, distribution, quality control and pricing. In the process, retail sales can be made at higher profit margins while supplies can be managed at lower costs.
The Tatas are not alone. The Future Group, which runs the retail chain Big Bazaar, introduced private label brands across categories like food and electronic products. Retail houses like Shoppers Stop also have “store” brands that are similar. Tatas also have their own Westside brand of apparel that are not manufactured in-house but are part of the group’s retail firm Trent Ltd.
Private labels typically fall between little-known brands and industry-leading brands.
Speaking to Hindustan Times, Ajit Joshi, CEO and managing director of Infinity Retail, a 100 per cent subsidiary of Tata Sons, which runs the Croma chain of electronic products said: “The plans are on the drawing board yet. We are evaluating many categories within the small appliances segment, which includes microwaves, fans, water purifiers, toasters, mixers, grinders and healthcare products where we could introduce private label brands. We hope to see the project take off in 2008 itself.”
He said that the team, which is formulating the strategy for private labels, is busy understanding import regulations and thinking of differentiation strategies.
Private labels have been fetching good revenues for Electronics Bazaar and e-Zone, Future Group’s chains of electronic products.
“Our private label brands Koryo and Sensei contribute Rs 100 crore to our total revenues of Rs 750 crore” said Manoj Kumar, CEO of e-Zone and Electronics Bazaar.
Industry people feel that private label brands are likely to taste more success in mature categories.
“In more mature and commoditised categories like DVD players and CRT television sets, where consumers perceive little product differentiation, acceptance of private label brands is higher as compared to high technology and premium categories like LCD televisions, laptops, home theatres etc”, said Vivek Sharma, chief marketing officer, (Indian sub-continent), Philips. The expectations of good after-sales service also turns the preference in favour of established brands in big-ticket items. Agreeing to Sharma’s contention, V. Ramachandran, director, sales and marketing, LG said, “The consumer may be willing to take some risk in case of certain durables, which are consumable durables (electronic shaver etc) and where the unit price involved is low.”