Walk into a Croma store and you will find an expanding array of in-store branded products. Croma stocks major brand in consumer electronics and electricals. Rachit Vats reports.business Updated: Feb 07, 2011 01:35 IST
Walk into a Croma store and you will find an expanding array of in-store branded products. Croma stocks major brand in consumer electronics and electricals.
Shoppers Stop has a number of private labels including Stop, Kashish, Life, Elliza Donatein, Acropolis, Vettorio and Fratini. Over the years, through its First Citizen - its loyalty programme - customers, it has taken feedback and fine-tuned its label offerings.
Other organised, modern retail majors have also launched private labels across an increasing spread of product categories, spanning groceries and foods, FMCGs, apparel and accessories, homecare including kitchenware, and even furnishings.
The Future Group has eight brands in the packaged foods and FMCG spaces, across a dozen categories. Reliance Fresh offers grocery including rice, pulses, tea and noodles under the Reliance Food brand and dairy products under Dairy Life. Aditya Birla Retail, which has its More outlets, has private labels too.
A KPMG report, Indian Retail: Time to Change Lanes, quotes the Images Retail Report 2009 that says that at 90%, Trent (Tata) has the highest penetration of private labels, while Reliance has 80% and Pantaloons 75%.
So, is it to be assumed that as modern retail grows, private labels will grow too? Looking at the Western retail scenario, from which India has drawn its organised modern retail formats, they should. Globally, store brands account for 17-20% of retail sales, on an average. Retailers such as Tesco, Carrefour and Wal-Mart have 40-50% of in-house brands in their stores.
The most obvious reason for launching private labels is the advantage of better margins. Even with lower pricing, margins could in some cases be double as compared to third party brands. While retailers are offering freebies and deals currently to promote their own labels, as the retail entities themselves grow and garner greater consumer trust, the offtake of their private labels should escalate.
Industry experts expect the growth of private labels to acclerate. "As inflation grows, consumers will begin to downgrade from the more expensive to the less expensive. They will move from branded to the non-branded, and private labels will get more space," said Raj Jain, MD & CEO, Bharti Wal-Mart.
In 2009, Walmart offered eight brands - including Great Value and George - from its private label range to Easy Day, the supermarket chain run by Bharti Retail. Its private labels currently contribute 20-25% to sales. Similarly, Tesco supplies Star Bazzar stores, run by Trent, with around 50 of its private label brands that include Discounter and Tesco Value products.
"Private labels are becoming an integral strategy of Indian retailers as they work on higher margins. They will continue to play a role of between 10-35% of the retailers' portfolios. In the next five years, top retailers may just reach the scale to be in a position to bargain with the bigger brands," said BS Nagesh, vice chairman, Shoppers Stop.
Private labels in foods and groceries are selling the fastest among all private labels. "They are working well in the staples as they do not compete with branded products. But when it comes to branded FMCG products, they still have a long way to go. Still, retail is all about margins and if consumers are convinced about a private label consistently providing similar value as third party brands at a better price, it can do well," said Nandini Chopra, executive director - corporate finance, KPMG India.
Currently, private labels contribute anywhere between 8-25% to overall sales for retailers. "Our own labels contribute about 19% to our sales and we are hoping to take their share up to 30% over the next few months," said Thomas Varghese, CEO, Aditya Birla Retail.
"At Spencer's, 16% of our sales come from our private labels. Grocery private label shares are much lower but are the fastest growing. On an average, our private labels are 10% cheaper than other brands. In categories where private labels have a high share, third party brands have begun to react, bringing in more investments," said Mohit Kampani, VP - merchandising, Spencer's Retail.
"Private labels are a reality, but if you are a top brand, there is nothing to worry about. A brand, if it follows the basics and creates and maintains differentiation, has no reason to worry about private labels," said Shrijeet Mishra, executive director - food, Hindustan Unilever.
However, Devendra Chawla, head - private brands, Future Group, stated, "Private labels have forced brands to lower prices." He claimed that Future's launch of its tomato ketchup brand at Rs 30 less than third party brands forced the latter to reduce prices.
Retailers are very positive about the future growth of organised retail and private labels. Consumer spending is expected to expand over the next few years as GDP stays over 6%. Business Monitor International forecasts that organised retail sales will reach US$99.09 bn (Rs 4,45,905 crore) by 2014, touching 12.4% of total retail sales, and sales through mass grocery retail outlets will increase by 155% to reach US$11.61 bn (Rs 52,245 crore).
"We believe private labels will grow at a phenomenal rate in future as consumers realise that they offer quality products at a fraction of the prices third party-owned branded products charge. Also, as organised retail grows, an efficient supply chain will help spread private labels in towns that are often poorly serviced by national brands," said Jain of Bharti Wal-Mart.
Organised retail is positive on the future promise of private labels.