In the era of direct-to-consumer networking, private labels are emerging as the strong adversaries of national brands. Retailers like Trent, Aditya Birla, Future Retail, Croma are leveraging their in-store brands to increase sales margin and customer loyalty. Not just retailers but customers are also growing averse to the idea of brand loyalty.
Before we dive in further, let’s first understand what a private label is and how it is different from a national brand...
What Are Private Labels?
Private labels are in-store brands created by retailers to offer buyers a competitive price and unique product design and attributes. National brands, on the other hand, are established household brands with distinctive branding and packaging. They have larger advertising budgets, long-established supply chain system, and a legacy name with great brand recall. Both private labels and national brands have carved a niche for themselves in the retail industry.
In India, private labels constitute 20% of the organized retail business and 10-15% of the e-retail segment, and the numbers are expected to grow doubly by 2021, which begs the question that - are private labels the new legacy brands?
Private Labels Are Best Suited For Indian Consumers
The concept of private labels is not new to the Indian market. Back in 2005, Shopper’s Stop launched its in-store label called ‘STOP’ to offer their buyers a rather lucrative option. However, the revival of private labels is no longer exclusive to economical factors. Customers are consciously opting for private label products due to quality, high food safety standards, product appeal, packaging, and credibility of the retailer.
Private label products in high involvement category are also gaining traction due to their competitive prices, features, and technological innovations.
India’s current economic scenario is also favourable for the growth of private labels and contract manufacturing. The electronics manufacturing industry is expected to be valued at a whopping $400 billion by 2025, which exudes optimism for corporate labs, domestic manufactures, and start-ups. The budget for FY 2020 has proposed a few changes in basic custom duties to push the domestic manufacturing and assembling of mobile handsets; this might encourage retailers like Reliance and TATA to introduce their line of smart phones products.
To align themselves with the government’s “Make In India” vision, e-commerce giants like Flipkart and Amazon have also shifted their product manufacturing and sourcing to the domestic market. Premium smartphone maker OnePlus is also planning to establish an R&D base in India, their biggest so far, in the coming year. Owing to the local manufacturing push, OnePlus has also launched a new range of Smart TVs in the Indian market.
Amazon Basics from Amazon and SmartBuy from Flipkart have already become established household brands in India. Reliance is also set to enter the e-commerce segment with a hybrid online-offline business model so expect more action in this space.
All developments aside, private labels are still posed with the challenge of disrupting high involvement categories. Categories like healthcare, cosmetics, and high involvement electronics (refrigerator, ACs, etc.) are still being dominated by big brand manufacturers. Retailers will have to go the extra mile to create an industrial breakthrough, as competitive prices alone won’t be enough to convince the buyers to alter preferences.
In the wake of private labels becoming commonplace, name brands are also evolving their distribution practices. They are optimising their cost to compete with private labels; additionally, they are launching direct to consumer channels, both online and offline, to establish a better connect with buyers. The fact that this has caused a stir in the processes of legacy brands is a standalone proof that private labels are taking the retail industry by a storm.
Private labels will have to cause a fringe in the mainstream if they intend to disrupt. To tap the high involvement market, retailers will have to streamline their Product Lifecycle Management efforts. Full transparency throughout the stages of production will also ensure high-quality output. Hence, private labels are crucial assets for retail strategy and if done right will yield high results.