Private labels: Can they make it big?

Private labels are attractive in terms of higher business margins and this is a reason big retailers are trying their hands in building their own brands. For instance Future Brands, is looking at launching 4-5 more private brands across 7-8 categories over the next few months.

Retailers in mature markets have leveraged their brand to launch private labels successfully. In Europe, for instance, private labels account for nearly a quarter of a retailer’s sales.

Own manufacturing unit or sourcing?

According to Mr Anurag Rajpal, VP, Apparel, Spencer’s Retail Pvt Ltd, “When there are so many small & medium enterprises available in the country to manufacture products as per the retailer’s specifications & branding, its best for a retailer to stick to sourcing.” In fact, it is always advisable for a retailer to stick to core competencies such as outsourcing, logistics & supply chain.  

Says Mr Ramesh Srinivas, Executive Director, KPMG, “For inexperienced retailers the challenge of managing a large portfolio of private label merchandise can become challenging. It can be capital intensive to start a manufacturing unit, with a sourcing partner; the retailers can focus more on branding, marketing, promotions and other such avenues of brand building.”

Retailer can opt for manufacturing set only if it has core expertise, creativity for the category they want to manufacture. Experienced manufacturers typically have a good sense for ingredient costs and trends so they can eliminate a great amount of trial and error with developing a product. In case of an already existing product in the market it will be suitable to source the products; however, in case of unique product or a technology involved it will be advisable to have an in house manufacturing for a part or the entire product.

Main points to choose eligible sources

For selecting the right source you need to visit the facility and make a checklist. For technical specifications check the plant and machinery (model & make). See the covered/open area. Check their certifications (ISO etc), lab, product technologist, QC frequency, tech & non-tech staff, production cap(min/max), financials, payment terms, safety measures, legal & moral responsibilities (bio-degradable, waste mgt, environmental clearance, labour laws )etc.

Market know how—in-store and out-store

Like any national brand, private label need to focus on making the brand as competitive as them.

In store marketing: Retailers can work aggressively on

• USP of the product

• Packaging

• Internal displays

• Self talkers

• Punch lines

Says Srinivas, “Retailers should grow private labels by investing real value in the initial offerings. Have distinction in the offering. Pack it with USPs that is real, and not emotional, as is the case with mass-marketed FMCG brands.”

Out-door marketing:”We can think of having hoarding where the product is highlighted and special importance is given to its retail destinations,” avers Lalit Agarwal, MD, V Mart. For instance, XYZ brand, available only in V Mart. This makes the collection and the brand exclusive for the consumers.

Therefore, success of private label retailers globally has been dependent on their ability to innovate in all aspects of a product - formulation or ingredients, supply chain, packaging, advertising, promotional schemes, and so on.

Can it work like a FMCG distributor?

The private label business is yet small, and a small value sub-set of the business enjoyed by the organized retail industry. Organized retail is just about bringing in a portfolio of brands in the private label space in the country. There is influx of brands in the space of garments and common day-to-day usage items such as grains and pulses.

“We are yet to get mid-price and premium price private label initiatives in India. Private labels launched by chain stores and super-markets have the immense potential of eventually becoming ‘public labels’ as they find distribution outside of the chain-store that launched it in the first place,” explains Srinivas, ED, KPMG.

In consonance with the statement, Anurag Rajpal shares,” Absolutely & that should be the focus for any private label to eventually become a strong brand with FMCG kind of distribution network. However, it’s easier said than done.”

According to Anurag Rajpal, VP, Apparel, Spencer’s Retail, FMCG brands work an x intake Margin where they part/share a portion of that with the retailer whereas private labels are direct to retail programs & hence work on a different margin platform. The challenge for a private label program would be to work on a wholesale model which ensures sufficient margin for the label & the retailer & at the same time be able to stand against an established brand & still offer competitive pricing & value proposition to the customer. This takes time and until & unless, there is a very strong consumer traction with the private label which might take a while, it’s advisable to stick to Direct to Retail Programs only & after having firmly established itself in the consumers mind, private label programs can be taken outside like FMCG distribution.

Current challenges to become a National Brand

A majority of Indian consumers associate private labels with low cost, and are, therefore, apprehensive about compromising on quality. The target segment for organized retail in India is still predominantly urban, and in the context of private labels, it is more inclined towards urban consumers who give high priority to quality. Consumer loyalty has been seen to provide impetus to private label growth in developed countries such as the United Kingdom. The lack of this bonding and loyalty could hamper private label penetration in coming years. However, with the entrance of several corporate majors such as Reliance, Tata, Pantaloons and so on there is intense private label competition in the current Indian retail scenario.

They have proved themselves as worthy challengers to well established brands in terms of product offering, price points, packaging, presentation, the whole value proposition. Only when they can sustain themselves against the best of established brands over a credible period of time then & then only a retailer should think of taking the private label outside & subsequently work towards making it a relevant national brand.