In-house branding by retailers

In order to give boost to the retail growth, retailers are making lots of makeovers in their business operations. The introduction of private labels is one such means to that end. The ingress of organised retail has paved the way for large format retail chains that require quite a number of brands, to fill up their shelf space. In India, to keep pace with the booming growth of organised retail, there is urgent need of a sufficient number of branded products. Retailers too have realised that the demand for products has put the FMCG players above retailers, where the latter plays the subservient role. With private labels, retailers can balance the demand and supply. Private labels too help in growing category and ensure higher profit margin than those produced by major FMCG players.

More value

The major success story of private labels can be traced from the launching of brands by the leading retailer Pantaloon. The difference in business policies led Pantaloon to part ways with PepsiCo’s Frito Lay. The result is the birth of Tasty Treat that is retailed exclusively from Pantaloon Retail’s outlets, Food Bazaar and Big Bazaar. Reliable sources reveal that the brand accounts for 16 per cent share of sale in the snack category.  Presently, Prakash Snacks in Indore and Pogo Snacks in Kolkata are the two private companies that are manufacturing Pantaloon’s private brands. Pantaloons in return is helping these local manufactures upgrade their processing system where there is gap.

Also, private labels give the retailers an opportunity to bring in unique products which lack branding. However, positioning a brand is not a cakewalk. While brand building is a tough job, categories like commodities for daily uses seem to be an easier option as a private label. The introduction of private labels lends competitive edge to the retailers, thereby keeping the door open for retailers to initiate negotiation with the manufacturers, instead of giving in to their terms and conditions.

Future Retail has over 80 private labels. Commenting on its advantages, the spokesperson of Future Retail says, “It is basically a pricing strategy to build on the equity of the store. For example, Big Bazaar, Food Bazaar, Pantaloons, eZone, etc. have all built a considerable equity among customers as destination stores…there is, therefore, considerable trust when we introduce our own private labels. In case of private labels, everything is in our control, and we are able to get higher margins, ensure better quality, timely stock availability among other things.”

“Since we make these brands, we are able to offer our customers even more value. At our store we ensure that our customers see these offerings as brands, so we do brand specific visual merchandising for each brand to bring out the concept and positioning,” informs Ganesh Raman, Head – Marketing, Arvind Brands & Retail.

A string of private labels for men’s wear, like Elitus and Auburn Hill, from Arvind Brands & Retail have proven its success in the market.  

Some of the private labels of Future Retail have delivered more revenues than some national brands, claims the spokesperson of the company. The success is recorded in the revenue generated in 2007-2008 by brands like Ajile (apparel, Rs 48 crore), Bare (apparel, Rs 260 crore), DJ&C (apparel, Rs 250 crore), John Miller (apparel, Rs 240 crore), Dreamline (home segment, Rs 40 crore) and Koryo (consumer durables, Rs 125 crore) and Tasty Treat (snacks, Rs 60 crore), reveals the company spokesperson.

Govind Shrikhande, Customer Care Associate & CEO, Shoppers’ Stop says, “Private labels endow a retailer with exclusivity, fulfill customers’ niche requirements and ensure higher margin.” A retailer can introduce its private labels only after creating a considerable number of trusted clientele and acquiring adequate capability of sourcing and design, adds Shrikhande.

Fillip to retailers

Presently, all the leading retailers have launched their respective private labels as part of their business strategies. Tata-owned Trent is cashing in on the expertise of UK-based retail giant Trent for developing private labels, declared Noel Tata, Managing Director of Trent. The private labels constitute 90 per cent of the merchandise stocked by Westside, a retail format run by Trent. Private labels of Tesco account for 50 per cent of its merchandise.

For Future Retail the percentage contribution of our private labels is different in different categories.  For example, in the food segment, the private labels contribute between 20 - 35 per cent of sales in their respective categories. The apparel range in Big Bazaar contributes up to 40 per cent of sales, whereas in the case of Pantaloons’ private labels, the percentage is closer to 75 per cent. For Arvind Brands & Retail, this figure would vary from store to store and from city to city. On an average, its private brands would contribute to 30 - 50 per cent of its overall retail mix. Reliance Retail has categorised its food products into Reliance Value and Reliance Select, targeting mass market and upscale market respectively.

Higher profit margin

The aspect of profit margin is significant in private labels. In the food category, the private labels are 25 - 40 per cent cheaper than national brands, whereas in apparel, they would be 15 - 20 per cent cheaper than national brands. Considering there are no significant marketing and distribution expenses, the margins are good, reveals the spokesperson of Future Retail. Raman informs, “It would be difficult to quantify the margin specific for our brands across categories; we are a value channel and hence have to be very conscious of our pricing. The margins we make vary overall from 4 to 8 per cent across our formats.” However, it’s a million dollar question whether the consumers are ready to spend the same amount that they are willing to pay for a reputed brand. But at the same time, store brands have the cost advantage so that prices can be kept low.

Success abroad

Private labels are gradually becoming a dominant issue in retailing. In the UK it is recorded that 45 per cent of commodities are sold through private labels, whereas in the US it is 25 per cent. 95 per cent of the products stocked by the famous European retailer Aldi are private labels. Private labels constitute 40 per cent of the SKU of Wal-Mart; and 33 per cent of Carrefour.

The future

Sometimes, the lower prices of private labels play spoilsport as it is a common tendency to equate them with lower quality. Here lies the challenge for retailers. It is through winning trust of the consumers that private labels can enjoy the taste of success. But time is gradually changing, and so are the consumers. Brands from big retailers are no more looked down on, and private labels are gaining ground fast.