Indian retail embraces private labels

“Strategic Issues for Retail CEOs”, a thought leadership report by PricewaterhouseCoopers, puts forth that private label products will be a major lever for growth of participants in India’s retail sector.  Indian consumers, often referred to as value conscious, will find major benefit in purchasing private label products since final  promotional offers to quickly move their own brands.  India’s major retailers expect to embark upon the following strategies for their private label products: costs paid are lower.  A demanding and aspirational middle class of 300 million people (or 75 million households) and a large young population of 500 million under the age of 25 years are just two of the demographic-oriented statistics that suggest a large market for private labels in India. 

The report also indicates that many retailers are launching new private label offerings, are enhancing their private label portfolios and will launch robust

• Increase the range of offerings
• Derive an increased share of revenue from the sales of products
• Embark upon promotional offers and sales
• Increase the visibility of products in store outlets
• Offer selected products through other retailers’ outlets

Where private labels stand tall

Private labels are a win-win for both retailers and consumers.  Retailers can derive higher margins from private labels; this is especially important given the pace of the evolution of the retail sector and the fight to stay competitive in what is becoming a crowded marketplace.  Private labels can also help draw footfalls and can enable retailers to differentiate themselves in the market.  Consumers benefit since they are able to purchase competitively-priced products that meet fairly good standards for quality.  Consumers will also increasingly be able to choose from  a range of private label categories, since retailers are looking to create/improve their presence in footwear, fashion and apparel, accessories, food and beverage, household cleaners, consumer durables, FMCG, etc.

Retailers perceive private labels in a range of ways.  For example, some retailers believe that private labels are more suitable for commoditised categories like rice, wheat, pulses, sugar.  Others believe that private labels can be extended to a range of categories that include home goods, consumer durables, apparel, footwear, kitchen items, home furnishings, food and beverage, etc.  Some major food and grocery players are embarking upon backward integration and are creating a range of private label food offerings in dairy, organic fruits and vegetables, etc; these players are working with farmers to help them improve quality, transportation practices, hygiene, etc. The margins of private label products are typically double that of nationally branded products. 

Enormous potential as proven in the overseas market

As the retail sector evolves, so do the types of product created and made for consumers.  Private labels are nascent in India which is to be expected given that modern trade can be traced to the 1990s.  Given the variances in market maturity between India’s retail sector and that of other retail markets in the US and in Europe, it is natural that private labels have yet to achieve a level of sophistication in India that they enjoy overseas.  Most private labels in India are positioned on the basis of cost and most of the packaging is on the basis of a “no frills” approach.  In contrast, private labels are more mature in developed markets and several large food and grocery players maintain several categories of private labels, both mass and premium products.  The packaging, price points, product variants, etc. differ across both types of private labels.  These retailers have been successful at and continue to focus on building their private label brands, such that the retailer becomes synonymous with the brand.  In developed markets, it is also socially acceptable to admit to shopping at department stores which carry mostly private label products.  These department stores have entered into design collaborations with some of the world’s leading fashion designers to create lines of apparel, accessories, home goods, footwear, etc.  Overseas, some retailers who operate in fashion and accessories, home goods, food and grocery, etc have created private label-only formats which are successful, desirable and are pursued by consumers. 

Private labels: part of long-term strategies

In India, we observe that private label FMCG products are starting to become a threat to branded players.  FMCG, given its stage of evolution, well-entrenched players and the nature of its products, has started to exhibit signs of pressure from private labels in the form of price competition and, in some cases, disagreements over margins with major food and grocery operators.  FMCG brands, over the next few years, will have to start defending market share, create clear differentiation strategies vis-a-vis private labels and may also need to reduce prices for some product categories.

Private labels are a growth opportunity that retailers cannot afford to ignore and many are assessing market potential by conducting pilot projects to assess the impact that own brands have on visibility, sales and revenues.  Others are working on enhancing depth and breadth of private label ranges. Other selected observations include:

• While low-price private labels exist, retailers are changing their focus from “a price game” to one that involves developing a portfolio of brands with distinct positioning for each brand. 
• Retail chains are trying to understand unfulfilled demands existing in Indian market through need-gap analysis.  Retailers are incorporating demographic and psychographic indicators into their need-gap assessments. 
• Retailers are also learning from the lessons of experimentation; the quality of their private labels is being improved, product extensions are being created, etc. 
• Some retailers are launching dedicated formats for private labels in apparel and accessories.  In the early stages of being launched, this is an indication of the level of commitment that retailers are exhibiting to private labels.
• Retailers are also working to increase and improve the level of trust that consumers have with regard to private label offerings.  That said, sharp promotions, competitive pricing, freebies, etc. are some ways in which retailers can incentivise consumers to try private label products. 

In India, private labels are becoming a major component of retailers’ long-term strategies encompassing product development and sales.  Most retailers are investing towards creating robust private label ranges which will appeal to consumers, delight consumers and also meet consumers’ price preferences.  In private labels, Indian consumers are eagerly anticipating improvements in packaging, new product launches and aggressive pricing.  Those retailers who develop good quality, well-priced private labels, and focus on branding and promotion, will increase both their top and bottom lines in a retail environment where innovation, meeting customers’ needs and efficiency are imperative.

The author is Executive Director and Leader, Consumer and Industrial Products, PwC