These days when you make a visit to Tata’s Westside, Kishore Biyani’s Big Bazaar or RPG Group’s Spencer’s or even a Vishal Mega Mart, you find that everyone is betting big on private labels for they are fast becoming one of their major revenue spinners and a cost effective deal for the consumers at a comparable quality.
What are private label brands??
Often referred to as in-house brands or store brands, private label brands are those that are owned by the retailers themselves. For example, Shoppers Stop has several in-house brands such as STOP, Kashish, LIFE, Vettorio Fratini, Elliza Donatein and Acropolis, Wal-Mart’s Great Value, Reliance Fresh sells grocery such as pulses, rice, tea, noodles under the Reliance Food brand and the dairy products such as its curd is sold under the Dairy Life brand etc. In fact, Wal Mart has more than 5000 such brands in more than 100 categories. Not only are private brands now found across a spectrum of products -- from groceries and staples to apparel, consumer electronics and mobile handsets -- they are considered brands in their own right.
After recession, consumers have become more aware and careful before choosing what they want to purchase and at the same time there has been increasing pressure on retailers for margins. Initially, for the retailer, the private label was one more way to earn a little extra. As quality improved, though, customers became more accepting, and retailers began to change their attitudes. For retailers, gross margins on private labels are, on average, 25% to 30% higher than on those of manufacturer brands. In fact many private labels recorded profits during recession when many of the known and established brands failed. All the whey is such a private label brand which saw returns in excess of 250 percent during the recession period.
Storing a private label brand has become more of a differentiator for the retailer these days. If a store brand becomes popular enough to become a destination brand, it has implications for customer loyalty and profitability. As these brands create an identity for the retailer, there is a lot of work that goes into the pre-launch phase. These brands are then re-invented every year through consumer and competitor surveys. The core strength of a retailer still remains retailing and has a very important role to play in the success of private labels which really don’t use the advertising aids as other brands.
According to a FICCI-Ernst & Young 2007 report, as quoted in The Marketing Whitebook 2009-10, the retail sector in India was worth $280 billion, of which organized retail comprised 5% at $14 billion. According to Images Retail Report 2009, as quoted in "Indian Retail: Time to Change Lanes" by KPMG; private label brands constitute 10-12% of organized retail in India. Of this, the highest penetration of private label brands is by Trent at 90%, followed by Reliance at 80% and Pantaloons at 75%. Big retailers such as Shoppers Stop and Spencer’s have a penetration of 20% and 10% respectively. Globally, store brands constitute nearly 17% of retail sales. In fact, international retailers such as Wal-Mart and Tesco have 40% and 50% of in-house brands in their stores. In North America and Europe, private label goods have experienced strong growth, especially during the recession. What’s more, consumers in those regions say that they expect to continue buying private label goods even after the recession is over. The story is very different in Asia. The private label concept has yet to make a significant dent in sales, and only in Hong Kong do they have above 5% share of sales. Retailers across the region have been investing in the development of Private Labels but still have a lot of work to do to convince shoppers of the quality and value of these products compared to leading brands.
What’s Ahead?
The changes shaping the retail scene in Asia Pacific go beyond store size and format. Nielsen has identified a number of trends that will affect retailers and manufacturers in the next decade, including:
The changes shaping the retail scene in Asia Pacific go beyond store size and format. Nielsen has identified a number of trends that will affect retailers and manufacturers in the next decade, including:
· The growing role of the male shopper – An increasing number of men are becoming involved in grocery shopping. Only in India and Indonesia do housewives dominate, and Korea and Vietnam also still strongly adhere to traditional roles. Across the region, 22% of the “main” grocery shoppers for households are now male, up from 14% a decade ago.
· Hypermarket growth stalls as multi-format strategy gains – Smaller formats that offer shoppers a more convenient way to “top-up” shopping have gained in popularity, many being opened by the leading hypermarket chains themselves.
· Shopping outside the store – Shopping done via the TV or Internet is gaining traction in Asia Pacific, with Korea leading the online shopping sector. Koreans have embraced this “format,” with 4% of shoppers saying they use the Internet for the majority of their grocery shopping and 71% saying they use it regularly to purchase groceries and personal care items. An additional 30% say they use TV shopping.
All of this apart, can private labels unseat the number one player in any category? Would they be able to take the position of leading category brands that help set consumer expectations and drive in the traffic? Well I won’t answer this question now but with conclude the post with the words of Santosh Desai, CEO of Future Brands: "If you are in the business of retail, your religion is making money for every square foot. Building brands comes only after store-level efficiencies are achieved."
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