AN STUDY ON THE EMERGENCE OF PRIVATE LABELS IN

INDIA
INDIAN RETAIL SCENARIO

With more than 12 million retail outlets, India has one of the highest retail densities in the world.
The retail landscape in India is dominated by mom-pop stores and though organized retail is
emerging, it still constitutes a minuscule 3 per cent of overall retail in the country. But last 4–5
years has seen many Indian companies making a entry into organized retail, with a few
multinationals entering in the cash-and-carry formats and others tying-up with Indian companies.
Most prominent ones are Reliance, Futures group, Spencer‘s, and A.V. Birla Group.

The BMI India Retail Report for the third-quarter of 2010, forecasts that the total retail sales will
grow from US$ 353 billion in 2010 to US$ 543.2 billion by 2014. With the expanding middle
and upper class consumer base, there will also be opportunities in India's tier II and III cities. The
greater availability of personal credit and a growing vehicle population to improve mobility also
contribute to a trend towards annual retail sales growth of 11.4 per cent. Mass grocery retail
(MGR) sales in India are forecast to undergo enormous growth over the forecast period. BMI
further predicts that sales through MGR outlets will increase by 154 per cent to reach US$ 15.29
billion by 2014. This is a consequence of India's dramatic, rapid shift from small independent
retailers to large, modern outlets.

China and India are predicted to account for almost 91 per cent of regional retail sales in 2010
and by 2014 their share of the regional market is expected to be more than 92 per cent. Growth in
regional retail sales for 2010-2014 is estimated by BMI at 72.2 per cent, an annual average of 14
per cent. India should experience the most rapid rate of growth in the region, followed by China.
For India, its forecast market share of 13.9 per cent in 2010 is expected to increase to 14.3 per
cent by 2014.

Established retailers are tapping into the growing retail market by introducing innovative store
formats. Spencer's Retail, More (owned by Aditya Birla Group) and Shoppers Stop (owned by K
Raheja Group) already plan to expand. According to a McKinsey & Company report titled 'The
Great Indian Bazaar: Organized Retail Comes of Age in India', organized retail in India is
expected to increase from 5 per cent of the total market in 2008 to 14 - 18 per cent of the total
retail market and reach US$ 450 billion by 2015.India continues to be among the most attractive
countries for global retailers. Foreign direct investment (FDI) inflows between April 2000 and
April 2010, in single-brand retail trading, stood at US$ 194.69 million, according to the
Department of Industrial Policy and Promotion (DIPP)

PRIVATE LABELS

Private labels are brands owned, merchandised and sold by retailers themselves. These can be
categorized into store brands, store sub-brands &Umbrella brands. They are also called in-store
or own brands. Private labels are unique to a particular retailer and they can be divided into a
number of categories where the retailer‘s name is evident on packaging. From apparel,
healthcare products and furnishings to consumer items, they are making their presence felt in a
variety of retail items in India. Globally, private labels contribute 17% of retail sales with a
growth of 5% per annum. International retailers like Wal-Mart of USA and Tesco of UK have
40% and 55% own label brands representation in their stores, respectively. Private label
penetration in the United Kingdom is close to 37 per cent currently, and is forecast to exceed 40
per cent by 2011. In Germany private label has shot up from 12 per cent of sales to 34 per cent
over the last decade. And apart from the multi-brand retail stores, a category of retailers like
Ikea, Toys ‗R‘ Us, Zara has also been created who sell only private label brands.

Private labels are getting retailer attention due to profitability promise. Emulating international
counterparts, where private label are increasingly gaining significance, most department stores,
supermarket chains, hypermarket chains and discounters in India are promoting private label
products. The fundamental reason for this is the much higher margin and profitability on such
products, compared with branded alternatives. Indian retailers are increasingly hoping to ride on
the attractive proposition of private label products that promise higher quality, lower prices and
100 percent availability to consumers and at the same time offer up to three times higher
operating margins to the retailer.
Share in percentage of total 2000 2010
Sales
World 14% 17%
U.K 21% 37%
North America 20% 30%
Western Europe 24% 27%
India - 3%
China 0.1 5%
The increase in market share of private label brands has been attributed to growth of organized
retail. In the United States, private label brands account for 20 percent of sales in super markets
and mass merchandisers. The overall share of private label brands as a percentage of the total
consumer packaged goods in North America and Western Europe is expected to grow from 20
percent in 2000 to almost 30 percent in 2010. For some countries in Western Europe like United
Kingdom, Switzerland, and Germany where organized retail has consolidated presence, share of
private labels is already more than 30 percent and it is expected to go even higher.

Growth of organized retail chain in India has also led to growth of private label brands in India.
Indian economy has seen average growth rate of 6.8 percent since 1994, putting purchasing
power in the hands of customer. Though initial growth of private label brands in India has been
limited to certain categories like grocery and apparel, it is expected to expand into many other
categories as well. The Central Statistical Organization estimated the economic growth of India
for the second quarter of 2010 to be 8.9 percent. Currently, organized retail in India is estimated
to have only 5 percent share. In the total retail market, it is expected to grow at 25-30 percent.
Thus, with the growth of organized retail in India, the private label brands are also expected to
grow as experienced in other developed countries. The growth of private label brands in India
presents an interesting opportunity for the retailer to understand the motivations of consumers
behind choice of private label brands.

OBJECTIVE OF STUDY

To understand the price differences which exist between the private label and the
manufactured brands
To understand the reasons behind the evolution of the PLs, their status in the Indian retail
industry and to analyse the strategies of retailers in competing with the national brands
To analyse the future prospects and challenges of PLs in India with the prospective
changes in the retail industry.

METHODOLOGY

The methodology for the study is primarily qualitative. The directions for the research have been
drawn out from a review of literature and secondary data of the retailers have been used to gain
insights of their strategies and plans for private labels in their chains. For knowing the categories
in which private labels are emerging and their pricing, we have visited the retailers and observed
the private labels on display. The study is restricted to private labels in grocery and consumer
durables.
RETAILERS

The Spencer‘s retail is part of the RPG group which is a US$ 3.4 billion business conglomerate,
with diversified interests in technology, entertainment, power, transmission apart from retail.
Spencer‘s is one of the older organized retailers in the country having a much longer history than
most of the other players in the industry. It initially started off as RPG and introduced the
concept of specialty stores like FoodWorld, Health and Glow and Music World and then took
over Spencer‘s. The group has 400 stores across 65 cities covering a retail trading area of 2
million sq ft. There are five retail formats at Spencer‘s, with Spencer‘s Express being the
smallest—around 1000 sq ft in size and Spencer‘s Hyper being the largest with more than 25,000
sq ft in trading area.

The second retailer who has been picked for the study is Big Bazaar which is part of the
Pantaloon Retail group, which is a leading retail group in the country having multi-format
presence in both the value and lifestyle segment of the Indian consumer market. Pantloon has
presence in over 53 cities with its 1000 plus shops, covering more than 7 million sq ft of retail
space. Big Bazaar which is the focus of the study is a Hypermart format of the group with over
90 outlets across the country.

Reliance Fresh is the convenience store format which forms part of the retail business of
Reliance Industries of India which is headed by Mukesh Ambani. Reliance plans to invest in
excess of Rs 25000 crores in the next 4 years in their retail division. The company already has in
excess of 560 reliance fresh outlets across the country. These stores sell fresh fruits and
vegetables, staples, groceries, fresh juice bars and dairy products.A typical Reliance Fresh store
is approximately 3000-4000 square feet and caters to a catchment area of 2–3 km.

Shoppers Stop is an Indian department stores promoted by the K Raheja Corp Group (Chandru L
Raheja Group), started in the year 1991 with its first store in Andheri, Mumbai. Shoppers Stop is
one of the leading retail stores in India. Shoppers Stop began by operating a chain of department
stores under the name ―Shoppers‘ Stop‖ in India. Shoppers Stop has 35 stores across the country
and three stores under the name Home Stop. Shoppers Stop retails a range of branded apparel
and private label under the following categories of apparel, footwear, fashion jewellery, leather
products, accessories and home products. These are complemented by cafe, food, entertainment,
personal care and various beauty related services.

Trent is the retail arm of the Tata group. Started in 1998, Trent operates Westside, one of the
many growing retail chains in India. Trent also operates the newly launched hypermarket, Star
Bazaar which is situated in Ahmedabad, Bangalore and Mumbai. It is also opened Ampa Mall in
Chennai.

‘‘Bharti Retail Ltd.‘‘‘ is a wholly owned subsidiary of Bharti Enterprises. Bharti Retail operates
a chain of multiple format stores. The company‘s neighbourhood format stores operate under the
"Easyday" brand and the compact hypermarket format under the ―Easyday market‖ brand. Bharti
Enterprises tied-up with Wal-Mart for opening a chain of retail stores all over India. Though the
retail chain store venture is yet to see the light, the two companies, in August 2007, made a
surprise statement that they have signed a wholesale cash-and-carry deal.

PRIVATE LABEL GROWTH IN INDIA

And now, the role of private labels is gaining significance in the developing markets too. In India
there is a growing trend towards acceptance of private label brands and thus their penetration is
on the rise especially in the apparel, consumer durables, home care and FMCG segments. India is
still an under-branded country and in each category there is still a lot of scope for growth, this is
where the private label comes in and the story is looking good so far.

For instance, Future Group has already tasted the success with its Tasty Treat brand which is just
behind Frito Lay in the potato chips segment. Its Care Mate in the baby diaper segment has left
behind Huggies in the in-store sales. At Spencers, diapers and agarbattis sell more than market
leaders across the store chain.Experts comment that when it comes to local tastes and
preferences, private label brands have an advantage over national brands and this reflects in the
increasing percentage share of these goods in Indian retail chains.

Retailer Private Label Category

RPG Spencer’s Smart Choice Food & Grocery
Future Group Tasty Treat Food & Grocery
Bharti Retail Easy Day Fruits and vegetables,
groceries and staples,
consumer durables
Tata- Tesco Star Bazaar TESCO daily, Daisy, All about Health & Beauty, Food &
men Grocery
Shoppers Stop STOP, Kashish, LIFE, Vettorio Apparels
Fratin,Eliza Donatein,Acropolis
Reliance Fresh Reliance Select Food and Grocery
As the figure shows, among the major Indian players, the degree of private label penetration is
the highest in Trent with 90 per cent, followed by Reliance Retail (80 per cent) & Pantaloon (75
per cent)

COMMERCIAL OBJECTIVES BEHIND LAUNCHING PRIVATE LABELS

There are certain objectives that a retailer has in mind before getting into private label goods.
Figure 2 lists the benefits that a retailer expects from the in-store brands.
1. Higher Margins

Private label goods are cheaper to produce than branded goods. Besides, due to the lack of
advertising and marketing expenses they provide double advantage to the retailer when it comes
to the profit margins. While majority of branded goods provide margins in the range of 6-12%,
private label goods can offer margins up to 40% . Not only they give a higher margin to the
retailers, private labels have also changed the balance of power between brand manufacturers
and retailers, giving the latter a decided advantage when negotiating terms with the brand
manufacturers.

2. Stronger Customer Loyalty

As the private label offerings increase and the quality is assured, a high sense of loyalty is
cultivated among its customer base. This customer loyalty is the result of an affinity with the
retailer brand which implies that the development of private label brands can tangibly enhance
the retailer‘s brand itself. So in the long run, the private labels become an important tool for the
retailer to establish its positioning and strategically attract the target customers to its outlet.
Numerous studies have also shown that private label buyers are more store-loyal and not as
easily influenced as brand buyers.

3. Differentiation

Through private labels, retailers get a chance to bring in unique products in their supply chains
that have not been branded before. So if a retailer can cater to the local tastes and preferences of
the consumers well by top quality private labels then they can differentiate themselves from
other stores and become destination stores. In effect, it‘s a win-win situation even for the
producers who get a chance to display their produce.

4. Freedom with Pricing Strategy

A retailer promoting a private label has the added benefit of greater freedom to play with pricing
strategies, as a result of which these are overall cheaper than brand leaders. For instance, in USA,
some private labels are 25 percent cheaper than leading brands . In addition, since it is an own
private label, the retailer has the freedom to create its own marketing strategy and have more
control over its stock inventory. This command of all the stages that a product goes through,
gives the retailer high flexibility in pricing.

5. Positioning during economic downturns

The growth of private labels is likely to continue in the current financial environment as cash-
strapped consumers' perception of the products as a cheaper option changes. The price advantage
of private labels leads to the belief that these score in times of economic meltdown, and further
that this newly-acquired market share is maintained even as the recession swings out. Even after
the economy bounces back, consumers will naturally gravitate towards products marked at lower
prices yet offering the same quality, especially where the retail name is a trusted national or
regional player.

PRIVATE LABEL MATURITY CURVE

The share of private labels is related to the level of retailer sophistication and concentration in
the country. In economies where retail is more consolidated, private label shares are both higher
and expected to grow faster. However, the Indian retail industry is highly fragmented at the
moment and organized retail is in its nascent phase presently with contribution of about 5% to
the whole market. In this stage, the private labels that are launched play mostly the price game to
compete with the branded products. At this stage, most private labels which have acceptance are
at the bottom of the pyramid of retail products. However, as the retailers mature and gain
experience they want to move up the pyramid where realizations are higher. As the figure
depicts, over a period of time as the market matures, the retailers shift their focus from price to
product quality which leads them to a stage where they can launch their own brands in the
premium category expecting to capture the brand equity and the customer loyalty built over years
of good service. The consumers too, at this point, have enough trust and confidence to accept
premium products from the retailer.
IMPLICATIONS FOR INDIAN RETAIL MARKETER

1. Identify the needs of your customer base

The private label should provide the required functional as well as emotional attributes and
benefits. Keeping in mind that it already has a price advantage, this ensures that it takes into
account needs that are important to consumers and hence, offers a reliable point of difference
from other category players. By offering a differentiated value proposition, a private label
utilizes the approach that national brands use to arrive at a holistic benefit proposition rather than
the specific positioning they use. This furthers its promise that has been already informed by the
competition, confirming its category membership, but is clearly not a me-too expression. It is
also successful as it demonstrates a commitment to offer consumers multiple choices and
varieties with distinct attributes, benefits and price points.

2. Leverage the Consumer Connection

A successful private label has the ability to own the consumer connection and has the capacity to
strike a chord with consumers in multiple categories of products. Unlike national brands, private
labels are offered exclusively through a specific retailer and can easily surpass specific
categories because they have a consumer focus rather than a product focus as their brand
foundation. These brands instigate trustworthiness and allegiance from their loyal consumers that
the parent store becomes their conscious and obvious retail source for certain categories.
Moreover, these categories may be the reason that consumers are initially drawn into the store,
but once they get there, the store also has the prospect of encouraging them to spend more on
impulse purchases. Therefore, the private labels not only reinforce enduring loyalty and positive
feelings for the retail brand, they also enable the retailer to capture a more significant share of the
consumers‘ heart, wallet, mind space and lifestyle than a national brand.

3. Communicate at the Point Of Sale

Retailers need to be more cognizant of the significance of the communication with the consumer
at the point of sale. They own the canvas consumers shop on and thus, through store
environments, in-store messaging (like signage), merchandising systems, and packaging as well
as external messaging like circulars, catalogs and advertising in a congruent manner, the retailer
is able to create a lasting impression in-store, at shelf, at the time of purchase and during usage.
Retailers need to make sure that they send out the right message at these interaction points.
Moreover, many of these messages do not require revolutionary change for extended periods of
time, so they perpetuate a persuasive branded voice and don‘t require constant investment from
the retailer.

4. Collaborative category management

Category management is instrumental for a retailer to realize its own-brand goals and aspirations.
To maximize the efficiencies of product flow throughout the distribution system, a retailer must
be aligned with the supplier. The relationship between the retailer and trade should become
increasingly about cooperation and lesser about the retailer negotiating with the manufacturer or
supplier on price. By joining hands, they can strengthen their trade relationships and ensure that
the category as a whole remains profitable and emotionally appealing to the customer resulting in
both private label and branded goods as winners. They can collaborate in understanding and
deciding how to optimize the product lines and Stock Keeping Units (SKUs) that will progress
the category definition as a whole and determine planograms and shelf allocations to rally the
greatest degree of category interest and excitement from consumers.
5. Manage Brand Architecture the right way

Brand architecture is a critical consideration for private label marketing. Once the brand
proposition solidifies, the brand architecture strategy enables decision makers to promote this
promise at the store level in order to stimulate a sense of familiarity, recognition and trust. Also,
private labels have broader set of aisles than national brands. Because of this, it becomes more
and more important to differentiate its attributes and benefits on an aisle, category and product
basis. So the implication for the retailer is to strike the right balance of similarities and
differences with brand messaging and portfolio offerings.

OBSERVATIONS FROM RETAIL STORE SURVEYS

During the course of this project, we visited several such retail outlets and also found some
secondary information from internet. Here is a pen picture of what we found:

1. Store space: Nearly 40-50% of the store space was dedicated to store brands. These products
shared the shelf space with other branded products. For example, in the Reliance store that we
visited, its curd brand Dairy Life was placed next to the other brands, such as Amul.

2. A number of store brands: This is especially true for apparel. Shoppers Stop has several in
house brands. For example, in the women‘s wear category itself it has STOP, Kashish, Remika
etc. Similarly, in the men‘s wear category, it has STOP, Life, Vettorio Fratini, and so on. These
products are not differentiated from the other brands in terms of store space.

3. Price tag: These products were priced substantially lower than the other brands. For example,
Reliance‘s tea brand sported a price tag of Rs 118 for 500 gms, whereas Brooke Bond, which
was placed just next to it, was available for Rs 132 for 490 gms.

4. Catered to a number of categories: In these stores, the store brands were not limited to a
particular category. For example in Shoppers Stop, it extended from apparel for men, women and
children to crockery, kitchenware, and even furnishings. Similarly, in a Reliance store, it
extended from pulses to spices, noodles and even diary products.
CONCLUSION

The growth of private labels in the Indian retail industry is inevitable but retailers do need to
keep a few things in mind. Promotion of own label and allocation of large shelf space at the
expense of well-marketed national brands can depress the overall size and value of the category
while on the other hand, joining hands with them and following principles of category
management can create a win-win situations for both. Retailers need to realize the importance of
consistent brand message and should ensure that the product quality backs it well. Moreover,
when used as an umbrella brand, the brand portfolio should be managed properly as to avoid any
negative impact on the store brand. To conclude it is quite evident that as the Indian retail
industry consolidates over next decade, retailers will look to differentiate among themselves and
private labels will form a highly significant part of their strategies.
References

Pricewaterhouse Coopers (2009), ―Glimmers Amid the Gloom‖

KPMG in India (2009), ―Indian Retail: Time to change lanes‖

Images Retail (2009), ‖India Retail Report 2009‖

http://www.dare.co.in/opportunities/retail-franchising/the-growth-of-private-labels.htm
http://www.brandchannel.com/features_effect.asp?pf_id=399
http://www.indianmba.com/Occasional_Papers/OP132/op132.html