Mini project report On Private labels (with special reference to mores pl AU79)

SUBMITTED TO Prof. K.Anitha

SUBMITTED BY
Parth Sarthi 6034 RM

Private label
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 45 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, Spencers, 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. 2

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 instore or own brands. Private labels are unique to a particular retailer and they can be divided into a number of categories where the retailers 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 3

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 2000 total sales

World U.K North America Western Europe India China 14% 21% 20% 24% ------0.1%

2010

17% 37% 30% 27% 3% 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: 1. To understand the price differences which exist between the private label and the
manufactured brands. 2. To understand the reasons behind the evolution of the PLs, their status in the Indian retail industry and to analyze the strategies of retailers in competing with the national brands 3. To analyze 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.

RETAILERS
The Spencers 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. Spencers 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 Spencers. The group has 400 stores across 65 cities covering a retail trading area of 2 million sq ft. There are five retail formats at Spencers, with Spencers Express being the smallestaround 1000 sq ft in size and Spencers 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 5

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 Hyper mart 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 23 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 companys neighbourhood format stores operate under the "Easyday" brand and the compact hypermarket format under the Easyday market brand. Bharti Enterprises tied-up with WalMart 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
RPG Spencers Future Group Bharti Retail

Private label
Smart Choice Tasty Treat Easy Day

Category
Food & Grocery Food & Grocery Fruits and vegetables, groceries and staples, consumer durables.

TataBazaar

Tesco

Star TESCO daily, Daisy, All about men.

Health and beauty,Food & Grocery.

Shoppers Stop

STOP,Kashish,LIFE,Vettorio,Fratin,Eliza Apparels Donatein,Acropolis

Reliance Fresh

Reliance Select

Food and Grocery

Adityaa groups More

birla

AU79

Male grooming.

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 retailers 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, its a winwin 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 cashstrapped 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

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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 11

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 dont 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 12

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, i visited several such retail outlets and also found some secondary information from internet. Here is a pen picture of what i 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 womens wear category itself it has STOP, Kashish, 13

Remika etc. Similarly, in the mens 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, Reliances 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.

Data interpretation
1. Do you purchase private label brands?

Yes-10

no-0

14

purchase

yes no

Out of 10 people 10 people says that they purchase private labels. 2. Generally in which category you purchase private label brands? Fmcg-5 grocery-2 consumer durables-1 apparels-2

purchase

FMCG grocery consumer durables Apparels

Out of 10 respondent 50% of them says that they purchase private labels in FMCG category,20% purchase in grocery,10% in consumer durables and 20% in apparels.

3. Where do you buy the private label brands from?

15

Shopping malls-5

speciality store-4

internet-0

others-1

shopping

shopping malls speciality store internet others

Out of 10 respondents 5 said that they made their purchase in a shopping malls,4 said that they made their purchase in specialty store, 1 respondent said that they made their purchase in other places and there is no internet usage for making private label purchase. 4 a. I feel confident when I use PLBs. Out of 10 respondents 1 respondent was strongly agree with this, 5 respondents was agree,3 was neutral and 1 response for disagree and no response for strongly disagree.

strongly agree agree neutral disagree strongly disagree

4 b. I find economical to buy PLBs

Out of 10 respondents 1 was strongly agree,7 was agree,2 was neutral and no response for disagree and strongly disagree.

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strongly agree agree neutral disagree strongly disagree

4 c. PLBs may be associated to luxury

Out of 10 respondents ,1 respondent said that he is strongly agree with this point,2 was agree,4 was neutral,2 respondent said that they disagree with this and 1 respondent was strongly disagree with this point.

strongly agree agree neutral disagree strongly disagree

4 d. I find PLBs good for ones image Out of 10 respondents 1 was strongly agree with this point,5 was neutral,3 was disagree and 1 respondent was strongly disagree with this point.

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strongly agree agree neutral disagree strongly disagree

4 e. PLBs have youthful image

Out of 10 respondents ,1 respondent said that he is strongly agree with this point,2 was agree,4 was neutral,2 respondent said that they disagree with this and 1 respondent was strongly disagree with this point.

strongly agree agree neutral disagree strongly disagree

4 f. It is secure to use PLBs

Out of 10 respondents 4 said that they are agree with this point,2 respondent was neutral ,4 respondent was disagree with this point and no response for strongly agree or strongly disagree.

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strongly agree agree neutral disagree strongly disagree

4 g. I find PLBs simple to purchase

Out of 10 respondent 4 respondent said that PLB is simple to purchase and they strongly agree with this point,4 respondent was agree and 2 respondent was neutral and there was no response for disagree or strongly disagree.

strongly agree agree neutral disagree strongly disagree

4 h. Its reasonable to buy PLBs

Out of 10 respondent 5 respondent strongly agree with this point,2 respondent was agree and 3 were neutral.

19

strongly agree 2nd Qtr neutral disagree strongly disagree

4 i. Warranty is provided with PLBs

Out of 10 respondents 3 respondent was agree,3 was neutral and 4 respondent strongly disagree with this point.

strongly agree agree neutral disagree strongly disagree

4 j. I think that PLBs are innovating

Out of 10 respondent 1 respondent was strongly agree,3 was agree,1 was neutral,2 was disagree and 3 strongly disagree with the point.

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strongly agree 2nd Qtr neutral disagree strongly disagree

4 k. It is convenient to purchase PLBs

Out of 10 respondent 2 respondent strongly agree,7 respondent agree and 1 respondent was neutral on this point.

strongly agree 2nd Qtr neutral disagree strongly disagree

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Appendix

Questionnaire

1. Do you purchase private label brands?

Yes No
2. Generally in which category you purchase private label brands?

FMCG Consumer Durables Apparels

Grocery Other(please specify)_______

3. Where do you buy the private label brands from?

Shopping malls Speciality stores Internet Others (please specify)_________

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4. Mark the following statements with 1 if you strongly agree to 5 if you strongly disagree Statements Strongly Agree 1 2 3 4 Agree Neutral Disagree Strongly Disagree 5

I feel confident when I use PLBs

I find economical to buy PLBs

PLBs may be associated to luxury

I find PLBs good for ones image

PLBs have youthful image

It is securing to use PLBs

I find PLBs simple to purchase

Its reasonable to buy PLBs

Warranty is provided with PLBs

I think that PLBs are innovating

It is convenient to purchase PLBs

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Personal Details:

Name:_____________________________ Area of Residence:___________________

Age__________________ Sex___________________

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