Retailers are increasingly looking at private labels as a means to increase margins as well as volumes by offering products at prices lower than brands. The latest news on this :
"ADITYA BIRLA RETAIL TO LAUNCH PVT LABELS IN DURABLES, PERSONAL CARE "
"Aditya Birla Retail, the retail unit of Aditya Birla Group, plans to launch private labels in a number of personal care products such as hair oil, hair styling gel, shaving creams and gels, toothpaste under its brand ‘Enriche’ by March this year, to take the advantage of down trading in the economy, said a top company official. The Company is also planning to launch private labels in consumer durables and electronics once it takes the number of its hypermarkets to 14 by FY11, the official said. The Company runs 670 supermarkets and two hypermarkets, under the name ‘more’ and plans to open 200 new supermarkets by FY11.Currently, the company sells consumer durables in its hypermarkets and has tied up with Essar Telecom’s The MobileStore for retailing mobile handsets in its supermarkets. The Company currently has more than 320 private labels in categories such as processed foods, personal care products, detergents etc. These products sell 10 to 15 per cent lesser than that of national brands in respective category. "
Business Standard: February 04, 2009
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Private labels are always an integral part of any retailers' business stragegy. The experience from some of the largest retailers worldwide tells us that business profitability as well as retail brand identity are reinforced by success of their private labels. Following are the excerpts from an interview with Nirmalya Kumar, Professor of Marketing and Director of the Aditya Birla India Centre, London Business School and co-author of Private Label Strategy,published in Business standard magazine:
ReplyDeleteQ: How have private labels evolved in developed countries?
A: Private labels have come a long way over the last three decades. They started with retailers wanting to offer cheaper substitutes. This was for two reasons. One, having a private label meant that retailers could negotiate a better margin from the manufacturer. And the other, when they had private labels they had a differentiator. While every shop sold a Coca-Cola and Pepsi, a private label meant that the store now had something that other stores did not.
The biggest change in the last decade or so has been the entry of premium private labels. They are no longer saying “buy us because we are cheap”, instead today, they are saying “buy us because we are the best”. By offering high quality products, many private labels have started charging more than regular manufacturers.
Today, retailers have realised that by having top quality private labels they can differentiate themselves from other stores and be a destination store. For instance, Tesco in Europe has a range called the Tesco Finest line. It does have a Tesco Value line, which is cheaper, but the Finest line only sells premium products at premium prices. Tesco’s Finest chocolate, for instance, sells at 50 per cent premium over, say, Cadbury’s.
Similarly, its yogurt sells at more than 50 per cent premium over Danone and other yogurts. Retailers are now doing everything it takes to create premium brands. They advertise on television, take up brand-building exercises, and most importantly, they focus on developing a better product than the existing manufacturers’ brands.
Q: Is the same likely to happen in India as well?
Yes, the economics will remain the same. The share of private labels in any country depends on how consolidated the retail chains are. Developing a good quality brand has a high development and innovation cost attached to it. To be able to absorb such costs, Indian retail chains will need to scale up.
In India, the largest retail chain today has around 300-400 stores. Retail chains in developed nations on the other hand have around 3,000-5,000 stores each. So it will start with retailers reverse engineering manufacturers’ brands, and as organised retailers grow larger, their labels, too, will move up the value chain. However, the transition will be faster in India.
Q: Can private brands ever generate the type of consumer loyalty some of the iconic manufacturer brands such as Marlboro and Coca-Cola have?
A: Yes definitely. In most developed countries, private labels have managed to achieve that. Study after study has ranked Aldi in Germany as the nation’s number one brand. In a recent study, its brand name in terms of consumer trust was ranked ahead of even DaimlerChrysler.
Again, Tesco is among the top 10 brands in the UK. Similarly, French retailer Carrefour is one of the 10 most recognised and trusted brands in France. So good quality private labels definitely generate a very high level of loyalty amongst customers.
Q: What is the future of private labels?
A: Private retailers will occupy 50 per cent of the market the world over. At 50 per cent, they begin to saturate. If they try to occupy more than this, then consumers feel that there aren’t enough choices. In countries such as Switzerland and the UK, private labels have reached this limit and these markets have saturated. But they will continue grow in the other countries till they reach the same level. And this will happen very soon in India, too.
The private label industry suffers by not taking itself seriously enough as a branded category.
ReplyDeleteIt is the Private label sales for these retailers which contribute significantly to the bottom line. Because private label products are less expensive, one might be tempted to think of them as a lower quality alternative. Indeed early ventures in private labeling yielded inconsistent quality and tarnished the overall image of a private label concept. But we must remember a large part of growing the private label market involved improving the product’s quality. As the private label’s quality improves the lower earning consumer can be more certain of the value for money ratio. Just like a branded product, once the relationship has been established, the consumer will continue to buy as long as it continues to perform well.