Jiana Blog: private labels

Published article in Point of Purchase Magazine - Feb '2011

Who says shopping isn’t complicated? With the number of variables being plugged into shopping every day, it has become an art & a science both for the Shopper & the Marketer.

But, who has made shopping complicated?

In the current Indian scenario of such intense competition, the rate of change is constantly pushing new limits. Just a couple of years back, an Organized Retail in-store innovation used to make marketing headlines & office talk across companies. Now, they all seem common place. Every week, companies are fighting for space & retailers are auctioning it to the highest bidder. As the End-cap prices sky-rocket, brand managers need to innovate constantly in-order to engage the shopper just that little bit extra.

The options for a typical middle / upper-middle class urban household meanwhile are ever increasing. The phenomenal success of malls & multiplexes, irrespective of their high-end pricing speak for themselves. Shopping behaviour is changing & fast, led by: rising household incomes, brisk entry of more foreign players, a younger India & penetration of technology. For FMCG in particular, it is predicted by booz&co. that 30% of total trade will come in from modern trade by 2020. 30% across India would mean a number in the range of 70% for Urban India.

The Concept of Shopping thus has & will continue to become more complex, especially for the Marketer.

Almost every FMCG player has accorded special focus towards the Modern Trade format & has infrastructure & managerial capabilities dedicated towards this channel.

What about Traditional Retail or General Trade as in FMCG parlance? Companies are realizing the potential these 8 million mom-and-pop stores provide. Currently and in the near future, they will continue to remain the most preferred format for a majority of Indians.

A leading FMCG company for instance, accords the same importance of a Modern Trade outlet towards all of its top Grocery turnover mom-and-pop stores. The same margins, the same schemes and the same quality of dedicated merchandising. This is the future, the evolution of the so-called unorganized sector. ‘Necessitated by the local retailer’s need in face of competition, but driven by the various FMCG players in the industry.

As a fundamental consequence, this leads to a multitude of options for the Shopper. They are spoilt for choice even within their conveniently placed local Grocer. Has this led to Shopping becoming more complicated? Well, it has certainly become more attractive for the Shopper.

Let me cite the case of private labels in Modern Trade. Two of India’s leading Food Retail chains both have private labels placed right beside popular brands from established market players. These private labels play mainly on the ‘significantly lower price’ or on the ‘higher weight for the same price’ angle. A typical Middle class shopper might get severely conflicted during purchase in many low involvement categories, thereby playing into the hands of these private labels.

A shopper thus starts to assimilate more & more information on price & weight (ingredients, freshness, freebies etc.) comparisons thus leading to the point of inflection in the brand vs. price trade-off. Ultimately the simple decision of buying a Floor Cleaner now involves a complex matrix of numbers & scientific text.

Challenging times in Shopping behaviour ahead, ‘the more the merrier’ seems to be the ‘shopper’ mantra till date, as the ‘Marketer’ continues to grapple with building capabilities to tackle the same.

Few examples:

Big Bazaar: DreamLine, Kryo, Pure, Premium Harvest, Tasty Treat, Clean Mate and Care Mate

Reliance: Reliance Select

Subhiksha, Spencers, Food World : Same label

[The Ecomonic Times Oct. 4:]

Big Bazaar isn't alone in this display of bravado. Almost every retailer in India that has acquired a certain size and scale has private label brands, which allow them to enter new categories faster than traditional marketers. And as organised retail grows in scale, Indian retailers are leapfrogging ahead, experimenting with various kinds of private label strategies.

Private labels serve many purposes.

Exclusivity and Differentiation to retailers.
Plugging a need gap -- for instance, Big Bazaar's label DreamLine is aimed at providing shoppers the entire gamut of home improvement solutions under one brand.
Retailers are also spurred to launch private labels given the low penetration of most categories in India.
Then there is the aspect of supply chain efficiencies.
Private labels also help in cutting down on intermediaries
Dropping cost
Better margins for retailers
More customer discounts

"The established brand is always the reference brand. Private labels are pitched on the plank of the same or a higher value at a lower price," explain officials at Reliance Retail. Own labels also offer more choice to customers, build loyalty and retention. "You are more in control of your own destiny with private labels. You get to decide its positioning, price architecture, packaging and the way it's sold," says Andrew Levermore, CEO, HyperCity.

According to a Euromonitor study, the global private label market was estimated to be worth $1,411 billion in 2005, and is growing at 6 percent per annum. Organised retail currently forms only about 3.59 percent of total retail in India, but its share will leap to 28 percent by 2017, according to a study by Technopak Analysis. And a 2007 study by Technopak says that overall, private labels already form 19 percent of the total market share in India.

Future's private labels account for 20 percent of the food category, while overall, the share of private labels for the group is pegged at about 10 percent.

Given the nascence of retailing in India, one would assume that players are looking only at generic private label brands. But segmentation is already taking place even within own labels -- from pure generic brands to premium brands being retailed on the shelves. For instance, Big Bazaar has four different private labels strategies -- opening price point labels, promotional labels, trade-up labels and even deep-discount labels.

In clothing, it is 100 percent for players like Tesco, Sainsbury's and Asda, says George. "Starting from a pure 'value' play, it has now become 'quasi branded' like Tesco Value, Tesco Finest," he says, adding that the private label product hierarchy in Tesco is being managed like a brand, with sophisticated analysis being put into space, pricing, promotion and strategies.

The emergence of private labels is giving smaller brands -- especially in functional driven categories where emotional connect plays a negligible role -- a chance to compete with the big boys. For example, Food Bazaar has 'adopted' labels like Wow Premium sanitary napkins and insecticide spray Quit, manufactured by Asian ITG, a manufacturer for brands like Mortein.

Subhiksha has recently moved to third party brands, which include brands sold exclusively at Subhiksha and made to quality specifications approved by the retailer. This covers groceries sold under the Subhiksha name as well as other products typically sold by national FMCG companies.

Retailers are looking at ethnic merchandising depending on the demographics of a store location, and bringing non-national brands into right ethnic catchments. For example, Spinach retails Kolkata-based Zarna Ghee (manufactured by Sunderman Dairy) and Kerala-based Curry Milk in Mumbai. Subhiksha retails south Indian pickles in RK Puram at Delhi.

There is hardly any special advertising created for own labels, except for the odd leaflet or two. Most retailers rely on shelf space and signages, and techniques like sampling and active merchandising at the store, for promoting their brands. Subhiksha and Spinach believe the key is inducing trials, though the store can only influence trial, but the product has to take over and deliver. He also feels it is essential that the packaging and look and feel are as good as if not better than national brands so customers don't have reason to view the products with suspicion.

The real challenge, however, will be for retailers to take own labels outside their stores and make them national brands -- something that Future Group has announced it will do. DreamLine and apparel brand Buffalo are the two labels it has mandated for national roll-out, and the responsibility of taking these labels across various other channels rests with Future Brands. Malhotra says the rollout will be a learning experience, given that the brands will move out of the protected environment of the stores. "It will give us an understanding on whether private labels can stand on their own," he explains.

Another trend on the anvil is exclusive co-branded labels in the form of joint venture between manufacturers and retailers. "Co-branding is evolving, though more work needs to be done before the level of comfort is arrived at," says Shahra.

Retailers, however, know that a balance needs to be struck between private labels and branded products from traditional marketers.

Jiana Blog

Friday, 18 March 2011

Has Shopping become complicated?

Wednesday, 10 October 2007

Private Labels: Big Retailers