The Journey of the Growth of Private Label Brands in India

A decade ago the concept of Private label brands in India never existed as Indian

consumers were more dependent on mom and pop stores which were unorganized. Shoppers Stop was the first retailer in 1990's to get into private label branding with STOP brand with a range of branded women ethnic wear but not many companies got into the organized retail market, as years passed by many business houses and new first gen entrepreneurs started their ventures into the retail arena with Future Group, Trent, Infiniti Retail, The Mobile Store, Westside and Univercell making a mark in the Indian organized Retail industry and eventually they started their own private label brands which has now grown to 14% of the total organized retail market which does not include the private label brands of small mom and pop stores.

With the organized retail market to reach $51 billion in 2010 as per ASSOCHAM-KPMG Study,the private label brand is going to make it big, Initially the private label was only targeted towards the non branded product range which included wheat flour, masalas and papads. Now the private label brands have grown out of proportion by entering into high technology electronic gadgets like mobiles by Univercell, The mobile store and into other electronic products by electronic retail major croma with an entire"handpicked by croma" product range.

With the growth of private label brands, National brands are losing grounds to these retailers who are not only low priced but are also on par with quality standards and for the retailers themselves who are able to get anywhere from 20-40% margin on the sales, whereas national brands pay only 12-20% margin for the sale.The second reason being the regional effect of taste and preferences in a country like India wherein retailer have been found to be having 30% products having local taste and preference and 70% which is found in an all India basis to cater the the regional needs and wants. Effect of private label brands on national brands was best exemplified during the tussle between frito lays and Future group and later on frito lay's brand like lays got off-shelf and tasty treat private label brand of Future group took over and now is amongst the highest seller in the Future group retail outlets and have a considerable amount of market share in fried chips market and now the private label also extends to fruit juices, sauces,etc.

The credit to the growth story of private label brands does not include only the retail outlets but also the national brands. The earlier strategies of national brands have themselves now eaten their own market. At the start of last decade Multinational companies like Hindustan Unilever Ltd, Procter and Gamble, Britannia and others started outsourcing their product manufacturing to third parties. Companies shared their formulas and technology updates with the third parties to manufacture products which were on par with the quality of products manufactured by the MNC's themselves only to keep them away from the manufacturing and human resource problems and give more attention towards the Research and Development of new products and expanding the product lines.

While the third party manufacturers parted ways with MNC's and as they already had the technology ready to produce such quality products which not only helped the third party companies to get their own brand into the market but also helped new entrants like ITC (Sunfeast Bisucuits, Vivel Soaps, and Bingo Chips) and retail biggies like Future Group to get into the market who need not invest in the manufacturing or into human resource and were able to get their products faster in the market and had to only invest in Research and development Capability.

The Private label not only helped customers to get products at a lower rate but also provided quality products. They helped many new entrants to invest negiligible amount into manufacturing but created problems to big wigs like Hindustan Unilever, Procter and Gamble and Britannia who had initially outsourced their production to lessen human resource problems and have now created a ready back end process for new entrants and private label retailers to manufacture their quality products from these third party manufacturers at a far less rate and retailers like Future Group and Trent have been able to get private label brands faster and easier into the market.

Today, a decade later orgainzed retail players Trent baosts of 90% sales through private labels, Reliance Retail having 80% of their sales and Pantaloons at 75% of their sales and plans of getting more private label brands and extending brands like Sach by Future group to small retail outlets and extending the product line and getting into new product categories.It is an alarming signal for FMCG majors towards a situation like Walmart-Tide,wherein Walmart stopped purchasing from P&G and got their own private label products with similar capability and now have a progressive share in the detergent market.

Year after Year FMCG majors are getting tough competition in the Indian scenario with fake products, local brands and now the growing private label brands who also have the muscle power and have more capability than any other local or counterfeit product manufcaturer to not only produce but to sell and are increasingly lowering the bargaining power of the FMCG majors,Even is such a situation there are chances of FMCG majors making the most of it by themselves helping private label brands to manufacture and share their capabilities and make profits from sharing than losing the game like Samsung and Toshiba did with Best Buy in the US.

The Journey of the Growth of Private Label Brands in India

By: Akshay Rao

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