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Business \n Standard, Mumbai, February 28, 2011<\/i> <\/p>\n Business \n Standard, Mumbai, February 28, 2011<\/i> <\/p>\n
Sayantani \n Kar (with inputs from Preeti Khicha)<\/i> <\/p>\n
When some of India\u2019s big retail chains banded together recently \n to substitute Reckitt Benckiser\u2019s products with private labels \n to protest the latter\u2019s decision to cut sales margins on \n its products, they were doing something many global retailers \n have done with great success. Part of their overall strategy, \n especially for large chains in the US and Europe, is to develop \n quality private label products that complement other pieces in \n their marketing mix. While this is one way retailers can differentiate \n their firms from competition, it also helps them flex their muscles \n in their relationships with brand manufacturers. Indeed, retail \n giants Tesco, Walmart and Carrefour have a significant portion \n of their sales coming from private labels \u2014 ranging from \n 10 per cent for Costco and 50 per cent for Tesco.<\/p>\n
India is a back runner in the private label race, but it is \n catching up. A Shoppers Trend Study by Nielsen found awareness \n about private labels has gone up from 64 per cent in 2009 to 78 \n per cent in 2010 across 11 cities in India. Nielsen Director (retail \n services) Siddharthan Sundaram says, \u201cOver the last three \n to four months, we found an increased awareness of private labels \n in categories such as staples, household products, personal care \n products such as soaps, biscuits and packaged groceries.\u201d \n Thanks partly to the recent economic downturn, there is greater \n acceptance \u2014 and even loyalty \u2014 to such brands in India, \n say marketers. Future Group Business Head (private brands) Devendra \n Chawla reasons, \u201cA label on the shelf becomes a brand by \n covering the two feet distance from the shelf to the trolley. \n After all it is the consumer\u2019s choice.\u201d Even in the \n toughest segment for private labels to crack \u2014 fast moving \n consumer goods including food and personal care \u2014 store labels \n claim share of 19-25 per cent.
\n <\/p>\n
Low-involvement categories such as household cleaners were among \n the first to see the entry of private labels (17-44 per cent of \n sale in modern trade), bringing in huge margin-lifts for modern \n retailers. In categories such as food products \u2014 jams, biscuits \n and staples \u2014 private labels today contribute more than 25 \n per cent of modern trade sales. Little wonder, retailers are now \n mining shopper data to make private labels shed their \u2018low\u2019ly \n tag \u2014 low involvement and low cost. Store chains are segmenting \n their brands according to consumer needs, combining more than \n one brand according to consumer behaviour, besides launching high-involvement \n premium products and innovative packaging to give national brands \n a run for their money.<\/p>\n
Innovate or die<\/b>
\n Retail innovation has had a big role to play in speeding up the \n process of consumer acceptance. Future Group\u2019s retail arm, \n which includes Big Bazaar and Food Bazaar, calls its in-house \n products \u2018private brands\u2019 not labels. It has a separate \n team, headed by Devendra Chawla, to research and test FMCG products \n before launch. The team has a range of private brands \u2014 Tasty \n Treat, Fresh and Pure, Cleanmate, Caremate, Sach, John Miller, \n Premium Harvest and Ektaa. Look at how it is using shopper data \n to improve its products. The insight that kids found ketchup bottles \n cumbersome and had to be served \u2014 making it inconvenient \n if an adult was not around \u2014 led it to change the packaging \n that in turn gave the brand a margin advantage. By offering ketchup \n in pouches, it saved on the price of the glass bottle and freight \n (pouches take up less space in a truck, hence more can be fitted \n in). While ketchup in glass bottles continue to be Rs 99 for a \n kilo, its Tasty Treat ketchup pouches come in Rs 59 packs.<\/p>\n
By working with vendors it has also come up with interesting \n combinations \u2014 for example, its Tasty Treat jam has three \n small tubs packed as one unit, each tub containing a different \n flavour to offer consumers larger variety.<\/p>\n
Retailers have now donned the hats of \u201cproduct selectors\u201d \n and \u201cproduct developers\u201d at the same time, points out \n Third Eyesight CEO Devangshu Dutta. \u201cSo far, most of the \n retailers were just selecting products from vendors which are \n mostly lower-priced knock-offs of manufacturer brands,\u201d he \n says. Not any more.<\/b><\/p>\n
Ashutosh Chakradeo, head (buying, merchandising and supply chain), \n HyperCity Retail, explains the process his company follows: \u201cTo \n develop food products, we identify vendors, tie up with food laboratories, \n chefs and consumers to be part of the tasting panels. Before launching \n a private label we do at least a month of consumer testing. We \n identify customers from our loyalty programme called Discovery \n Club, which tells us who buys a certain category of product. We \n give the relevant consumers our private label products for trial \n for a month. We meet the customers at their homes, take their \n feedback and these changes are incorporated into the private label \n brand.\u201d<\/p>\n
\u201cOur stores act as research labs and are a constant source \n of feedback,\u201d points out Chawla of Future Group. Chawla estimates \n 3-4 per cent of the sales of private labels are ploughed back \n into packaging and design innovation. Reliance Retail CEO Bijou \n Kurien says, \u201cThe teams are our main investment in private \n labels. Our 100-strong designers across all the formats help in \n coming up with product designs that fill a need gap or offer a \n few more features at the same price as national brands.\u201d \n Reliance Retail has recently launched its own brand of watches \n priced Rs 149-199 which \u201cno national player can offer\u201d \n points out Kurien.<\/p>\n
<\/b>The edge<\/b>
\n Most vendors directly supply to retailers\u2019 distribution centres, \n cutting out cost leakage at the distributor\u2019s and carrying \n and forwarding centres. Direct access to store shelves and aisles \n also cuts out the high mainstream advertising costs that brands \n have to bear. By clever product arrangements and in-store promotions, \n retailers can sway the shopper and draw attention to the price \n advantage. Chakradeo says, \u201cWe display private labels in \n heavy footfall areas in the store. We complement displays \u2014 \n so we keep our private label ketchup near the bakery.\u201d<\/p>\n
To tackle the tricky personal care category of face creams and \n shampoos that Aditya Birla Retail\u2019s More chain has entered, \n it plans to communicate promotional offers straight to its loyalty \n programme members. \u201cIt will help us induce trials,\u201d \n says Thomas Varghese, More\u2019s CEO.<\/p>\n
Bundling products is another way to woo the value-conscious consumer. \n Six months back, Future Group started bundling its private brands. \n Chawla says, \u201cTake home-cleaning, which requires a floor \n cleaner, glass cleaner, toilet cleaner and utensil cleaner which \n we combined as a shudhikaran solution of our Cleanmate brand.\u201d \n The combi-pack costs Rs 125, which would come to around Rs 220-250 \n if shoppers bought a la carte. The margins are still high at 26 \n per cent. \u201cVendors are assured of volumes,\u201d points out \n Chawla.<\/p>\n
What it also does is convert the fence-sitter who has not yet \n bought into a category. For example, consumers who avail of the \n shudhikaran solution also get into the habit of using glass cleaners \n \u2014 a category which has a small base and gets most of its \n sales from modern trade. Similarly, Future Group saw a 25 per \n cent spurt in the sales of soups when it clubbed soup mugs with \n its Tasty Treat soup packets based on the insight that Indians \n preference to sip their soup out of a coffee mug.<\/p>\n
Don\u2019t be surprised if you see MNC brands coming out with \n combo-offers for their products, way bigger than the occasional \n bucket with a detergent!<\/p>\n
Growing up<\/b>
\n There are signs the industry is evolving. Private labels in FMCG \n are shedding their low-cost tags. But retailers know better than \n to vacate low price-points altogether. Instead, they are segmenting \n their brands just as a manufacturer brand would do. Chakradeo \n of Hypercity says, \u201cOver a period, we hope to increase the \n stickiness and the differentiation our brands bring to our stores. \n Particularly, in staples where we have seen our private label \n business grow rapidly. This is a very quality and price-sensitive \n category. We started with basic products but now we have premium \n daals (lentils) and basmati rice as part of our portfolio.\u201d<\/p>\n
Future Group too has its \u2018good, better, best\u2019 policy \n firmly in place. In staples, the stores offer some products \u2018loose\u2019, \n such as rice, wheat, lentils, which is at the bottom of the ladder. \n Its Food Bazaar version of the products straddle the middle category, \n and above the two is its brand, Premium Harvest, which retails \n at a price higher than some manufacturer brands.<\/p>\n
Stickiness may also result from the manner in which retailers \n are positioning their brands. Future Group\u2019s brand Ektaa \n will retail regional food and staples across its stores in the \n country so that migrants can buy supplies they are comfortable \n with. Be it Govindbhog rice and kasundi (a rice variety and mustard \n sauce preferred by Bengalis), khakra (Gujarati snack) or murukku \n (loved by Tamilians). Boston Consulting Group Partner & Director \n Abheek Singhi says, \u201cIndian retailers are not cut-pasting \n private label products from other markets but adapting them.\u201d<\/p>\n
Are private labels a risk worth taking? Chakradeo says, \u201cThe \n entire product formulation for our cleaners was done in partnership \n with Dow Chemicals, USA. We did not make any investment and we \n gave them a percentage of sales as fee. Investments are not huge \n in making private labels as in most cases it is partnered with \n vendors. It is more of operating expenses than capital expenditure.\u201d<\/p>\n
Future Group brought down logistics costs further by 6-8 per \n cent by appointing vendors in more than one region for 10 of its \n product categories to fill its distribution centres. Chakradeo \n adds, \u201cAs the volumes go up, we will be able to put up for \n backend infrastructure facilities for development and R&D.\u201d<\/p>\n
Should national brands be worried? Devangshu Dutta says, \u201cAs \n long as retailers have access to the production and development \n and have customers for it, the private labels will remain profitable.\u201d \n <\/b>India Equity Partners Operating Partner V Sitaram sums up, \n \u201cIn modern trade, though the market leaders will face some \n slip in market share, the number 3 or 4 brands might have a bigger \n problem in certain categories thanks to private labels.\u201d<\/p>\n
As retailers leverage consumer insights to deploy private labels \n more effectively, national brands are aggressively fighting the \n challenge. From sprucing up supply chains to galvanising in-store \n promotions, they are covering all bases. KPMG Executive Director \n Ramesh Srinivas says, \u201cEarlier brands had to adjust between \n a modern trade and a general trade supply chain. The former had \n to be serviced directly at the stores or had their own supply \n chain while the latter used the manufacturer\u2019s supply chain. \n Now, some brands separate modern trade teams and even distributors.\u201d<\/p>\n
Britannia Category Director (delight and lifestyle) Shalini Degan \n says, \u201cWe have divided our portfolio into three categories, \n A,B,C, each having its benchmark fill-rate. We don\u2019t allow \n fill-rates to drop below those levels. Why the segmentation? We \n need to focus on brands which have a higher traction in modern \n trade when servicing it, else we might end up focusing on brands \n that are not modern trade-led.\u201d<\/p>\n
Fill-rates denote how often and to what accuracy the retailer\u2019s \n orders for a product are supplied by the manufacturer. Low fill-rates \n could mean lost opportunity since the shopper sees an empty shelf \n or a private label instead of the brand she might have thought \n of picking up.<\/p>\n
Samsung Vice-President and Business Head (home appliances) Mahesh \n Krishnan says, \u201cWe have gone in for central billing system \n 4-5 months back with all large-format retailers. Orders are tracked \n on a daily basis giving retailers more control over the chain.\u201d<\/p>\n
In other words, private labels are here to stay and will evolve \n as more and more chains gain national footprint and the economies \n of scale kick in. Dutta of Third Eyesight says, \u201cGross \n margins for organised retailers are still low compared to global \n standards: So, margin fights will continue for some time till \n retailers gain a bigger share of the pie.\u201d<\/b><\/p>\n