Pvt Labels Pip National Brands in Own Stores

Hit by soaring inflation & uncertain economic condition, consumers opt for best bargain

Private labels owned by retailers such as Bharti Retail, Future Group and Aditya Birla Retail outsold several national brands in home care and packaged food categories at their retail stores as value conscious consumers opted for best bargain in an uncertain economic condition and soaring headline inflation despite consumer goods companies aggressively betting on modern retail to drive future growth rate. 

For instance, Bharti Walmart's private brand 'Great Value' top tops the floor cleaner segment with 50% share and are in the top three selling spot in terms of market share in categories such as tea, wheat flour, rice and branded snacks according to Nielsen latest retail index service during July-September 2011 period for the India FMCG Private Label market. 
"Customers have begun to like private labels due to better quality, high food safety standards, international look and feel of products, customized packaging created after customer feedback and the credibility of the retailer," said William Savage, chief merchandising officer, Bharti Walmart, which has Private labels owned by retailers such as Bharti Retail, Future Group and Aditya Birla Retail outsell several national brands in certain home care and food categories at their retail stores even as big brands push more sales through modern retail. 
In the country's largest retailer Future group's Big Bazaar and Bharti Retail's Easy Day outlets, for example, private labels Clean Mate and Great Value, respectively, top the floor cleaner segment, according to market researcher Nielsen's data for July-September 2011 period, the latest available. Coming at a time when national brands increasingly bet on modern retail to drive their future growth, analysts say even large manufacturers such as Hindustan Unilever and Reckitt Benckiser are impacted. 
"In short term, national companies will have to either go for promotions or discounting to fight back market share," says Gautam Duggad, an analyst at brokerage Prabhudas Lilladhar. "But it also means losing margins and that's a trade-off call the companies will have to take," he adds. 
While retailers attribute the success of their own brands to value offers, good packaging and their increasing credibility, consumer product makers say private labels are gaining mostly in low-involvement categories. 
QUALITY AT LOW PRICE 
"Customers have begun to like private labels due to better quality, high food safety standards, international look and feel of products, customized packaging created after customer feedback and the credibility of the retailer," said William Savage, chief merchandising officer, Bharti Walmart, which has over 35% market share in wheat flour segment, close to 22% in tea and 20% in salty snacks, or namkeen (see table). 
Private labels are mostly priced much lower that branded products because of substantial marketing and distribution savings. Retailers make up for 
    lack of media marketing through in-store promotions and prominent display. 
In Big Bazaar stores, which started selling own brands four years ago, private labels are among the best sellers in at least a dozen product segments. Future Group Chairman Kishore Biyani believes its brands such as tasty treat and Clean Mate are now established. "Three years ago, our private label sales grew mainly because of experimentation and trials by consumers. But now, sales are driven by repeat purchases," says Biyani. "We have quality products packed innovatively, priced attractively and placed strategically at our retail stores. So the success of private brands is a combination of all four Ps," he adds. 
Aditya Birla Retail CEO Thomas Varghese says its More Value and More Choice brands have got good traction after the firm repositioned its private labels two years ago. Its private label pickles, with the widest range of regional variants, outsell the likes of Mother's Recipe and Priya Pickles in More outlets. Hand wash, toilet and floor cleaners and disposable tissues are among the other segments More brands are among the best sellers. 
MARKETERS UNFAZED 
While companies such as Dabur, Emami and Parle acknowledge that private labels are gaining ground, they say it's on segments where product differentiation is low and have relatively lower shopper involvement in purchase decisions, and that it will be tough for retailers to challenge national brands in high-involvement segments. 
"When it comes to foods or personal and beauty care products, consu1mers have been loyal to branded items and will continue to remain so," Dabur India Ltd Executive Director—Sales George Angelo says. He expects retailers to reduce product launches and rationalise range in this space. 
Emami CEO Krishna Mohan says it will be difficult to make strong private labels in personal care and over-the-counter health care segments because they require stronger consumer understanding and brands will need to innovate to provide extra benefit to consumers. But he expects retailers to eventually get there. "We are sure they are working on the same and eventually will venture into these categories which are huge." 
Private brands already account for close to 7% of modern trade sales in India, compared to 1% in China, according to a Nielsen survey that covered more than 50 countries last year. 
And the scope is huge. Private brands account for more than 40% of the total sales of the world's largest retailer Walmart. The rise of private labels comes at a time when modern retail is increasing its contribution to the top line of most consumer goods firms. For instance, the country's largest consumer goods company HUL gets around 12% of its . 20,000-crore annual sales by selling goods at modern retail stores compared with just 5% four years ago.

Three years ago, our private label sales grew mainly because of experimentation and trials by consumers. But now, sales are driven by repeat purchases. We have quality products packed innovatively, priced attractively and placed strategically at our retail stores 
KISHORE BIYANI 
Chairman, Future Group