Tuesday, May 15, 2012: 08:58:34 PM

RETAIL Insight

Private Labels — The Rising Star of Retail

Sandeep Puri and Bhawana Sharma dissect the rising popularity of private labels in retail and present a comprehensive analysis of this trend

Over the last 3ñ4 years, the trend of ëprivate labellingí is  on the rise among Indian retailers. The increasing pace of globalisation has had many effects on the shopping behaviour of customers. The swift technological, economic and social changes of the last decade have had considerable implications on the buying and consumption behaviour of customers. The traditional roles of various players in the value chain have begun to erode and manufacturers have started to take over retailing to the end-consumer in order to expand their influence on the whole value chain. Retailers are using national brands to build traffic to retail stores and divert it towards their private labels. Retailers create their own labels and capitalise on the store brand value that they have created through unique service and enhanced customer care. The most significant advantage of private labels is related to their price, which is quite low in comparison to the price of similar, competitive, national brands. This crucial price differential is mainly attributed to cost savings created by reduced packaging and promotional expenses. Although most of the private labels still compete on a generic basis, offering low cost alternatives to national brands, many retailersí private labels are now becoming synonymous with good quality and innovation. This upcoming trend of marketing private labels is one of the key changes in the retail business. National brands are no longer considered to be the sole charges of retailers, as they are continuously promoting private labels via improved packaging, along with heavy sales promotions. Private label strategy can enhance category profitability, increase the negotiation power of the retailer, provide better channel efficiency and create customer loyalty.

Growth Drivers for Private Labels in India
There are a number of factors explaining the significant development of private labels in the Indian marketórevamped image of private labels, retail consolidation, an improved quality perception among consumers, and a rising social acceptance of private labels consumption. In addition, the rising inflation has further boosted the appeal of private labels because of their price utility. In India, there is an increasing trend towards acceptance of private label brands and thus, their penetration is on the rise, especially in the apparel, consumer durables, home care and FMCG segments. Major growth drivers for the rising sales of private labels in India include the following.

Transformed Image of Private Label Brands
There was a time when private labels were confined to the value section of a retail store. Viewed as the ëpoor cousiní to national brands, consumers perceived these products as generics with low quality. This consumer perception has undergone a change and private labels are steadily gaining acceptance in the eyes of consumers. The introduction of premium products and products that cater to specific market segments has changed the private label market dramatically. Private labels are heavily featured in opening price point ranges in order to meet the shopperís demand for lower prices, or ëvalue.í

Consumers purchase brands during recession and boom times, but their preferences may change. Price is always an important factor in consumer decisionmaking. This is true for both private label and national brands. No consumer wants to pay more than necessary for products purchased. The recent rise in inflation has also encouraged many customers to move towards private labels as they provide more value for money. The economic uncertainty enhances the appeal of private labels to price sensitive consumers. The expectation is that private label sales will increase as consumers look for savings.

Consolidation of Retail Trade
Currently, organised retail is at a nascent stage of growth in India as it constitutes just 5.9 percent of the total Indian retail market. However, in the last 3ñ4 years, organised retailing has been growing at a vigorous rate due to the rise in the number of shopping malls as well as in the number of organised retail formats. The consolidation of organised retailing is increasing the sales of private labels in India. In fact, the brisk propagation of private labels is dramatically changing the competitive environment in the retail trade. Moreover, the growing coverage of media is enhancing consumer awareness about different retailers and their products, prices and services, which is likely to strengthen the growth in the organised retail segment. This will further boost the sales of private labels in different categories.

Rapid Urbanisation
Rapid urbanisation is causing the speedy migration of population to major tier I and tier II cities, which have a significant share in the retail sales of the country. As the Indian organised retail is mainly concentrated in urban areas, increased urbanisation is important for organised retail in the country. The aggregate urban consumption in India has been flourishing continuously, owing to the rise in urban population as well as a rapid per capita income growth. This rapid urbanisation will draw more value conscious customers towards private labels.

Rising Middle-class
The Indian middle-class is the largest consuming class and the prime target segment for retailers in India. By 2015, the middle class is expected to constitute around 25 percent of total households and account for 44 percent of the total disposable income. The Indian middle-class population and its growing disposable income level is expected to fuel the future growth of organised retail in India. The Indian middle-class can be categorised as seekers and strivers, and they look at private labels as products, which provide them value for money. The Indian middle class is more open to buying private labels provided by the retailers whom they trust.

Changing Shopping Behaviour
The swift technological, economic and social changes of the last decade have had considerable implications on the buying and consumption behaviour of the customers. There is a paradigm shift occuring in the shopping attitude of Indian consumers and this is reflected in their changing preferences, tastes and shopping behaviour. Indian consumers are more aware of brands and shops for lifestyle, and value brands according to their need and occasion. There is an improved quality perception among consumers towards private labels and there is a rising social acceptance of private labels consumption. Changing consumer preferences will continue to drive the growth in organised retail by expanding the market and compelling retailers to widen their private labels portfolio in terms of more variety across different categories. Be it national brands or private labels, what customers want is ëvarietyí and ëvalue for their moneyí.

Private labels are at an advantageous position of power and have a lot of potential to craft a meaningful change in the Indian retail industry. With increased retail consolidation, rising middle class, changing shopper behaviour and urbanisation, a dominant presence of private labels in Indian retail seems highly probable. Although economic pressures are driving the buying decisions of many value-conscious customers, one factor having a positive impact on private label purchasing is a strong push from retailers, and marked improvements in both quality and packaging.

In the near future, growth of private labels will be driven by consumer choices based on busier lifestyles, quality and convenience aspects. Innovation in product offerings will help retailers to consolidate further. The future of private label seems to be very bright, so long as retailers continue to be creative in introducing their private labels.

Organised retail in India holds a lot of potential and it is imperative for the sector to develop retail equity. The adoption of private labels will be a key growth strategy to be implemented by Indian retailers in the coming few years.

Courtesy: Sandeep Puri – Faculty (Marketing), IMT, Ghaziabad and Dr Bhawana Sharma – Jaipur National University.

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