Now get 50% off on Black Label → Raise a toast for Private Label 🍻
PS - None of our editors were tipsy while titling the post :P
Majnu bhai was much ahead of his time with “Ab ghodo ki race meh gadhe bhi daudenge”. Companies have adopted the mantra & launched “Private Labels” which are tweaked copies of top selling branded label product but priced cheaply – no offence to Uday bhai, but in essence Marketing is literally doing –> “Sadak se utha ke star bana dunga” with their in-house brand
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Let us now take you through some wiki-gyan:
What is it: Private label means a retailer's own brand offered cheaply alongside other branded labels.
Why is it good: Private labelling (PL) for retailers is like a shark tasting blood, they can't have enough of it. Zero marketing costs. Zero distribution cost. High discoverability at own stores through premium shelf space. Much higher margins than branded labels, for the retailer.
Unlike conventional FMCG players that lose a portion of their margins to distributors and retailers, PL enables the retailers to increase their overall margins beyond what would normally be possible if they were retailing just branded labels. They achieve all this while pricing PL below branded labels.
How is it done: PL brands start as straight-forward, tweaked copies of the top-selling branded label product, but priced cheaply. PLs are easy to launch in low differentiation and low-involvement categories like staples, accessories, etc.
In India, retailers typically get the product cheaply from China and put their labels on it (for example - Croma, Vijay Sales, etc.)
What's the Ideal Mix and what does the customer journey look like when PL is in the mix:
Case 1 – Knows what to buy and looks for their favourite brand. Pick up items. Also, pick up a PL brand or two.
Case 2 – Looks for their favourite brand. Fails to find it. Pick up a PL brand instead. May not come back again to the store
Case 3 – Doesn't care about a particular brand. Looks for the cheapest item in the category, which invariably ends up being a PL brand
In most consumer retail sectors, whether it be apparel, FMCG or groceries, 25-35% is the sweet spot for the mix of PL in total sales. PL directly competes for shelf space, marketing space, market share and the wallet share of a customer. Branded Labels can't be phased out entirely in multi-brand retail (Supermarkets, hypermarkets or any platform where multiple brands are sold) because they're the hook that'll make the customer walk into a retail store (Unless it's an Exclusive Brand Outlet).
Successful retailers like Zara, westside and Ikea, who only retail their own private labels, don't need to sell other branded labels as their brands are strong enough. Similarly, retailers often do not offer other branded label options in low-differentiation product categories like staples and electronic accessories. Simply because they don't need to as people are indifferent.
In the case of Amazon, they actively jeopardise branded label sales and aggressively promote their PL, hurting small sellers on their platform.
On the other hand, if the mix is too low, a retailer won't be able to source in bulk and take advantage of economies of scale, and it wouldn't make a meaningful impact on overall margins.
The road not taken/alternative methods of execution: There are two broad ways of executing PL brands. First, the PL brand itself is a generic brand with some wordplay around the retailer's own brand (Example – AmazonBasics, BigBasket royal organic range). Such a PL brand is always priced cheaply than the branded label alternatives and leaves little scope for premium offerings
Second, create a "sleeper brand". The brand name is kept neutral and the buyer isn't made expressly aware that it is the retailer’s brand (example – Nykaa’s private labels: Dot & Key, earth rhythm etc.). This allows for premium pricing and a distinctive brand offering.
“Sleeper brands” also benefit from being allowed to grow independently through other channels/other retailers. It's a double-edged sword - a separate marketing budget would increase the retailer’s overall Ad spend.
PLs are increasingly making their way to the open market in India. For example, Reliance Retail sells 33+ brands through General Trade (Kiranas). Future Consumer (Big Bazaar), pre-pandemic sold ~15% of its PL brands through non-future retail channels
Business implications, and the variety of market reactions: In 2018, Future retail’s PL brand Golden Harvest’s rice outsold national branded labels such as India Gate and Dawat. Even its PL toilet cleaner brand Cleanmate, had a whopping 40% market share at the store level, second only to market leader Harpic (at 59%). Presently as the share of Modern Trade (Malls, supermarkets) in total retail is <5% in India, PL as a whole don't pose a significant threat, like they do in heavy developed markets like the US where PL brand sales alone stood at ~20% of total retail sales.
Having PLs in a modern retail outlet puts FMCG companies in a spot. With branded labels now competing for market and mind share with PL brands, modern retailers often negotiate higher margins with FMCG companies. And FMCG companies aren’t usually in a position to reject these demands – the role of modern trade, as seen by experts, has evolved from being just a sales channel to a platform where consumers discover and experience new brands.
The presence of PLs dont directly threaten the top brands though. These top brands are given step-child treatment at worst; however, products with lower volumes (newer brands or category laggards) are the ones being discarded to free up shelf space.
To combat PL brands, FMCG companies can always outspend retailer’s private labels to drive brand and quality perception.
Large FMCG have displayed varied strategies to tackle the menace of retailer PL: Parle re-packaged and re-launched top-selling products at price points close to private labels. This avoided diluting any existing brand. Dabur treats PLs as just another FMCG brand. Conversely, Nestle isn’t bothered with its strong market share and moat (eg. Maggi).
How to fail at PL?: Shoppers Stop (SS), has a brand identity in being known for offering a range of brands, and could never sell only inhouse brands (PL), as is the case with Westside or Zara.
SS (14% share) is far behind its peers in terms of PL brands’ revenue share – Westside -100%, Reliance Trends – 75%, V-Mart – 75%, Pantaloons – 59% (Based on FY22 Revenues)
For an extended period in the last 20 years, SS has had several (25+) overlapping PL apparel brands. Example – In the Men’s section SS’s PL “Stop” (work wear) and “Life” (casual wear), along with newly launched PL brands like “Bandeya” (ethnic wear) were rubbing shoulders with branded labels like Blackberry and Celio.
Limited shelf space and presence of 25+ PL brands meant SS had to dump branded labels, thus reducing variety
● To solve these problems - SS reduced the # of inhouse PL brands from 25+ to just 9 and reduced overall products on display by 25-30%,
● Ensured each brand has its distinct positioning and stands for a certain lifestyle,
● and made stores less cluttered than a Centro or a Reliance Retail store, playing on its premium marketplace image
Takeaway: Scaling PL brands is a delicate dance between the lure of high margins, precision marketing, maintaining sales and retaining core audience.
Author: Amay Solanki
End movie credits:
Consumer Avengers: Akhil, Arnim, Chirag, Shashank, Mitali, Mukund, Pranav and Nakul.
Disclaimer: The opinions and views presented in this article are purely personal and don’t represent views and opinions of author’s employer or any other organisation
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