Private Label in Indiaby Udit Jain on June 20, 2007
Private labels are getting retailer attention due to profitability promise. Emulating international counterparts, where private label are increasingly gaining significance, most
department stores, supermarket chains, hypermarket chains and discounters in India are promoting private label products. The fundamental reason for this is the much higher margin and profitability on such products, compared with branded alternatives. Indian retailers are increasingly hoping to ride on the attractive proposition of private label products that promise higher quality, lower prices and 100 percent availability to consumers and at the same time offer up to three times higher operating margins to the retailer.
Health and wellness trends are yet to take off in a big way. Pricing and taste continue to rule consumer purchase decisions. High fibre bread, honey, rice, olive oil and soya milk account for almost all of the demand for naturally healthy packaged food in India. Of these, supermarket chains such as Food World, Nilgiri’s and Food Bazaar began to offer private label high fibre bread, honey and brown rice.
For customers, private label is generally regarded as comprising products of reasonable quality at lower prices. For retailers, private label translates into higher margins, greater bargaining power with manufacturers and the ability to fill value gaps in consumers’ requirements. Almost all the large supermarket chains in South India introduced private label offerings during the review period, especially in commodity items such as rice, wheat, salt, pulses, herbs and spices. Hyderabad-based Trinethra’s private label products in staples and groceries proved successful. By 2004, private label accounted for 27 percent of its top line sales and Trinethra hopes to generate at least half of total sales from private label by 2007. Trinethra is also hoping to extend its private label products to include spices, oils and fats, tea and coffee.
RPG’s Food World supermarket chain also offers private labels for grocery in a variety of product types including value-added products such as jams and preserves and honey, ketchup and other sauces; bread, rice, noodles and herbs and spices. Food World also offers household care such as detergents and surface cleaners under its eponymous label Food World. Food World often sells its private label products at discounted prices not only in food but also in areas such as household care and disposable paper products. Food World is optimistic about the growth of its private label products, predicting 30 percent value annual growth. Spencer’s Hypermarket has six private label ranges, comprising home care, cereals and food; making up 20 percent of the sales turnover of the hypermarket chain.