PRIVATE BRANDS AND ITS IMPACT

PRIVATE BRANDS

Private label brands are typically those manufactured or provided by one company for offer
under another company's brand. Private label goods and services are available in a wide range of
industries from food to cosmetics to web hosting. They are often positioned as lower cost
alternatives to regional, national or international brands, although recently some private label
brands have been positioned as "premium" brands to compete with existing "name" brands.
Organized retail is on the threshold of a boom in India. But as companies line up to grab a bigger
and bigger slice of the retail pie, another battle is likely to change the face of the industry -- the
one between the manufacturer brands and the retail chains’ private label brands, which are far
from being just cheap generics. Worldwide experience shows that as retailers become more
powerful, they have increasingly focused on their own brands at the expense of manufacturer
brands. Private label brands, which occupy less than 5 per cent of the market in India now, are
likely to corner 50 per cent of the market as the retail space opens up and matures.

According to a survey, perceptions about private label are overwhelmingly favorable—almost

three-quarters of global respondents (71%) say private-label quality has improved over time. A
door once opened by economic necessity has widened to include a variety of private-label
products that remain viable and trusted for many consumers worldwide.

THE RISE OF PRIVATE LABEL BRANDS

As we shop in our favourite retail outlets, be it online or offline, it is hard to miss the increasing
presence of private labels or what we call Store brands. What may have started off as an
occasional foray into a few categories by retailers a few decades ago (in India maybe a decade
ago), is now a major trend across the globe. Looking at data from various sources, store brands
or Pvt labels in categories from fresh to packaged foods, to health & beauty, cosmetics, pet food,
staples, OTC drugs, lawn and garden care, auto aftercare, etc., are taking a bigger share of the
market from established global and regional brands, and this should be ringing alarm bells across
many brands’ HOs. Is this a fad that is likely to reverse in the coming years?
Here are some interesting data points from developed markets in Europe and the US:

a) Pvt labels/Store brands’ market share increased in 13 out of 20 countries in Europe year on
year in 2016.

b) Pvt labels share of retail ranges from 21% in Italy to 31% in Sweden to 46% in the UK to as
high as 52% in Switzerland.

c) France registered the highest share last year since 2012 at 35% for Pvt labels.

d) Germany has had 8 consecutive years of Pvt labels share above 40%.

e) Pvt labels in the UK had the highest share since 2010 at 46%.

f) Switzerland has had Pvt lables share above 50% for 10 consecutive years.

Private label market share, by volume (2015) across Europe

Source(s): Private label’s market share climbs in 13 of 20 countries across Europe, PLMA
international, accessed on 28 February 2017
In the US, Pvt labels, at $118 billion, registered their highest share ever at 17.7% in 2015, and
this is expected to have grown slightly in 2016, with high growth across categories such as fresh
foods, eggs, fresh meats, nuts, household products, coffee, home appliances, etc. Data also shows
that 70% of US households believe that Pvt labels are good substitutes to branded products, and
it is estimated that US consumers can save upto $44 billion by purchasing store brands instead of
national brands.
Walmart, the largest retailer in the US, 20-25% of their total sales come from Pvt labels brands
and this is as high as 40% in the food and beverage category. Pvt labels are one of the 5 focus
areas for Walmart, and they have doubled their Pvt brands team to drive price, innovation and
quality to win with their consumers.

Amazon, the fastest growing retailer in the US, has a huge play in Pvt labels. Their Echo
speakers account for 45% of online speaker sales amongst top 10 brands in the US, and 89% of
all speakers sold in the US are sold through Amazon. In the baby wipes category, their Elements
brand is the 3rd largest selling brand online, and is only available to their Prime members. 80%
of baby wipes sold online are sold through Amazon.

The rise of Aldi and Lidl, the 2 large German discounters, whose Store brands account for
upwards of 70% of their sales further reinforces this trend. Aldi today has more than 10,000
stores across 19 countries, and Lidl has an equal number across Europe, and both are the fastest
growing retailers in most countries they operate in. Both retailers are expanding into the US, and
if their success in the UK is anything to go by, the mass retailers in the US need to watch out.
Both Aldi and Lidl have gained market share year-on-year since 2013 in the grocery segment in
the UK, reaching 6.2% and 4.5% in 2016 vs 3.9% and 3.1% in 2013 respectively, and forcing the
other 4 largest retailers to reduce their margins to try and regain market share.

These numbers are staggering and clearly show that Pvt labels are going to continue to take
share. So what is causing this major shift of consumption to store brands or Pvt labels? In my
view, these 10 factors are driving this shift:

1. Increasing trust (or loyalty) to retailers driven by everyday value and well managed loyalty
programs.

2. Higher margins for retailers for their store brands vs national or global brands, and this is all
the more important in mass retail, where retailer margins are continuously under pressure.

3. Improving quality of Pvt labels, blurring the difference vs national or global brands across
many categories (this is a major factor for switch as basic quality of Pvt labels improves, driven
by regulation and increasing consumer activism).
4. In many cases, store brands have better packaging and branding than global/national brands,
supported by large in-house marketing and brand teams.

5. Growth of Impulse categories where consumers are willing to experiment (fewer and fewer
categories today have high levels of “stickiness” vs a decade ago), and most consumers today
have a portfolio of brands in their repertoire for most categories, allowing a play for Pvt labels.

6. Improving knowledge of retailers on consumer/shopper behavior and mining this data to

create better products that their shopper actually want (retailers understand the What, When,
Where, Why, Whom and How of Shopper behavior better than global brands from the valuable
store data).

7. Regional tastes and variants being offered by retailers that global and national brands may not
be able to offer.

8. Drive for better ‘value’ & economy by consumers – this is a global trend as consumers strive
for ‘value’ and savings in everyday consumption products, so as to spend more on for
‘experience’ and latest innovations.

9. Better availability (or what we call On Time and On Shelf) of Pvt lables/store brands as
retailers control the entire supply chain directly.

10. Retailers giving prime/marquee locations to their store brands/Pvt labels, be it near the tills
for impulse, or in other key locations in-store, spending heavily on advertising and special
offers/coupons for store brands/Pvt labels, and using banners and pop-ups in online retail.

ROLE OF PRIVATE LABEL BRAND IN INDIAN RETAIL

While Pvt labels biz is still in its infancy in India, accounting for less than 10% of organized
retail by some estimates (which in turn accounts for 10-12% of total retail sales), the increasing
offerings by large retailers like Future, Reliance, Guardian, DMart, ABRL, etc across
categories like staples, health and beauty, insect repellants, to electronics, apparel, footwear, and
the rise of online single brand retailers in furniture, grocery, and fashion & accessories is a clear
sign of Indian consumers’ increasing acceptance of Pvt lables/store brands. Extrapolating this
trend, it is possible for Pvt labels to reach 50% of total organized retail in the next decade –
assuming that organized retail can reach 30% of total retail by then, Pvt labels could account
for as much as 15% of total retail in India by 2025. The challenge today for most organized
retailers in India is the lack of a large footprint and scale, and as most will be reluctant to carry
others’ store brands, they will either need to start distributing their brands in the general trade or
use online retailers to expand their reach and scale up. But with direct access to consumers and
their valuable shopper data, it is not difficult to foresee retailers (online and offline) having a
complete range of consumer products in the years to come that account for more than 50% of
their total sales – so, the fight between store brands and national/global brands will only intensify
in years to come. Private labels will have a huge role to play in this.