Private labels – Are they affecting the FMCGs in modern trade ?
- Feb 5, 2015
- 2 min read
Technology and awareness being the two driving forces, the last two decades have seen a Sea change in the Indian retail sector. When delineating the retail sector it is important to consider the effect of private labels on other FMCG brands. As essential component of modern retail worldwide the trend has been no different in India. Private labels are no longer dismissed as trivial and deliberate thought is now given to quality of the produce.
Change in dynamics . . . The private labels, once considered inferior to national brands, are fast changing the dynamics of the retail industry in India. Private labels’ impact on Indian retail sector is so deep that they are giving national and global brands a run for their money. They certainly are on par with Big-brother brands in terms of quality and price and are popular in categories like personal care, home care, processed foods, groceries and consumer durables. Research carried out at selected retail chains such as More, Spencer and Reliance Fresh finds that, the marketing strategy can change the overall profitability of private label.
Private labels have emerged as a competition to weak and undifferentiated brands as they serve to lower the consumer’s price points, particularly at the mass level. There is an inevitable conflict of interest when the category’s leaders and stock brands of other manufacturers, (in terms of display space, promotions etc.) has a packaging similar to the one that a retail chain has for its own label.
Too big to ignore . . . With the FMCG industry expected to witness a robust growth of 18% over the next 4 to 5 years [1] and will emerge as the sector that will constitute the biggest component of the consumer expenditure by the end of the 12th plan according to an ASSOCHAM Eco Pulse study, It becomes important for FMCG firms to generate large sales quantities for the cumulative sales. The fact that FMCG products are relatively low priced and have to be sold quickly only adds to their woes. Private labels therefore pose a substantial challenge and easily beat the lower segment with extreme competitive pricing.
According to Nielsen and an article published independently in Economic times, if all the private labels were to be combined, then would stand to be the 3rd largest FMCG Company [2].
Thus consumer loyalty, still largely with traditional retailers, may easily sway to private labels. Brands should, therefore, focus on strengthening their competitive advantage. The need of the hour for major FMCG conglomerates is to work out a loyalty program when the ball is still in their court. The longer the traditional retailers remain in business the more difficult it will be for modern trade retailers to accumulate enough large scale to make their private label production worthwhile.
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[1] Nielsen address to FMCG-What makes private labels click?
[2] Business World- The Future Of Private Label, May 2013
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