Perspective

'Indian Organized Retail Industry: A Value-addition on Private Labels'

Vibhuti Tripathi, MBA, Ph.D.

Faculty, School of Management Studies,

Motilal Nehru National Institute of Technology, Allahabad.

A.          Retail Scenario in India: Retailing in India is gaining global recognition. According to A.T.Kearney ‘Retail in India is getting organized & is driving Growth' and the Confederation of Indian Industry reports, ‘retail is one of India's fastest growing industries with a 5 per cent compounded annual growth rate and expected revenues of US$ 320 billion in 2007’. ‘Rising incomes, increasing consumerism in urban areas and an upswing in rural consumption will fuel this growth to around 7-8 percent’ is predicted by KSA-Technopak. There are several factors driving Indian retail growth:-

i.        With 60% of the total population below 30 years of age, favorable demographics are expected to devise the consumption pattern across the categories(Refer fig 1).Change in life style, higher disposable income, shift in expenditure pattern are in favor of shifting the personal consumption items towards fast food, drinks, lifestyle and entertainment.

Source: Author’s Perception

IT and Technology infusion in retail management has led to standardization of attributes like fast Services, low price and patronage. With competition inching towards cut-throat face off, retailers are striving for differentiators. This phenomenon brings product offerings at a focal point of shopping experience. It’s what draws consumers into the store and energizes the shopping process. Private label products are seen as one such differentiator enhancing the retail brand. A retailer can achieve differentiation through a large portfolio of private label products.

As consumers, usually visit with the intention of buying, and not simply for the experience, retailers can leverage on introducing Private Labels across the categories. Services add to the differentiation, and together with a unique product range, that results in emergence of a strong retail brand. For the customers, Private Labels often mean, products of reasonable quality at lower price. These translate into better margin, greater clout with the manufacturers and the ability to fill value gaps in the consumers' requirements.

C.          Private Labels a Strategic Shift: Private Labels is a term used to signify the brands, which are developed by the retailer itself. As they are initiated by retailer the onus for the development, manufacturing, marketing and distribution of private label products is on him, though often in close cooperation with suppliers. The process of developing such products is backward in integration. A retailer can decide to outsource the production, development and packaging for his private label to a reliable third party. These are visible across product categories - grocery, packaged food, apparel and even on homecare items. By maintaining these labels; a retailer can fill in the gap, which is not sufficiently covered by other brands, which the store accommodates. Selling them helps the company to save entirely the profit on most of the intermediaries. A retailer can leverage the experience with the customers and steady footfalls. One is free to decide own pricing policy and enjoys greater flexibility in marketing the products. The customer could be assured of exclusivity of these products.

World over, the retailers are adopting private-labels with sumptuous amount of sales contribution. The forerunner of private labels in India is Pantaloon Retail India Limited, which has more than a dozen such labels in various categories ranging from Men’s to Groceries. Big Bazaar is offering private labels across all categories in food and non-food. Other retailers like Lifestyle International of Landmark Group, West-side of Tata Trent Group, Globes and Shopper’s Stop are largely offering their own brands mixed with other brands. A report on ‘The World Market for Private Label’ by Euro monitor shows that the global private label market is accounted worth $ 1,411 billion in 2005, and is growing at 6% per annum. According to a study by Technopack , private labels form 19% of the total market share in India.

To implement a successful private label strategy, retailers need to ensure that it is aligned with overall marketing strategy, seeking a focused positioning. It is necessary to maintain high standards of quality control (pre-transaction) and customer service (post-transaction). Brand loyalty could be acquired by ensuring the maintenance of high standards of quality. A properly trained team from the company will have a better control on product quality, unlike in the case of items on which a retailer has no control. This motivates many of the customers to come back again to the store. While purchasing these products, there may be impulse purchase undertaken by the customers. If a retailer is able to build brand loyalty for its private label, the store would be preferred over competitors. After developing a quality of private label, a retailer would have lesser dependence on the other brands in the product line; especially in the range of products these have been fairly successful.

With private labels advancing, customers would gain a better deal in terms of prices offered, variety and assurance of the quality of products, which is imbibed with the store image. On being the member of the loyalty program he can expect privilege on purchasing private labels. Private labels can be tailored to suit various regional tastes, and in the long run, these labels can themselves become major independent brands. In developed markets, these pose a substantial threat to the established big brands. In India, while private labels are still at the infant stage, there is a tremendous growth opportunity as size of operations is becoming critical for volumes, customer patronage and marketing capabilities.

There are certain limitations too, to develop private labels; it asks for Risk to develop as a retailer spends large resources for creating awareness, in spite of efforts; the brand fails to take off. It could have an adverse impact on the retailer’s own reputation and sales personnel may need additional training for persuading customers to buy the private label.

In case of a manufacturer’s brand, the vendor is responsible for all replacements; in private labels the entire responsibility of providing replacements lies with the retailer.

D.          The Perspective: National brands are slowly merging with pool, loosing their identity. A new aggregate

identity of the Retailer itself shall be carrying larger preference. Volume of sales of private labels shall takeover prominence as the super store embeds its own brand name in the sell process of the product. In long run, super stores finding product of small & medium enterprise (SMEs) producers reliable, could negotiate the vendors favourably for housing their products with their own labels than the branded ones, who offer low margin.

 

 

 

 

 

 

 

Reference

1.      Gilbert, D. (1999) Retail Marketing Management, Pearson Education Limited.

2.      Keller Kevin L., (2003) ‘Brand Synthesis: The Multidimensionality of Brand Knowledge,’ Journal of Consumer Resarch, vol. 29, 595-600.

3.      Kotler, P. Marketing Management, 11^th Edition, Prentice Hall of India Pvt. Ltd, New Delhi, 2004.

4.      Customer Loyalty & Private Label Products, www.kpmg.it, accessed on 21 August, 2007

5.      Towards Retail Private Label Success, February 2002, www.coriolisresearch.com, accessed on 21 August, 2007.

6.      Dutta Devangshu, Lifecycle led strategies, www.3isite.com, accessed on 03 September, 2007