Indian retail is vibrant and thriving. While on one hand, you have the Tescos and Nikes of the world trying to get a foothold here, one the other, there are hundreds of Indian brands that have grown from strength to strength building a loyal customer base. But Indian retailers are smart. They realize that India offers a large and diverse customer base that is always looking for good ‘value-for-money’ offers, especially in wake of the decade long roller-coaster ride the Indian economy went through. The economic downturn and instability in the job market made consumers wiser. Education, travel and exposure to international media have contributed to greater awareness among consumers. They know what international brands offer, both in terms of quality and price.
Canny Indian retailers considered this a ripe opportunity to introduce private or home labels, where the Indian consumer was treated to products which were of a quality comparable to Indian A-list brands, but at a slightly more pocket friendly price. The price differential typically ranges between 20-30 percent. Top Indian retailers, such as Shoppers Stop, Future Group, Aditya Birla Retail’s More, Croma by TATA etc. have explored this space. Shoppers
Stop launched its first private label ‘STOP’ in 1994. Future group’s Tasty Treat brand scored big with region specific food products like thepla and basundi. Today these retailers are reaping rich dividends with the potential for even higher returns.
According to a study conducted by IIM, Bengaluru, Indian retail industry is the fifth largest in the world and is worth over USD 350 billion and is growing at a healthy 12 per cent per annum. Private Label brands have produced excellent results in the apparel sector. The Indian apparel retail sector is worth USD 70 billion. 21 per cent of the sales come from Private Labels. This is because private labels not only offer a unique marketing mix and distinct positioning; they are also able to touch an emotional chord with consumers by way of effective communication. Private Label brands have also benefitted food retailers. According to a Neilsen study, food continues to dominate the private label market with 76 per cent of total sales. Packaged grocery accounts for 52 per cent of sales. In the non-food category household cleaners rule the roost with 47 per cent of sales.
Presently, private labels only make up for 23 per cent of the overall retail business. But with the right push, the figure could exceed the 50 per cent mark.
This can be done by focused brand communication with emphasis on good design. Design doesn’t just refer to the aesthetic appeal of a product. Design is a verb. It refers to deliberation. It refers to putting in thought and creativity in brand communication that ultimately translates into sales. Since private label products are available only in the retailer stores, it draws customer back and builds customer loyalty.
Private label brands help in controlling product pricing. They give negotiation power to the consumer who now has access to a wider range of good quality products available at an affordable price. They build shop brand loyalty and offer higher margins to retailers. Private label brands are therefore, a strategic tool to attract and retain customers for value retail in India. Private label brands also allow retailers better bargaining power with their vendors.
There are various stages in the development of private label brands. In the first stage, there is hardly any design involved. Generic products are produced and marketed in generic packaging. There are no defining or distinguishing factors. The next stage is where private label brands want o be seen in the same space as leading A-list brands. They tend to copy the design, colours and packaging of A-list brands to confuse the consumer, thereby inducing trials by trick. You often see this in India, especially in the instant coffee space. Indian super-markets are littered with clones of Nescafe which is the original market leader. For nearly a year various private label retailers tried to peddle their instant coffees in the same red-brown and white packaging. It will become interesting now that Nescafe has added a hint of fresh sky-blue to its packaging.
Some discerning Indian brands, however, are investing in creating their own distinct identities with unique design and packaging. For instance, Hypercity’s Everyday brand of staples and grains has a distinct style. As nearly two-thirds of their customers come to them for staples and almost always purchase in bulk, this seems to be a smart move. This is the third stage of private label branding.
The current status of Private Label Branding in India, therefore, is at a developing stage. But it has scope for tremendous growth before it catches up with contemporaries like Europe and US. Looking at Europe, the cradle of Private label, we could identify 4 to 5 evolution phases of Private Label evolution. Currently India can be seen close to phase 4, which provides segmentation in the private label architecture. For instance Croma, a consumer durables retailer from the TATA stable has played it smart by sculpting a distinct brand identity for its range of products. They introduced private label products in 2008. Today their air-conditioners are close to competing with those from established international players like Hitachi.
Indian retailers can profit from the experience and mistakes of their European counterparts, where private label is a much more developed concept. European retailers focus on the factor of differentiation. A clear Private Label hierarchy can provide an overall clear shopping structure (navigation) for consumers. Private Label makes shopping a comfortable and hassle free experience for the customers where they can pick the products from the ‘good-better-best’ categories, suiting their requirements and pockets. A focused umbrella Private Label brand will communicate brand values throughout the shop, because their stock keeping units will have the same visual identity and trigger the same mindspace of the consumer.
Private label provides the retailer the chance to test its product marketing capabilities, track the categories more closely and do the long term category
planning. With one of the highest retail densities in the world, Indian retailers are left with limited scope for errors. Given the variances in market maturity between India’s retail sector and that of other retail markets in the US and in Europe, it is natural that private labels have yet to enjoy a status in India, similar to overseas. The emphasis should be on creating a strong and clear value chain that offers the customer the right to exercise their choice. Even though organized retail is still at a nascent stage in India and it is difficult to find vendors who would deliver good quality products consistently, there is much to be hopeful about in the Private Label space in Indian retail.
About the author: Loe Limpens, CCO & Partner, Yellow Dress Retail. YDR specializes in retail branding and is a member of the Brand Dialogue group, a Dutch consortium of branding and design agencies.
