Mumbai: In an attempt to fine-tune its growth strategy, Reliance Retail Ltd is expanding the private label business under which its brands—both with the Reliance name and without—will be sold nationally through other retail chains, according to three senior executives of the firm.
The move would pave the way for Reliance Retail, a fully owned unit of Mukesh Ambani’s Reliance Industries Ltd, the nation’s most valuable company, to enter the home and personal care products, or fast moving consumer goods (FMCG), business.
A private label denotes a brand associated with a specific chain store.
In the food category for staples and groceries, Reliance Retail currently uses own brand names, such as Reliance Select and Reliance Value, for premium and non-premium products, and Reliance Tea and Reliance Honey for specific food products. In the non-food category, it has independently branded products such as Sudz (detergent), Endurf (shampoo), Calcident (toothbrushes) and Dazzle (toilet cleaners), among others.
Earlier this year, Reliance Retail formed a separate division for the private label business, headed by Gunender Kapur, formerly chief executive officer of convenience store chain Reliance Fresh.
“The company is considering to develop private label business by branding and selling through other retailers. The company is also considering getting into the outsourcing business by offering to create private labels for other retailers as well,” the head of a Reliance Retail vertical told Mint. He declined to be identified as he is not authorized to speak to the media on strategic issues.
“To start with, Reliance Retail will be creating private labels for other retailers, design and do the packaging for them according to their requirements,” this executive said.
Once the business reaches a significant scale, Reliance Retail would enter the FMCG space with its own private labels on a national scale, he added.. “We will offer private labels to retailers in categories where the smaller retailers are not present. We are also considering to do the branding and designing of retailers for which they will be charged.”
According to another executive, the investment would be mostly in marketing, designing and outsourcing the manufacturing. “We don’t intend to get into the manufacturing of the private labels as that would require extra investment for establishing the unit,” he said but declined to specify the amount.
“We would continue to outsource as these days third-party manufacturing is readily available,” he added.
In 2006, Reliance Retail had announced an investment of Rs25,000 crore over the next five years.
In an email response, the company said, “We continue to explore opportunities to increase our product portfolio. We will continue to further strengthen this going forward.” However, it did not give any details of its business plans.
Yet another senior executive at Reliance Retail, who also declined to be identified, said the new division would particularly focus on private labels in the food category.
Currently, a third of Reliance Fresh’s sales come from private labels and this proportion will rise further, he said.
The move is in sync with the rest of the retail industry. A 31 March report from global audit and advisory services firm KPMG said that retailers will focus more on private labels and that they are likely to offer competitive in-store labels to earn higher margins.
“Retailers extending private labels and entering the FMCG sector is mainly to leverage capacity that they already created for FMCG categories. Presently, the volumes that they are doing are small at the moment and they are trying to focus on the economics of scale,” said Ramesh Srinivas, head of consumer markets, KPMG Advisory Services Pvt. Ltd, the India unit of the global audit and advisory services firm.
Srinivas spoke to Mint on Tuesday at the release of a KPMG report titled Indian Retail: Time to change lanes.
The KPMG report said there would be more action on the food retailing front in the fiscal year beginning on Wednesday as the business is largely insulated from the economic slowdown, unlike sectors such as home furnishings.
Reliance Retail currently has 950 stores spread across about 80 cities.
It added 400 stores in calendar year 2008 and 75 in the first three months of 2009 but slowed its expansion, in line with the organized retail industry.
Around 750 of its outlets are value format stores such as Reliance Fresh, Reliance Super and Reliance Mart while the rest are lifestyle and speciality stores like Reliance Trends, Reliance Footwear and Reliance Eye Wear stores.
In fiscal 2008, these stores generated revenues of Rs1,486.15 crore and a net loss of Rs82 lakh.
“Reliance Retail will expand in cities where we already have a presence,” said one of the senior executives at Reliance Retail, quoted earlier, adding that the firm would focus on value formats such as Reliance Fresh, but not consumer durable and electronics stores such as Reliance Digital, where discretionary spending by consumers is declining as the economy slows.