Home >Opinion >Columns >Opinion | Why top retailers are betting big on private labels

Earlier this month, beauty e-tailer Nykaa launched a new range of nail paints and lipsticks in collaboration with Indian fashion designer Masaba Gupta under its own private label. Although Nykaa.com is a multi-brand platform offering both Indian and global cosmetics, it is betting big on private labels, says its CEO Anchit Nayar. Private labels are in-house or store brands of a retailer, usually introduced as low-priced alternatives to high-priced brands.

“We are a young, disruptive brand and decided to do something different for our consumers," said Nayar, adding that its private label Nykaa Cosmetics is not exactly a mass-market brand, but it is affordable and of very high quality. The in-house brand was launched when the company saw gaps in the market. “We have a lot of global beauty brands. But we realized that Indian consumers’ needs may be slightly different—as Indian culture and skin tones are different. This was based on the feedback we received from consumers themselves," he said. “We know what Indians want and, yes, private labels are taking off," he added.

Executives at Reliance Industries Ltd (RIL) would probably agree. A recent Mint report said that RIL plans a big push for private labels in its retail stores and elsewhere. Currently, private labels across categories such as staples, food, home and personal care are selling at Reliance Retail through its supermarkets, hypermarkets, wholesale, specialty and online stores. RIL now wants to expand these brands and sell them through neighbourhood kirana stores. The Mint report said that the company will hire distributors for the purpose. To be sure, according to an Economic Times report last month, the Future Group—which is among India’s largest retailers— also launched a new store brand in liquid detergent category called Voom. The report said the company plans to cut down on the shelf space for Hindustan Unilever Ltd and Procter and Gamble detergent brands to make way for its own private label. Future Group sells a range of consumer goods through its retail chains including Big Bazaar, HyperCity, EasyDay and Nilgiris.

Since Future Group’s private labels saw phenomenal growth, they now fall under a separate company called Future Consumer Ltd which tries to push them outside its own retail ecosystem. According to media reports last year, the company’s private labels were growing at more than 50%. In fact, its biscuit brand Tasty Treat is giving tough competition to Britannia in its own stores, and its bath and body wash category is also gaining market share.

It’s easy to see why private labels are a win-win both for the consumers and the retailers. Pinakiranjan Mishra, partner and national leader (retail and consumer products) at consulting firm EY said that retailers make at least 20% more margin on consumer products that they make themselves compared to products they sell from established national brands. “But you need to be a big retailer to make a private label succeed. You need to have scale so that you can pass on your margin to the consumer," he said.

Vishnu Vardhan Reddy, senior research analyst at Euromonitor, agreed that private labels were gaining momentum. “And it is not just the big retailers, it is also e-commerce platforms like Flipkart and Amazon that are encouraging private labels." While national brands spend on advertising and marketing, for private labels, the only promotion is in store. Anil Talreja, partner, Deloitte, agrees that the current trend allows a lot of marketing and selling to happen at the store level. “A lot depends on the size, colour, look and shape of the pack. When you walk into a super market these days, you don’t know a lot of brands. These may be private labels of the retailers." But for them to succeed, the quality needs to be top notch. “If a consumer picks up the product and likes it, he will pick it again next time. So, this is marketing by experience and word of mouth," said Talreja.

But why would a consumer choose a private label over a national brand? “Affordability as a trend is big at the moment. Categories where purchase size is smaller, consumers are open to trials. But appliances and electronics are difficult categories for private labels," said Reddy. Today, 40% of modern trade shelf space is occupied by private labels, said Talreja. The story is similar in other countries. German retailers like Aldi and Lidl have created big private labels. In the last three years, private labels have gone up in food categories like soya milk, chocolates and biscuits. It is already causing stress to the mature brands, Talreja added.

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.

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