PRIVATE LABEL

What is private label

Private labels are generally introduced to get higher gross margins from branded products. They also place the retailer at an advantage over the branded FMCG players who have historically been arrogant with the retailers.

Why private label

• Burgeoning Middle-class

• Changing Lifestyle

• Consumer Choices

• Regional Preferences

• Demand Growth @ higher trajectory

• Enter early birds

• Critical factors for high-end users

• Market Expansion

Burgeoning Middle-class

• 182 million families;

• strong upward mobility due rising incomes and aspirations

• Incomes influencing lifestyles

• Higher propensity to consume

Changing Lifestyle

• Urbanization (cramped houses); nuclear families; Working women

• Quality & health conscious

• Convenience; Eating-out turning fashionable;

• Demonstration effect

Consumer Choices

• Local flavour preferred; do imported pulses meet local need? organoleptic tests necessary;

• Demand price elastic; high prices lead to substitution with cereals; some cases with low cost pulses

Regional Preferences

• Gram: across India;

• Pigeon pea: central & south India

• Black matpe: across India; but strong southern demand;

• Moongbean: east India, Mah’tra

• Lentils: north and east India

Buying Habits

• Most buy from small retail units that sell loose; purchase quantum depends on income level;

• Frequency & quantity purchased decline as incomes rise;

• Prepackaged pulses at co-op stores & private retail chains

Demand Growth @ higher trajectory

• Rising institutional demand• Households want clean, graded, hygienic,

packaged, ready-to-cook ingredients• Urbanites now make do with convenience (not

freshly cooked)• Food safety & food quality

Enter early birds

• Entry of corporates; • Retail revolution; Supermarkets mushrooming• Private labels; no national brands• Regional value-added products – food habits

in India change every 100 kms!!!

Critical factors for high-end users

• Quality, size, shape, colour, cooking time, taste;

• 20% consumption by high-end ( 3 mn.t.) and growing

• Little product differentiation; so, quality assurance is key

Market Expansion

• Market expanding organically

• Trade can accelerate by lobbying government to include pulses in welfare programs – PDS,

midday meal, food-for-work schemes;

Why The Growth?

• Consolidation of retailers

• Brands sell to same retailers and become a commodity

• Retailers need differentiation and better margin

• Declining retail prices (women’s apparel prices dropped 2.4% 2007 vs. ‘06)

• Globalization of Production

Global Sourcing How do retailers achieve low PL prices?

• Imitate designer brands to reduce R&D costs

• Source direct with factories to eliminate middlemen cost

• Buy in larger volume to receive lower cost

• Source from low cost, duty and/or quota free countries: China, India, Bangladesh, Vietnam, Pakistan, South & Central America, Africa

 Types of Private Label

• Store brands - The retailer's name is very evident on the packaging.

• Store sub-brands - Products where the retailer's name is low-key on the packaging.

• Umbrella branding - A generic brand, independent from the name of the retailer.

• Individual brands - A name used in one category, this is only used to promote a "real" discount product line.

• Exclusive brands - Again a name used in one category, but to promote "added value" products within the category

Premium Store Brands

What is the preferred PL strategy?•  Highly competitive - same or better quality at • better prices, average 37% less than national

brand• Higher Gross Margins (est. 58 – 68%)• Higher selling price per square foot than other• Private label strategies

– Biggest threat to national brands– Brand Loyalty

•  

Private Label Trends

• Combined effort, a win-win strategy:RELIANCE• One time exclusive deal – big bazzar• Blending in with Premium brands – subiksha

National Brand Counter Strategies

• Develop unique products and stay ahead as a trend leader

• Create own stores

• Develop a compelling marketing strategy

• Increase brand loyalty

• Combine effort by offering exclusive lines.

• Create one shot exclusive deliveries and SKUS

• Evaluate sourcing strategy and production cost

• Maintain net price (minimal promotions & discounts)

• Improve forecasting and turn around time

Future of Private Labels

• Becoming national premium lifestyle brands: TATA WESTSIDE• Branching out to create specialty chain business: VISHAL

MEGAMART ,RELIANCE FRESH• Increasing depth of multi dimensional merchandising product

mix (Tony Hawk mens, boys, footwear and etc)• Spin off PL brands (Aeropostale)• Cannibalize weaker PL brands

Overview

• Worldwide Private Label retail sales have passed US$1 trillion

• 2006 US apparel & shoes retail sales: $358.6 Billion

• 2006: 45% apparel sales were private label

• 2005: 39% apparel sales were private label

• 2002: 35% apparel sales were private label

• By 2010, private label merchandise expects to increase by 22% to 55% of total apparel sales  

Private Label Pros & Cons

PROS

• Exclusivity & differentiation• Bring customer loyalty• Better margin• Better control in deliveries• Brand equity• Freedom in pricing strategy• Increase bargaining power

with both national brands and PL factories

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CONS

• Inventory risk• Higher R&D expense• Higher marketing expense• No markdown or return

allowance from branded suppliers

• If product fails, will create negative image

• Quality control, complex production & import issues

What This Means

• To differentiate

• To gain and maintain consumer loyalty

• To achieve higher gross margin

• To compete with national brands

• Private brands will continue to play an important part of the assortment to their growth strategy

• Become national lifestyle premium brands

• Deploy a multi-layer strategy in brand, price and quality

• Cannibalize weaker private and national brands

•  

Thank you ?