Country's largest retailer Future Group's private brands top the booming modern retail industry

NEW DELHI: Retailers' own brands are making rapid gains across consumer product segments in the booming modern retail industry, weakening several established brands' power to negotiate lower trade margins.

Leading the charge is the country's largest retailer Future Group, whose private brands have been outselling some of the country's best-known brands in select categories across 200-plus Big Bazaar and Food Bazaar outlets.

Private brands already account for close to 7% of modern trade sales in India, compared to 1% in China, according to market researcher Nielsen's latest survey that covers over 50 countries.

"The private label phenomenon has leapfrogged in India compared to other Asian countries for many reasons: the value conscious Indian shopper, their familiarity and comfort with unbranded/ generic products, and the focus on quality of private label products on behalf of the retailers," says Dipita Chakraborty, executive director for retail and shopper practice at Nielsen.

The development will impact the bargaining power of marketers such as Reckitt Benckiser and Cadbury who have had a face-off with big retailers over margins.

"This is worrisome.... Very soon, large retailers will call the shots. It has already started happening," head of a Delhibased maker of consumer goods said on condition of anonymity.

In Big Bazaar stores, private labels such as Clean Mate and Tasty Treat outsell national brands such as Domex, Pril and Bambino, and own brands lead the sales chart in at least four product segments (see chart). Future Group had boycotted chocolate maker Cadbury in 2008, and the following year it boycotted cereal maker Kellogg's brands across its Food Bazaar and Big Bazaar stores, both demanding higher business margins.

It stopped fresh orders from Reckitt Benckiser, maker of Dettol soaps and Harpic toilet cleaner, in February this year after the marketer slashed retailers' margins to 14% from 16% on some of its products to partly offset rising input costs. The issue was resolved two months back with Reckitt products back on Big Bazaar and Food Bazaar shelves.

OTHER RETAILERS STRUGGLE

Largely Future Group is fueling growth in private brands, while others have yet to crack the private label space. Reliance Retail and Aditya Birla Retail's More have said they will slow down and consolidate their portfolios. More has already removed personal care products from its private brands.

Future Group Chairman and MD Kishore Biyani says customer acceptance and repeat purchases are what is driving its private brands. "We are working hard on our private brands," he says. Based on information shared by Nielsen, Future Group president of food and FMCG, Devendra Chawla, says that Future group's own brands grew 52% last year while private brands in modern trade grew 19%.

"Unlike in the West, where retailers brands started decades later than national brands, in India, we are participating in new age categories, so we can be significant players in driving consumption," Chawla says.

"Modern trade is a catalyst and incubation ground for categories like corn flakes and hand washes, so we are placing big bets on these brands," he adds. Future Group recently extended its Sach brand to hand wash. Industry experts, meanwhile, point out private brands' share is miniscule in absolute numbers.

"Actually the base of private brands remains small, which is why their growth looks impressive," says retail industry veteran and consulting firm Wazir Advisors MD Harminder Sahni. Retailers sell private labels (or store brands) to consumer at prices 10-20% lower than national brands because retailers don't incur overheads like marketing and advertising costs.

Pricing depends on the category — in some low-involvement categories like toilet cleaners private brands are priced cheaper, but in others like hand washes they are costlier than established ones. In developed markets, there are many examples that reiterate the clout of retailers.