Private labels dent established FMCG brand share

Private labels are giving established fast moving consumer goods brands a run for their money.

Though private labels comprise 10 to 12 per cent of the overall FMCG volumes, analysts said they were recording double-digit growth annually and could pose problems for the big players in the near future.

In food and beverages, for instance, Aditya Birla Retail's Feasters Noodles Family pack contributes 40 per cent of the revenues from the category. Kitchen's Promise pickles are outselling Mother's Recipe, and sales of Feaster's Instant Drink Powders are more than double those of Tang sales.

In homecare, the brand 110 Per Cent toilet cleaners have achieved 20 per cent of the category sales and Paradise Room and Air Fresheners contribute to 38 per cent of the category sales.

Even personal care products are doing well. AU79 Male Deodorant has already gathered market share of 6.5 per cent within three months of launch. And Fresh-O-Dent toothbrushes contribute to 15 per cent of the category sales.

Thomas Varghese, CEO, Aditya Birla Retail, says, "Our brands have performed very well against the FMCG brands across a range of food and non-food categories." Aditya Birla's private labels cover seven brands and over 290 products and variants.

The same can be said for Spencer's and Future Group. Mohit Kampani, vice-president, merchandising, food & FMCG, Spencer's Retail, said, "Our private labels have double-digit market share in food (10-20 per cent) and beverages (8-10 per cent), home care (10 per cent) and personal care (10 per cent)."

Spencer's sells private labels under the Spencer's Smart Choice name. It is targeting 20 per cent market share across the categories in the next three years.

Devendra Chawla, head (private labels) food and FMCG, Pantaloon Retail India Limited, said: "Fresh n Pure, Cleanmate, Tasty Treat, Caremate, Sach…in each case we have 15 to 40 per cent market share in the categories in which we operate. We hope to have 25 to 30 per cent share for our private labels in respective categories."

Anand Ramanathan, manager, business performance services, KPMG, noted that some of the major food and grocery retailers' average 20 to 30 per cent private label penetration, peaking at around 50 per cent.

Processed food and homecare products are witnessing more heat from private labels because consumers are more open to brand switches in these categories, while personal care is a little tough to crack.

Naimish Dave, director, OC&C Strategy Consultants, noted, "Currently, the contribution of private labels for some players has even touched 40 per cent-plus, from 10 to 12 per cent."

What works for private labels, according to retailers, is that consumers trust a retailer brand to sell quality products.

Dave agreed. "We drew a parallel with the buying behaviour of housewives with traditional groceries in the past. They have a chosen grocer from whom she buys loose biscuits, rice, cooking oil and other staples because of the assurance of right price and quality. The success of private labels finds its roots in this practice," he said.

The product retains its price attractiveness, Dave explained, carries the trust of the retailer and provides an avenue for consumers to uptrade from loose to packaged and also down-trade from a premium brand.

Private labels tend to be 5 to 20 per cent cheaper than established brands. Since retailers are able to cut out middlemen, they pass on the cost benefit to consumers.

Retailers also get the upside. They not only make more profits by selling private labels than the brands (margins are 60 per cent more than what they get from FMCG companies), these labels help differentiate themselves from their rivals. And in the long run, they can use the private labels to attract customers.

There is a buzz in the market that organised retailers like Future Group, Aditya Birla Retail, Spencer's and Reliance Retail are coming together to cut operational costs and improve margins. If such a collaboration materialises, private labels will get significant traction.

Kampani said he is open to selling his labels at other retailers' stores if the collaboration takes place. Chawla too has such plans.

In international markets, private labels contribute to more than 55 per cent of store value in FMCG sales. Worldwide, Wal-Mart's private labels boast of sales worth $125 billion.