Private labels to retailers rescue

Written by fe Bureau | New Delhi | Updated: Jun 28 2009, 07:43am hrs
Even as India topped the Global Retail Development Index as the most attractive retail destination among 30 emerging markets, back home it was a dismal run for retail chains, with some battling for survival and others shutting shops. With the third quarter growth for 2008-09 at 10-12% as against 35% of the previous year, accompanied with closures, pulling out from certain cities and the Subhiksha saga unfolding, the dream run for the organised retail sector seems to have taken a pause.

Given the spate of retail stores closing down, FMCG companies have renewed their focus on kiranas to spur up sales, with reports of Hindustan Unilever and Godrej Consumer Products raising their trade margins on some brands for traditional retailers. Experts believe that traditional retail will always play a significant role in India. As Pinakiranjan Mishra, partner and industry leader, retail & consumer products practice, Ernst & Young, says, Traditional retail has to be a focus of FMCG companies. Moreover, a large part of the non-urban population is not served by modern retail. The potential of this market is much larger in the long term and FMCG companies will continue to focus on these markets.

A push towards kiranas is also coming from private labels of retail chains (PLs). As Shushmul Maheshwari, chief executive, RNCOS E-Services, which recently came out with the Booming Retail Sector in India report, says, The increasing focus by retail chains to promote PLs has forced FMCG companies to target local kiranas stores. While dealing with kiranas, FMCG companies have high bargaining power and margins in comparison to catering to large retail chains. Thus kirana stores will continue to be important partners of FMCG companies for a long time.

Experts say PLs will play a significant role in the organised retail sector in times to come. According to Nupur Chakraborty, executive editor, Images Retail, PLs are part and parcel of every mass retailer. PLs offer grocery retailers opportunities to boost the bottomlines in a very, very low-margin business, and also offer consumers the choice and savings. The battle for wallet shares between PLs and suppliers brands is an enduring one and will continue even in matured economies. In some categories, PLs and manufacturer brands will be in direct competition. Some categories such as personal care and dental care are brand sensitive and should not be touched by PLs until later.

A sentiment also echoed by Maheshwari. In the coming years, large retailers will push more PLs than branded products as it will help them earn higher margins. Also, developing private label products can help a retail company market its products similar to FMCG companies in open market, which will be a new concept in Indian retail.

What remains to be seen now is the exact role played by these PLs in the new market dynamics