Local products gain market share as bigger FMCG companies struggle with supply chain issues
Limited manufacturing and supply chain hurdles during the lockdown have meant lower sales for the larger FMCG brands, while presenting an opportunity for local manufacturers. With their preferred brands unavailable for purchase, consumers have been opting for smaller regional brands and private labels that have been plugging the supply gap.
According to a Nielsen India study, these regional brands have gained market share across categories including packaged rice and hand sanitisers. In modern trade, the market share of such brands in the packaged rice category increased from 28% in February to 36% in March. This was even higher in the hand sanitiser category, where smaller players added nearly 45% in market share between February and March.
E-commerce platforms Grofers and BigBasket, too, have observed a shift in purchase behaviour towards their private labels. Grofers’ internal study shows that in categories such as edible oils, ketchups, pasta and soups, and honey and spreads, the penetration of private labels increased by 157%, 83%, 59%, and 41%, respectively, during the lockdown.
Could this affinity for private labels pass the test of time or will it last only till leading brands reclaim their share as soon as supply chains are restored?
Several factors have led to consumers buying smaller labels during the lockdown. Kamaldeep Singh, president, food and FMCG business, Big Bazaar, says, “Private labels have benefitted because they could manage their supply chain and address the stock shortage.”
Future Consumer, the FMCG company owned by Future Group, has a range of products from laundry detergents and disinfectants to cookies and edible oils. Big Bazaar’s online store is leveraging the demand for essentials by showcasing a greater selection of Future Consumer’s own labels.
Online grocery stores stepped up efforts during the lockdown when top brands were struggling to reach kiranas and modern trade outlets. “Since we have more control over the supply chain of our private label products, we were quick to take action to minimise the impact of the disruptions caused due to the lockdown,” says a BigBasket spokesperson.
Grofers, says its founder Saurabh Kumar, is helping its manufacturing partners with logistics, working capital and distribution, “so that we can maintain constant supply of goods for our customers”.
Consumers are known to be less discerning when it comes to essentials. This helps lesser-known brands.
Both Grofers and BigBasket are counting on their lower price-points to retain customers. “To build and maintain loyalty of new customers, we need to ensure that our private label products are of the best quality, are reasonably priced and available at all times,” says the BigBasket spokesperson.
Currently, private labels constitute 40% of Grofers’ business. The company hopes the surge in sales will take this share up by 20% over the next six months.
Brand loyalty, experts say, is not hard to come by for these companies. Anchit Chauhan, director – strategy, Dentsu Webchutney, says, “If consumers are pleasantly surprised by the quality and experience of the new product, they could get hooked to it. Also, familiarity with the brand increases as people consume it, thereby changing perceptions towards it.”
A substantial investment in promotions and visibility will be imperative for these brands to retain their toehold. “Anything which is not by choice will be difficult to sustain over the long run. There is a high chance that consumers will move back to their trusted brands post lockdown,” says Vishnu Vardhan, consultant, Euromonitor International.
Though private labels will find more shelf space in retail outlets, they will have to jostle for attention among the big brands. “Retailers will be cautious about having the right mix of private labels and big brands to avoid loss of sale due to unavailability of brands, which could result in losing the customer permanently,” Vardhan adds.
Leading brands that have lost market share to cheaper and readily available brands will need greater differentiation over smaller competitors. “For example, hygiene in manufacturing could be a new differentiation for a big FMCG brand over a regional brand. Improving customer experience to gain new advantages will be important too,” says Chauhan. How brands deliver the experience to consumers can again swing sentiment in their favour, whether it is through new packaging or a digital buying experience, he adds.