GROWTH OF PRIVATE LABELS

Inception and Growth of Private Labels

The twentieth century was undoubtedly the era of manufacturer brands. Manufacturers placed their products before the end users through distributors and retailers. Retailers were relatively small in comparison with their suppliers. Innovation among the manufacturers was on full swing and they expanded product lines with constantly scoring well on quality. Their marketing activities shifted to higher gears, giving them a command over their distribution channels. Thereby a silent process of brand building was on progress. They had the power of pricing, which the retailers had to blindly accept. In the well established markets of the west for organized retail, the surge from the retailers started way early in the 70s of the twentieth century. With the expansion of such organized retailers, more new players were attracted into the market. Retailers initiated a phase of demanding growth. The increase in number of the organized retailers and with consolidation happening, the new organized retailers commanded respect and power. In search of more opportunities, the retailers struck private labels to their fortunes. Private labels were gradually introduced by many retailers. But the penetration and acceptance was very slim at that point of time. Private labels were just considered to be cheap substitutes of the manufacturer brand and were not expected to show significant change. But as the retailers gained firsthand experience of the market, having been around for long, worked efficiently trying to match the manufacturer brands in terms of quality, identity, packaging and so on. They had the additional tag of low price products, which also helped in the growth of the private labels as potential competitors to the manufacturer brands.

PRIVATE LABEL SCENARIO

Global Picture
The market for Private labels in the global arena has seen rapid growth in the late twentieth century and has grown at an even faster rate in the first decade of the twenty first century. The well established markets for private labels such as Australasia (greater than 50% growth), North America (growth greater than35%) and Western Europe (greater than 50% growth) are still growing increasingly and will continue in the same fashion. The other lessdeveloped private label markets such as Japan and the emerging economies like India and China are expected to grow at a rate exceeding the established markets in terms of private label share, though the baselines are far below in comparison. These economies are tipped to have the growth

rate of private labels in double digits owing to the growth in the economy as a whole and primarily due to the increase in consumer acceptance of such products. It is estimated that $17 out of every $100 is being spent on private label products across the world, encompassing Europe, North America, Asia Pacific, the emerging markets and Latin America. Europe leads the world private label sales with a 23% share, followed by North America with a 17% share. The market for private label products in the food and non-food segments of U.S. is about $86.4 billion. In almost all markets of the world the private label products are flourishing at the expense of the manufacturer brands, whereas in Latin America, despite a healthy growth rate of 5% for the private labels, the manufacturer brands grew by 7%, which is the highest for any region worldwide.

The Indian Picture

Though the surge of private label products started way back in the western markets, India is seeing that kind of a revolution among many other things only in the recent past. The present environment seems more competitive and even more dynamic than it was in the past. The Indian retail industry is about $400 billion, out of which only 7-8% constitutes the organized retail, with nearly 95% being in the hands of unorganized retailers. Simultaneously there is debate going on in the country about the entry of Foreign Direct Investment (FDI) in the retail sector. With all these happening the opportunities are overwhelming in the retail sector than ever before. Amidst these conducive conditions for the growth of retail market in India, the nascent and few organized retailers are looking ahead to compete with the national and multinational brands that are existing in the country, with their own set of private labels. As the case was with the introduction of private labels in the western markets, Indian retailers are almost through with the rough of patch of their private labels being looked at as cheap, low quality cousins of the existing brands. Now there is initiative from the private label manufacturers to emulate the quality of their product lines, matching the brands and this has been reflected in the increased acceptance from the customers. Retailers increasingly want to improve their profits and are turning to the customers for the same. At the moment private label products constitute 10 12% of the organized retail product mix and in turn a relatively smaller share in the total retail market in India. Factors behind the growth of Private Labels The very existence of the private labels and their consequent rapid growth may be attributed to the following factors: i. The emergence of more organized retailers in the past decade; the consolidation happening in the retail market

ii.

The single major factor is the attraction provided by the profit margins associated with the private label products

iii.

Retailers focus of increasing the quality of the private labels in order to bring in product differentiation to their own products

iv.

Decline in prices within the retail industry, has prompted retailers to compete more with the brands

AN EXPLORATORY STUDY ON THE EMERGENCE OF PRIVATE LABELS IN INDIA

In the countries where organized retail is established, the proportion of sale s from private labels has been increasing. In India organized retail is in a nascent stage; with many Indian and multinational companies in the foray it would be interesting to study the current status of private labels in India. The current research on private labels is skewed towards countries where private labels are well established. The paper here makes an attempt at understanding the private label phenomenon from the perspective of a country in which organized retail is in a nascent stage. The paper makes an attempt to trace out the major strands of literature in the private label phenomenon and tries to make a prognosis on how it is going to emerge in the recent future. The exploratory study covers two of the key organized retailers to understand the categories in which they currently have private labels and their pricing vis--vis the manufacturer brands. The expected outcomes of the paper are an improved understanding of the current status of private labels in the country and how it would evolve in the near future.

INDIAN RETAIL SCENARIO

With more than 12 million retail outlets, India has one of the highest retail densities in the world (Vikram Bhalla et al., 2007). The retail landscape in India is dominated by mom-pop stores and though organized retail is emerging, it still constitutes a minuscule 34 per cent of overall retail in the country. But last 45 years has seen many Indian companies making a entry into organized retail, with a few multinationals entering in the cash-and-carry formats and others tying- up with Indian companies. Most prominent ones are Reliance, Futures group, Spencers, and A.V. Birla Group. The current study focuses on understanding the private labels of two of these playersSpencers and Pantaloons Big Bazaar. . Any brand that is owned by the retailer or the distributor and is sold only in its own outlets. In the developed world context the private labels are moving away from just being generic products to becoming an alternative option of value or quality to manufacturer brands (Oubin et al., 2006). Better understanding the new realities of private labels will help manufacturers position

themselves to capitalize on the opportunities they open up (Dunne and Narasimhan, 1999). Thus there is a need to understand how the phenomenon is unfolding in India and prepare for it. Within the literature on private labels one can find two distinct strands, one wherein the manufacturers perspective is taken to understand the impact of private labels on them wherein there are studies which try to understand the impact that these private labels have on manufactures and the strategies that can be adopted to counter them (Kumar and Steenkamp, 2007; Oubina et al., 2006). And the second strand of literature makes an attempt at understanding the drivers of consumer preferences for private labels, their preferences and perceptions, the linkage between store brand personality and its impact on consumer perceptions, and consumer willingness to buy private brands. Worldwide private labels have been evolving, first one can see that the proportion of private labels in the overall sales of retailers has been increasing in countries where organized retail is old, for example in the USAthey now account for 20 per cent of sales in supermarkets and mass merchandisers (Nielsen, 2003) and in Germany, private label share has increased over the last three decades from 12 per cent to a huge 34 per cent (Kumar and Steenkamp, 2007). And that they have been evolving out of their generic and copy cat strategies to actually providing premium and challenger Richardson (2007) also observes that store brands which were earlier promoted on the basis of price or value for money, are now marketed by many firms using a quality focus. But in countries like India where the traditional mom- n-pop stores dominate the landscape the impact of private labels both on retailer as well as the consumers is 3rd IIMA Conference on Marketing Paradigms for Emerging Economies 241a issue worth investigating. In this paper an attempt has been made to understand the phenomenon from the retailer perspective and the consumer angle has not been investigated. Currently, the proportion of sales of private labels in the overall sales of the retailers in India is negligible, but the proportion is bound to increase and with researcher like Kumar (2007) predicting that private labels would constitute 50 per cent of retail sales in the coming two decades it becomes an area worth investigating.