They have almost all the elements of a big label—a brand name and exclusivity. Maybe they lack a few things, like a big advertising budget and a sporty price tag.

But still, they are big and are here to stay. In fact, chances are that they comprise nearly 40% of your shopping bags while you shop at retail outlets like Westside, Shoppers Stop, Reliance Fresh, Big Bazaar and so on. Clueless about what we are talking? Welcome to the world of private label brands.

Be it Tata’s Westside, Kishore Biyani’s Big Bazaar or RPG Group’s Spencer’s, everyone is betting big on private labels for they are fast becoming one of their major revenue spinners. So what makes you buy them, knowingly or unknowingly? What makes the retailers go all the way to launch and maintain these brands? What makes these brands successful despite no advertising? In this story, DARE attempts to answer some of these questions.

How big are the private labels?
Private labels, often referred to as in-house brands or store brands, are those that are owned by the retailers themselves. For example, Shoppers Stop has several in-house brands such as STOP, Kashish, LIFE, Vettorio Fratini, Elliza Donatein and Acropolis. Reliance Fresh sells grocery such as pulses, rice, tea, noodles under the Reliance Food brand and the dairy products such as its curd is sold under the Dairy Life brand.

According to a FICCI-Ernst & Young 2007 report, as quoted in The Marketing Whitebook 2009-10, the retail sector in India was worth $280 billion, of which organized retail comprised 5% at $14 billion. In an ASSOCHAM-KPMG joint study, the size of the retail industry was pegged at $353 billion in 2008. It was estimated to grow to $410 billion by 2010, of which organized retail would value approximately $51 billion.

According to Images Retail Report 2009, as quoted in "Indian Retail: Time to Change Lanes" by KPMG; private label brands constitute 10-12% of organized retail in India. Of this, the highest penetration of private label brands is by Trent at 90%, followed by Reliance at 80% and Pantaloons at 75%. Big retailers such as Shoppers Stop and Spencer’s have a penetration of 20% and 10% respectively. Globally, store brands constitute nearly 17% of retail sales. In fact, international retailers such as Wal-Mart and Tesco have 40% and 50% of in-house brands in their stores.

Store brands: An overviewIn India, the growth of private labels has been phenomenal and is slowly gaining more store space. Aditya Birla Retail, which operates the ‘More for You’ food and grocery chain, is reportedly pursuing strategies to increase its private label sales from the current 3% to 10-15% of total sales in the next two to three years. During the course of this story, DARE visited several such retail outlets. Here is a pen picture of what we found:

Store space: Nearly 40-50% of the store space was dedicated to store brands. These products shared the shelf space with other branded products. For example, in the Reliance store that we visited, its curd brand Dairy Life was placed next to the other brands, such as Amul.

A number of store brands: This is especially true for apparel. Shoppers Stop has several in-house brands. For example, in the women’s wear category itself it has STOP, Kashish, Remika etc. Similarly, in the men’s wear category, it has STOP, Life, Vettorio Fratini, and so on. These products are not differentiated from the other brands in terms of store space.

Price tag: These products were priced substantially lower than the other brands. For example, Reliance’s tea brand sported a price tag of Rs 118 for 500 gms, whereas Brooke Bond, which was placed just next to it, was available for Rs 132 for 490 gms.

Catered to a number of categories: In these stores, the store brands were not limited to a particular category. For example in Shoppers Stop, it extended from apparel for men, women and children to crockery, kitchenware, and even furnishings. Similarly, in a Reliance store, it extended from pulses to spices, noodles and even diary products.

How do in-house brands work?For a retailer, there are several advantages of introducing in-house brands in their portfolio. Atulit Saxena, COO of Future Brands, explains, “Traditionally, private brands worldwide were always conceived to take on category leaders. If we are talking about soaps for instance, you might have 15-20 soaps, but as a large organized modern retail player, you might want to create your own trademark in your store, which is of the same quality, but at a price that is substantially lower.” This also becomes the differentiating factor for a retailer, as these brands are exclusively available at that retail outlet only. So a customer, for example, may want to revisit the store if they find the quality comparable to others at a more affordable price point.

As these brands create an identity for the retailer, there is a lot of work that goes into the pre-launch phase. Salil Nair, customer care associate and chief operating officer, Shoppers Stop, explains, “We have a very large base of loyal members, called First Citizens. Before we launch, we give a preview to First Citizens. We collect their feedback, so that we can study their likes, their sensitivity to price, their sensitivity to colors, silhouettes etc. We even put it for re-sampling if required, and then we launch it.” These brands are then re-invented every year through consumer and competitor surveys.

The quality of the products is also of big concern due to obvious reasons. However, these products have not been able to shrug off the tag of inferior brands. Atulit says, “Traditionally, they have been considered as cheaper alternatives to conventional brands. But over a period of time, these private labels are becoming more innovative, are adding more value to the consumers and are able to offer innovation that is similar to an established brand. From a customer’s point of view, he is getting a similar quality at a much lower price. This is especially true in the apparel space because there it is not just the price advantage that works, but also the design sensibility.” The designs are both done in-house and are outsourced as well. For example, while Shoppers Stop frequently ties up with young designers, Pantaloons believes in having its own in-house designers.

According to Salil, “Private labels are highly profitable. The profits earned from them are almost double than those from the third -party brands.”This brings us to the point—the core strength of the retailers is retailing and not designing and manufacturing products. Salil confirms, “We want to remain as core retailers. Therefore, 100% of our manufacturing is outsourced. There are fairly well-established manufacturers who work with us. We have been working with them for the past seven to ten years.” So is there any opportunity for entrepreneurs in tying up with these players for manufacturing these products? He says, “We are open to that. The selection of a manufacturer is a stringent process. We have a huge terms and conditions’ list that all our vendors have to agree to and employ. For example, we are against child labor. We have a quality assurance team to evaluate them, the environment in which they work, their financial capability, their commitment, their ability, and their interest level; there is a huge list.”

Salil Nair says, “Five years back, our private label brands were around 17.5% in terms of sales and today they are almost 22.5%—a 5% increase. So now we have started dedicating a bigger space for this. All our brands have good representation in our stores so that they have a visual impact. The treatment that our in-house brands get is equal to what other brands would get at Shoppers Stop.”

The road aheadPrivate labels are slowly becoming the protagonist in the big Indian retail growth story. Taking cue from the West, Indian retailers are also churning out newer ways to increase their profit margins—one such initiative is the introduction of in-house brands. With Indian customers increasingly accepting these private label brands, they would soon be major contributors to the profits of Indian retailers.