Private label products and services are manufactured and sold under company’s brand name. “Private labels are considered as lower cost alternative to brands, which may be regional, national or international,” says Girish Dasgupta, manager of Super Limited, a mid-sized apparel retail company in Bengaluru. Private labels are mainly introduced to earn higher gross margins from branded products. Retailers are also at an advantage as they do not have to depend upon the branded companies. Initially private labels were an advantage to the fast moving consumer goods (FMCG) companies; however, with time the impact of private labels is proving to be a threat to the FMCG industry.

Private label brands gaining popularity

As per findings of a report published by Datamonitor, ‘The Impact of Private Labels on FMCG Companies in India’, private labels are set to overpower the FMCG companies in India soon. The report, based on a consumer survey, concludes that stores selling private brands are offering services and products that are at par with the established national brands. It has been observed that the operational strategies incorporated by retailers have resulted in shift of bargaining power from FMCG companies to retailers.

Retailers are giving more preference to private label brands as it has been helping them gain higher profits and greater bargaining power as compared to FMCG companies. The retailers have begun offering products of private label brands at a lower price tag than the national brands. Most retailers are introducing private label products with tiered pricing in order to target more consumers, while maintaining their store position. In other words, the retailers are introducing private label products at a low cost yet maintaining the standards of their stores.  

“Private label brands have witnessed a growth due to the products offered in the household care segment,” says Manoj Mehta, manager of Real Private Limited, a mid-sized company in Raipur. It has been observed that most consumers are satisfied by the products, thereby leading to an increase in sale of the products offered by private label brands.

According to analysis of Datamonitor, it was found that consumers who are contented with household care products offered by private label brands may also be keen to purchase other products offered by them in categories such as food and beverage (F&B) and personal care products. Consumers may also be keen to avail offers such as ‘buy one and get one free’, discounts or contests. As a result this will enable retailers to earn higher sales and thereby lead to higher profits.

Private label brands offer unique products that have not been introduced by national brands. The former also does not have any fixed MRP; as a result, retailers can offer consumers with better product value, which will attract consumers to purchase more products. These factors are also adding to the retailers’ credibility.

The Datamonitor report has also analysed the shopping behaviour and preferences of consumers while making their purchase decisions. Accordingly, FMCG companies have to devise strategies that will aid them to overcome the threat posed by private label brands. 

Sabrina Mitchell