Pasta, hummus, shawarma, sausages, khao suey, sushi and more - Indians love to experiment with international cuisine. Of course, fresh home-cooked meals remain a staple. But millennials and Gen Z are not averse to trying new dishes. Then there are pok choy, galangal, kale, chia seeds, almond milk and wasabi - ingredients from across the globe are now available at the local supermarkets. While convenience is essential for the millennials, a fresh, organic and healthy meal or snack best complements and seamlessly aligns with their lifestyle choices. National brands do enjoy a strong fan base, but the evolved consumer also seeks quality, integrity, variety, authenticity and value for money when walking down the store aisle, thus creating a viable and thriving market for private labels in the Indian food and beverage sector.
Globally, the revenue share of private labels has steadily increased, especially in Europe. Initially, private labels were perceived as cheaper, 'me-too' products, but they have evolved greatly over the years. According to Euromonitor Data from World Trade Statistical Review 2017, the share of private labels is the highest in European countries with Switzerland, the Netherlands and the UK leading the trend. Established retailers such as Tesco and Sainsbury's are proud creators of successful and well-known private label brands across categories, especially food.
Change in Global Play
A far cry from the initial range of private labels known as dealers' brands, mostly knock-offs of well-known brands and perceived as cheap and inferior alternatives, private labels today are viewed as good quality, value-for-money choices. Retailers have understood the monetary benefits of creating private labels and no longer shy away from investing in good quality sourcing, manufacturing and attractive packaging for building a winner. For instance, the leading Canadian supermarket chain, Loblaws, added the premium President's Choice line to its traditional unbranded product offerings. President's Choice products directly compete with major brands, in categories where consumers seek and value high quality. Loblaws stresses the quality of the ingredients and the manufacturing process of President's Choice products. Take a look at President's Choice olive oil. It is harvested from trees planted more than 80 years ago and produced from the first cold pressing of sun-ripened olives. Further, retailers are also creating more complex store brand models by offering multiple price points within a single category to cater to the varied consumer base. For example, a shopper at Tesco store can choose biscuits from a variety of options - Tesco Value biscuits or Tesco biscuits or Tesco Finest, and pick the one that best fits his/her wallet and diet preferences.
The continued success of hard discounters in the West has further accelerated the growth of private labels, especially within the grocery segment. According to an analysis by Boston Consulting Group, 95 per cent of the assortment at Aldi, Germany, and 99 per cent of its sales came from private labels in 2008. By 2015, in Germany, which is Europe's largest food market, hard discounters had a 38 per cent market share. European hard discounters Aldi and Lidl began their journey in Germany but have witnessed exponential expansion not only in Europe but also in the US. As per to a Bain & Company report, the hard discounter segment in the US is expected to grow by 8-10 per cent annually through to 2020, which is five times the rate of traditional grocers.
What India Thinks
Private labels are a recent occurrence in India, but they have managed to capture the attention and wallet share at an impressively fast pace within organised retail.
Staples such as pulses and cereals were among the first few products that helped store brands gain a firm foothold. The More chain of stores launched More Choice and More Value to offer its shoppers good quality pulses and spices at competitive prices and witnessed impressive sales through these private labels. Large national brands have not been aggressive in this space, and consumers who were used to buying loose, unbranded staples, saw value in these private labels. So, unlike their global counterparts, private labels in India are not perceived as cheap or low-quality alternatives. Besides better margins and higher returns on shelf space, private labels have also enhanced the overall brand equity of retail stores.
India is a diverse country with multiple regional preferences and personal choices. National brands try to cater to divergent needs through several variants but are often limited by economies of scale. But a retail outlet has the unique advantage of constant, live interaction with its consumers, allowing it to gather instant feedback and understand what drives consumers towards a brand/product in a particular state or region. As private labels are agile, they can easily service the needs arising from emerging trends and create new and niche categories.
Here is a good example. Health and fitness awareness has created a market for healthy ingredients. So, Future Group responded by launching Kosh Oats and Spencer's introduced its green tea. Reliance Smart also launched Reliance Select Instant Noodles to cater to the increasing demand for ready-to-eat food. Control over shelves, smart pricing and investments in sampling have enabled retailers to win over consumers in significant numbers.
Going Premium Helps
Private labels in India are no longer restricted to low-value or mid-value food categories. Retailers are investing in developing new food and beverage categories. For instance, Nature's Basket has two key private labels - Healthy Alternatives and L'Exclusif - new categories which address specific requirements of affluent consumers. While Healthy Alternatives offers a range of wellness products, including staples, snacks, oils and eggs, L'Exclusif is a premium gourmet products brand that includes nuts and chocolates. From freshly made cold-pressed juices and premium nuts and dry fruits to cheeses and oven-fresh bread, retail brands are going all out to make the private labels synonymous with an engaging and enticing experience that brings consumers back to the store and converts them to retail brand loyalists and advocates.
Traditionally, a private label's distribution was restricted within the specific retail brand. But the rapid growth of e-commerce and m-commerce has led to a dramatic shift in the distribution network. Online grocery store BigBasket has some hugely successful private labels and recently announced that its share of private labels is expected to increase to 45 per cent from the current level of around 34 per cent. Established retailer Future Group has taken some store brands such as Golden Harvest, Fresh & Pure, Tasty Treat and Sunkist outside its retail outlets and is building them as credible brands. In fact, offline retail is witnessing many changes, and the line between online and offline is blurring. These are likely to impact national brands in a big way.
Battle Lines Drawn
Nevertheless, Pan-India brands still enjoy enormous brand equity. They have a strong and loyal consumer base and deep pockets for large marketing campaigns and consumer activation. As of now, consumers are willing to make an impulse buy for low-consideration staples. But switching to a high-consideration food item such as ghee often requires multiple samplings and substantial coaxing by in-store teams. Consumers often seek comfort in products sold by well-known national brands and are willing to get them at a premium. Moreover, if stores primarily stock their own brands, consumers might move away as they feel deprived of choices.
While private labels try to entice retailers with higher margins and better shelf space returns, they should be prepared for a strong pushback from the national brands which will not concede market share without a good fight. Smaller and regional brands will undoubtedly feel the heat. The growth of the middle class and the emergence of the affluent millennials will continue to fuel the need for new categories, though. New-age start-ups with sharp consumer insights are already emerging in large numbers to cater to these new opportunities. And smart retailers already see these brands as part of their core offerings to get consumers back to their stores.
Although the value for money will always be the USP of private labels, retailers are already using stronger brand positioning and great consumer experience as central to building customer loyalty. Retailers will also leverage their proximity to consumers to increasingly 'demassify' their private labels and suit local preferences. Future Group's endeavour to market its brands outside its stores is being watched with great interest. If the strategy clicks, other retailers will be tempted to follow suit. As organised retail is growing via online and offline channels, the tussle between private labels and national brands is expected to intensify even more. And finally, consumers will emerge winners, thanks to greater options and better pricing.
The writer is Venture Partner, Fireside Ventures