Effect of private labels in India : How to tackle store brand challenge, a threat to FMCG companies

Abstract

Private labels are goods produced or manufactured under own labels either by a retailer or by a manufacturer. When the Retailer manufactures their own brand it is called as in-store brands or simply store brand. Great value from Wal-mart is an example of own label of store brands under which some thousand odd products exist. They are manufactured and are in direct competition against branded products, offering customers a cheaper substitute and more choice apart from national brands. Though the consumers typically used to see them as low-cost replications or cheaper version of branded products, private labels have overcome this status and attained significant growth in recent years. Store brands are the most commonly available private labels for consumers. Department stores, electronics stores, apparels, and office supply retailers sell private label products or services. Nowadays, store brands exist in 95% of consumer packaged goods categoriesi. Private label is not restricted to CPG and Groceries alone, mass retailer and distributors such as Best Buy, IKEA, Gap, Staples and Zara carry a large proportion of private labels. Private labels possess several advantages over national brands and thus provide several benefits to both retailers and customers, driving the segment's rising acceptance. For retailers, margins on private label products are an average of 10% higher than those on national branded productsii. Customers benefit from private labels' cheaper rates, which are often considerably less than those of national brands. This combination, while advantageous to retailers and consumers, can put considerable pressure on the manufacturers of branded goods, who have to compete against their own customers (the retailers) for market share.