Organised trade benefits critical aspect of retail biz 'private labels'
Any retailer will tell you that to make a play in retailing, supply chain efficiencies is most critical. And Anshuman Singh, MD & CEO of Future Logistics thinks the back end processes put in place in the last two years has also benefited one critical aspect of retailing business private labels.
"In terms of supply chain cost, we have been able to shave off around 3% of the cost on the total sales value," says Singh. So in the next 10 months, Future Logistics is putting in place a network of warehouses across 12 metros complete with sophisticated warehouse management and conveyor systems to handle fruits, vegetables, staples and even private labels.
So, the warehouse network is keeping in mind the requirement of the entire retail operations, but Singh says back-end efficiencies are a force multiplier for private labels as well.
"Savings in terms of back-end space, much higher fill rates and even savings in terms of shrinkages are possible." From the back-end to the shelves at the More stores. Thomas Varghese , CEO of Aditya Birla Retail says the private labels strategy of More has undergone a revamp in terms of number of SKUs. More, says Varghese, had 360 SKUs in 13 brands. Now, the list has been trimmed to 280 SKUs across brands, which Varghese likes to call 'power brands'.
"Now, we will focus on certain power categories and adopt an FMCG style of investing in brands," he says.
Compared to the tectonic changes that have swept the organised retail trade, that comprises about 10% of the $300 billion retail trade in India, the course corrections in private labels may seem as mere ripples in the sea.
But when one looks at the private label penetration in India compared to developed retail markets, the cou! rse corr ection, retail players will tell you is needed. As a percentage of the overall business, market estimates put private label penetration in India at 6-7% vis--vis UK at around 39% and US at around 19%.
"At the current level, operating expenses are in the range of 16-18%. That leaves hardly any margin for retailers. It is therefore important for retailers to take gross margins to a higher level in order to create a sustainable business model.
Private labels present an opportunity to rake in higher gross margins, providing the best answer to this problem," says Pinakiranjan Mishra, head - retail & consumer product practise, E&Y India. It's a thought not lost on retailers in India, but today, players are looking at a private label play not just on pricing alone. Raj Jain, president, Walmart India and MD, Bharti Walmart says private labels open up price points for consumers.
"Prices for our private brands at Easy Day are 10-25% lower than national brands to allow consumers to get into the category. Sometimes it becomes an alternative when a particular category has limited brands," says Jain. He, however, adds: "While the core objective is to give choices, there is a market for premium private brands."
According to Rajiv Lal, senior professor - retailing, Harvard Business School, Europe has led the way in high quality, innovative store brands; the retailers in US are now catching on to the trend. "For a long time US retailers used private labels to cater to the needs of low income and price-sensitive consumers. A weaker economic environment is always more favourable to store-brands."
However Lal adds that in the quest to create stickiness for private labels, pricing albeit important shouldn't be the only plank. "Quality, packaging, merchandising, in-store displays are critical to the success of store brands. Suc! h store brands can even garner a premium over national brands."
Retailers could well take a leaf out of the strategies adopted by manufacturers in FMCG segment with multi brand strategy across price points. So one brand pegged at a lower price point becomes the entry level choice for consumers and brands at subsequent price points then become the ladder for consumers to upgrade.
In essence, it allows brands to capture the entire lifecycle of the consumers. Adds Mark Ashman, CEO, HyperCity; "There are many consumer categories yet to be launched in India and modern trade will act as a catalyst for these categories."
"In terms of supply chain cost, we have been able to shave off around 3% of the cost on the total sales value," says Singh. So in the next 10 months, Future Logistics is putting in place a network of warehouses across 12 metros complete with sophisticated warehouse management and conveyor systems to handle fruits, vegetables, staples and even private labels.
So, the warehouse network is keeping in mind the requirement of the entire retail operations, but Singh says back-end efficiencies are a force multiplier for private labels as well.
"Savings in terms of back-end space, much higher fill rates and even savings in terms of shrinkages are possible." From the back-end to the shelves at the More stores. Thomas Varghese , CEO of Aditya Birla Retail says the private labels strategy of More has undergone a revamp in terms of number of SKUs. More, says Varghese, had 360 SKUs in 13 brands. Now, the list has been trimmed to 280 SKUs across brands, which Varghese likes to call 'power brands'.
"Now, we will focus on certain power categories and adopt an FMCG style of investing in brands," he says.
Compared to the tectonic changes that have swept the organised retail trade, that comprises about 10% of the $300 billion retail trade in India, the course corrections in private labels may seem as mere ripples in the sea.
But when one looks at the private label penetration in India compared to developed retail markets, the cou! rse corr ection, retail players will tell you is needed. As a percentage of the overall business, market estimates put private label penetration in India at 6-7% vis--vis UK at around 39% and US at around 19%.
"At the current level, operating expenses are in the range of 16-18%. That leaves hardly any margin for retailers. It is therefore important for retailers to take gross margins to a higher level in order to create a sustainable business model.
Private labels present an opportunity to rake in higher gross margins, providing the best answer to this problem," says Pinakiranjan Mishra, head - retail & consumer product practise, E&Y India. It's a thought not lost on retailers in India, but today, players are looking at a private label play not just on pricing alone. Raj Jain, president, Walmart India and MD, Bharti Walmart says private labels open up price points for consumers.
"Prices for our private brands at Easy Day are 10-25% lower than national brands to allow consumers to get into the category. Sometimes it becomes an alternative when a particular category has limited brands," says Jain. He, however, adds: "While the core objective is to give choices, there is a market for premium private brands."
According to Rajiv Lal, senior professor - retailing, Harvard Business School, Europe has led the way in high quality, innovative store brands; the retailers in US are now catching on to the trend. "For a long time US retailers used private labels to cater to the needs of low income and price-sensitive consumers. A weaker economic environment is always more favourable to store-brands."
However Lal adds that in the quest to create stickiness for private labels, pricing albeit important shouldn't be the only plank. "Quality, packaging, merchandising, in-store displays are critical to the success of store brands. Suc! h store brands can even garner a premium over national brands."
Retailers could well take a leaf out of the strategies adopted by manufacturers in FMCG segment with multi brand strategy across price points. So one brand pegged at a lower price point becomes the entry level choice for consumers and brands at subsequent price points then become the ladder for consumers to upgrade.
In essence, it allows brands to capture the entire lifecycle of the consumers. Adds Mark Ashman, CEO, HyperCity; "There are many consumer categories yet to be launched in India and modern trade will act as a catalyst for these categories."
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