PRIVATE LABELS

RETAIL’S NICHE IN THE WORLD OF BRANDS

5/20/2010

SHARAD PRIYAM
MFM II
 CERTIFICATE FROM GUIDE REGARDING
COMPLETION OF WORK

This is to certify that the Project entitled “PRIVATE LABELS: RETAIL’S NICHE IN THE
WORLD OF BRANDS” submitted towards the partial fulfilment of the program Master of Fashion
Management by Sharad Priyam is his original work done under my guidance and the results are
based on the research done by him.

Name of Guide/ Designation: Ms. Lipi Choudhary

Project Mentor
Assistant Professor
Department of FMS
NIFT, Patna

Date: 20th May 2010

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Place: Patna

TABLE OF CONTENTS

INTRODUCTION 4
EXECUIVE SUMMARY 5
OBJECTIVES 9
RESEARCH METHODOLOGY 10
CONCEPT OF RETAIL BRAND 11
RETAIL BRAND DEVELOPMENT & STRATEGY 11
RETAIL VALUE CHAIN 12
STORE BRAND vs. NATIONAL BRAND 14
MANUFACTURERS BRAND vs. RETAILERS 16
BRAND

GROWTH OF RETAILER BRANDS 20

CHANGING FACE OF DISTRIBUTION IN INDIA 21
ECONOMICS OF PRIVATE LABELING 24
MANAGERIAL ASPECTS OF STORE BRAND 29

MARKETING STARTEGIES AGAINST PRIVATE 32

LABELS

OPPORTUNITIES FOR NATIONAL BRAND 35

MANUFACTURERS

POSTPONEMENT 35
IMPACT OF PRIVATE LABEL 38
FACTS AND FIGURES 43
INDIAN SCENARIO 44
PRIVATE LABELS TO RISE 47
THE RFID DEBATE: BOON FOR RETAILERS OR 47
MANUFACTURERS

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 PRIMARY RESEARCH 54
COMPARATIVE DATA ANALYSIS OF 55
QUESTIONNAIRE

FINDINGS 72
CONCLUSION 73
APPENDICE 75
BIBLIOGRAPHY 78

Introduction

Retail branding has developed to such an extent that, today, retailers are perceived as being brands in
themselves rather than as distributors of manufacturer brands. Many retailers have developed such a
strong consumer franchise that customers are more loyal to the retailer than they are to
manufacturer’s brand. This shift is mainly due to the extensive development of own brands and a
more marketing- orientated approach to retailing. Retailers have been rewarded for their focus on
customer needs and aspirations by increased levels of trust from customers.

A typology has been presented which identifies the type of role that the own brand is required to
perform in a retailer’s overall branding strategy. Retailers have to make decisions on the balance
between manufacturer brands and own brands as they affect the overall positioning of the retail brand
image.

Private label describes products manufactured for sale under a specific retailer‘s brand. They are
often designed to compete against branded products, offering customers a cheaper alternative to
national brands. Though the public generally used to see them as low-cost imitations of branded
products, private labels have overcome this reputation and achieved significant growth in recent
years. The most commonly known private label goods are the “store brands” sold by food retailers,
though this is just one example of many. Department stores, electronics stores, and office supply
retailers all offer private label products or services.

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EXECUTIVE SUMMARY

Research process consists of the following steps:

• Problem definition
• Purpose of study
• The relevant background information
• The information needed.
• How it will be used in decision making.

PROJECT RESEARCH TITLE:

Private Labels – Retail’s Niche in the world of brands.

OBJECTIVES:

• To study the differences between the private labels and brands in the retail sector.
• To understand consumer’s perspective with regard to private labels.

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 • To conduct a comparative study about the strategies used by Indian Private labels with
respect to international private labels.
• To suggest a Private label strategy for Indian Players.

RELEVANT BACKGROUND INFORMATION:

Private label products or services are typically those manufactured or provided by one company for
offer under another company's brand. Private label goods and services are available in a wide range
of industries from food to cosmetics to web hosting. They are often positioned as lower cost
alternatives to regional, national or international brands, although recently some private label brands
have been positioned as "premium" brands to compete with existing "name" brands.

Private Label Manufacturer's Association (PLMA) categories PL manufacturers in 4 main categories:

1. Large national brand manufacturers that utilize their expertise and excess plant capacity to supply
store brands.

2. Small, quality manufacturers who specialize in particular product lines and concentrate on
producing store brands almost exclusively. Often these companies are owned by corporations that
also produce national brands.

3. Major retailers and wholesalers that own their own manufacturing facilities and provide store
brand products for themselves.

4. Regional brand manufacturers that produce private label products for specific markets.

Tie-ups with international retailers and brands, emphasis on profitable growth and increased focus on
private labels are set to be key trends in the Indian retail sector in 2010, say retailers and consultants

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Business Standard spoke to. Though foreign direct investment in single-brand retailing and cash-and-
carry ventures are allowed along with franchising and licensing pacts as of now, 2009 saw most of
the foreign retailers focusing on manage the business in their home countries, where they were
seeing declining sales.

Private labels to rise

Most retailers like Future Group, Spencer’s Retail and Aditya Birla Retail, among others, are
stepping up their private label plans to boost margins. The reason: Private labels in food and
groceries carry margins of 25-35, while private labels in apparel and accessories offer more than 40
per cent margins.

Future Brands, which manages the private labels of Future Group, is expecting a turnover of Rs 750
crore in 2010 (the group’s flagship Pantaloon’s financial year ends on June 30), 14 per cent growth.

Private labels contribute 30 per cent of its sales in FMCG and 25 per cent in personal care products.
The group is expanding its private label portfolio further. It is planning to launch its own brands in
lingerie and a toothpaste brand ‘Sach’, according to Future Group CEO Kishore Biyani.

Aditya Birla Retail, which has more than 400 products in its private labels, plans to take its share of
private labels in overall revenues from 19 per cent to 25 per cent next year.

RPG’s Spencer’s Retail is also planning to double the contribution of private labels and fashion to its
overall revenues in the next couple of years.

Spencer’s plans to launch several new private labels across categories. Under its brand ‘Smart
Choice’, the company will launch floor cleaners, savories and chips, wines, air-fresheners and cakes
in the next two months. Under its ‘Livin Smart’ brand, the company has launched categories like
quilts, handloom towels, and dining accessories and, under its ‘Gerat’ brand, Spencer’s recently
launched a mixer grinder and plans to launch a DVD player soon.

Well, private labels are large in developing markets — they account for 40 per cent of Wal-Mart
sales ($126 billion or Rs 5,16,600 crore), 50 per cent for Tesco ($36 billion or Rs 1,47,600) and are
eating into a larger chunk of the organized retail sale in developed markets. In Germany, for instance,
private label has shot up from 12 per cent of sales to 34 per cent. This has, in effect, changed the
balance of power between brand manufacturers and retailers, giving the latter a decided advantage

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when negotiating terms with the brand manufacturers. And apart from the multibrand retailers, a
category of private label-only retailers has also been created — Ikea, Toys ‘R’ Us, Zara — who sell
only private label brands.

Research design involves following steps:

• Definition of the information needed

• Secondary data analysis
• Qualitative research
• Primary research
• Questionnaire design
• Sampling process and sample size
• Plan of data analysis

Research Methodology:

SECONDARY RESEARCH / Exploratory Research

The desk research is conducted by gathering information from various sources like internet,
magazines, journals etc. The relevant data is regarding brands inside India and international players.

PRIMARY RESEARCH/ Conclusive Research

Quantitative research using cross sectional descriptive research methods is done.

The primary research is carried out by collecting data through structural questionnaire; both
open ended and closed structured questionnaire is used to gather the data.

The questionnaire survey is done with a sample size of about 30 people to know their
preference between the brands and private labels and the reasons for it.

FINDINGS

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 • 47% of respondents go to malls for shopping followed by EBOs i.e. 33%.
• 60% of the respondents shop occasionally.
• 57% of respondents spend below Rs. 1500 for shopping.
• 57% of respondents prefer sub premium ready to wear apparels to premium brands.
• 54% of respondents look for best price for private labels.
• 53% of respondents prefer indo western in private labels.
• 40% of respondents got aware of private labels through word of mouth.
• 90% of the respondents could not associate with any celebrity endorsing for retail stores.

CONCLUSION

• Success stories like CODE, GINGER, STOP, and LIFE are a proof that Indian retailers are
also on the right path.
• With organized retail contributing 4% of total market share, the future of Private Labels
looks bright.

OBJECTIVES:

• To study the differences between the private labels and brands in the retail sector.
• To understand consumer’s perspective with regard to private labels.
• To conduct a comparative study about the strategies used by Indian Private labels with
respect to international private labels.
• To suggest a Private label strategy for Indian Players.

Research process consists of the following steps:

• Problem definition
• Purpose of study
• The relevant background information
• The information needed.
• How it will be used in decision making.

9
Research design involves following steps:

• Definition of the information needed

• Secondary data analysis
• Qualitative research
• Methods of collecting quantitative data (survey, observation and experimentation)
• Measurement and scaling procedures
• Questionnaire design
• Sampling process and sample size
• Plan of data analysis

Research Methodology:

➢ SECONDARY RESEARCH / Exploratory Research

• The desk research would be conducted by gathering information from various sources like
internet, magazines, journals etc. The relevant data will be regarding brands inside India and
international players.

➢ PRIMARY RESEARCH/ Conclusive Research

• Quantitative research using cross sectional descriptive research methods will be done.
• The primary research will be carried out by collecting data through structural questionnaire;
both open ended and closed structured questionnaire will be used to gather the data.

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 • The questionnaire survey will be done with a sample size of about 50 people to know their
preference between the brands and private labels and the reasons for it.
• Conclusion will be arrived at, from the research findings.

CONCEPT OF RETAIL BRAND

As markets evolve and become more competitive, it will become more important for retailers to
focus on branding. Retail branding does not necessarily focus only on the creation of private label. In
the case of multi brand retailers, the task becomes more difficult as the retailer needs to create a store
identity which is different from that of brands that he sells within the store, but at the same time,
there has to be a level of consistency among the products available.

World over, retailers like Marks and Spencer, Selfridges, Harrods, Bloomingdale’s, Nordstrom and
others have strived to create a distinct brand image. Primarily, in a complex and mature marketplace,
a strong retail brand emerges as the key differentiator. Branding survives because it enhances the
present value of future cash flows. A brand is essentially a seller’s promise to deliver a specific set of
features, benefits and services consistently, to the buyers. The relative position and perception of
brand evolves over a period of time. Branding, therefore, has to be managed on the basis of constant
change.

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In the competitive retail environment, the three generic strategies of cost, focus and differentiation,
have become bare necessities to survive in business. The customer is looking at experiences that a
company can provide while delivering the solution to the customer. A brand depicts and portrays the
total experience a customer has with the product or service. Today, amidst the retailing revolution,
branding carries great importance. The retail storefront is the reflection of the brand and this is where
products are made or marred. Retail provides services that increase the value of merchandise by
combining the tangible deliverable with the intangible such as courtesy, access and reliability.

RETAIL BRAND DEVELOPMENT STRATEGY

A retail brand is a combination of the company’s heritage, the merchandise mix available in the
store, the store environment, the service strategy, the advertising and the promotion. Retail brands
constantly need to keep evaluating themselves by asking the following questions:

1. Can the brand be identified with the lifestyles of its target customers?
2. Is there a perceptible difference between the brand and the products offered by the
retailer and other retailers?
3. Can a story be woven around the brand?

Creating a unique brand identity is what most retailers strive for. This has become more important
today than virtually ever before. The starting point of creating a unique brand identity is to identify
what the retailer wishes to be in the mind of the consumer- i.e. , identify the opportunity for the
target segment that he is tapping. This may require going out to the consumer understanding their
lifestyles and then trying to fathom the space that he wants to be in.

Successful retail branding starts with a clear definition of what the retailer stands for identification
of what the customers associate it with, leading customers to think: ‘this brand is a reflection of me..
this brand is meaningful for me’. It starts with the identification of that one word that the retailer
wants to be in the mind of the consumer.

The building of a brand retail starts with precise definition of the target customer group and their
needs and expectation. The retailer then needs to determine the specific value proposition that he is
going to offer to the end consumers. The retailer’s marketing and advertising efforts must fashion an
image around the brand that is not only consistent with the same benefits, but also highlights the

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various factors that will draw the consumers to the store. Playing on emotional benefits can also be a
part of the branding exercise for a retailer.

Retail branding does not sell a specific product. It is about customer service and how the salespeople
greet the customers. It is about how fast the product is shipped or delivered. In short, retail branding
involves every single contact that occurs between any product and human representative of the
company and any customer or potential customer in the whole wide world. Successful branding is
based on simplicity and clarity. At the heart of retail branding lays a deep understanding of the
business that the retailer is in and how he can satisfy the customers’ needs.

RETAIL VALUE CHAIN

As the retailer grows from the position of one shop to chain of retail stores and from a local to a
regional and national presence, strategy and planning become important. In order to win in retail, a
retailer needs to have a clear focus and strategy. Michael Porter has identified various elements
which go into composition of a typical value chain. These include inbound logistics, operations,
outbound logistics, marketing and sales, service, procurement, technology development and human
resource management.

A firm may create a cost advantage by reducing the cost of individual value chain activities, or by
reconfiguring the value chain. Once the value chain has been defined, by assigning cost to the value
chain activities, one can perform a cost analysis. A firm develops a cost advantage by controlling
these drivers better than its competitors do. ‘Reconfiguring’ the value chain can also provide a cost
advantage. ‘Reconfiguring’ means structural changes such as new production process, new
distribution channels or different sales approach.

Occasionally, there have been references to retail strategy models like pentagon and the triangle. The
retailer can either become a pentagon player or a triangle player. If the retailer chooses to become a
pentagon player, he focuses on:

1. Product

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 2. Place
3. Value
4. People
5. Communications

On the other hand, if he chooses to become a triangle player, he would focus on:

1. Systems
2. Logistics
3. Suppliers

These approaches to developing strategies are perhaps appropriate in mature marketplace. In India,
however, the market is still developing and the retailer cannot assume the existence of a resilient
infrastructure and the presence of service providers who have the required maturity and capabilities
to support their operations.

At present, retail in India is oriented towards a mass market. As consequence, the retailer must
consider all aspects of strategy development such as product, price, place, communication and the
supply chain. Further, due to the absence of a robust infrastructure and adequate capabilities and
maturity of the service providers in India, the retailer must necessarily invest in creating the
appropriate support structure fir its operations.

While India is a land of increasing retail opportunities, it is a challenging and difficult market. The
consumer is price conscious and consumer preferences vary from region to region and even within
cities. This is a reality of Indian retail that needs to be kept in mind while developing a retail strategy.

Manufacturer brands are created by producers and bear their chosen brand name. The responsibility
for marketing the brand lies with the producer. The producer is an expert in designing and
manufacturing the product. A manufacturer brand is likely to be more advanced and may have more
innovative features than other brands in its category.

Store Brands vs. National Brands

National brand or store brand? The debate has continued for decades, from researchers studying
consumer behavior to customers weighing the upside and down of supermarket items.

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The latest argument from store aisles gives a slight edge to plain store-label products. A double-blind
nationwide taste test released last month by Meyers Research found that participants overall
preferred the taste of private-label products over better-known national brands by 51 percent to 49
percent.

The survey pitted two national-brand items against two store brands in each of 12 categories
representing everyday meals -- items such as French roast coffee, orange juice, raisin bran cereal,
colas, potato chips, ice cream and cheese pizza.

The national brands included such household names as Minute Maid, Maxwell House, Keebler,
Coke, Pepsi, Green Giant and Betty Crocker. The store brands included Safeway, Wal-Mart, Trader
Joe's, Target, Whole Foods and Kroger. Making nearly 1,800 taste comparisons were 298 shoppers
representing diverse ethnic, gender, economic and household demographics.

"The true test is when the consumer tastes the product," says Brian Sharoff, president of the Private
Label Manufacturers Association, which sponsored the taste test. "Most consumers still have their
favorite national brands -- although many of the retailers have come up with products that are
competitive."

Like the store-brand raisin bran cereal, which testers chose over the national brand by 62 percent to
28 percent. Store-brand orange juice narrowly beat the national labels, 52 to 48 percent, the same
margin favoring the store-brand French roast coffee.

Testers (80 percent of whom claimed to "regularly" buy national brands) said snack foods were
almost a toss-up, although store-brand chocolate-chip cookies got the nod, 56 to 44 percent, and
national-brand potato chips topped the store brands, 53 to 47 percent. The national brands of cheese
pizza, chocolate ice cream, chicken nuggets and potatoes au gratin edged out the store brands, but
store-brand frozen broccoli won, 64 to 36 percent.

In beverages, Coke and Pepsi topped store brands, 52 to 48 percent, but participants favored store-
brand ice tea, 51 to 49 percent.

"What this says to consumers is that they now have products which they can have confidence in, that
meet their taste and quality expectations -- and they're the supermarket brand," Sharoff says.

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They're also cheaper. A University of California, Davis, Graduate School of Management analysis
published last winter in the Journal of Product & Brand Management found that for the one out of
four product types (from tuna to soap to instant coffee) in which the store brand was higher in quality
than the comparable national brand, the national brand cost 30 percent more. Products whose
national brands were higher in quality than the comparable store brand cost 50 percent more.

Store brands gained a foothold in the market in the inflationary '70s and '80s as a price alternative,
Sharoff says, but retailers in the '90s started developing store-brand products to be "every bit as good
as the national brand." Industry figures show that U.S. sales of store brands have been increasing
over the past five years and now exceed $50 billion a year. A report published this month by
Packaged Facts, a market research group, concludes that store-brand foods and beverages now
account for 20 percent of the products sold in mass-market outlets.

Faith Popcorn says store brands are also gaining momentum because consumers know national
brands charge more for comparable products to offset advertising costs. "And people are really
getting sick of being marketed to," says the consumer trend forecaster, author of "The Popcorn
Report" and "Clicking," and founder of the New York consulting firm BrainReserve.

"I see a tremendous opening for store brands to exceed name brands," she says. "The consumer
understands how much money goes into this marketing and they want alternatives. They don't
believe in the ethic of it."

Manufacturer Brand Vs Retailer Brand

• Advantages of Manufacturer's Brands to retailers or wholesalers

➢ Can enhance retailer's image

➢ can carry lower inventory
➢ manufacture gets the blame for problems

• Disadvantages (risks) of Manufacturer Brands to retailers or wholesalers

➢ Lower margins

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 • Advantages of Private Brands to retailers or wholesalers

➢ Higher gross margin

➢ Manufacturer cannot discontinue
➢ ties consumer to dealer
➢ ties salespeople to dealer
➢ dealer controls marketing mix

• Disadvantages (risks) of Private brands to retailers or wholesalers

➢ Higher marketing costs

➢ Must buy in large quantities
➢ Dealer gets the blame for problems
➢ risk of lower perceived quality

Private Label Manufacturer's Association (PLMA) categories PL manufacturers in 4 main categories:

1. large national brand manufacturers that utilize their expertise and excess plant capacity to supply
store brands.

2. Small, quality manufacturers who specialize in particular product lines and concentrate on
producing store brands almost exclusively. Often these companies are owned by corporations that
also produce national brands.

3. Major retailers and wholesalers that own their own manufacturing facilities and provide store
brand products for themselves.

4. Regional brand manufacturers that produce private label products for specific markets.

According to Kumar and Steenkamp (2007) there are four types of PL strategies an organisation can
adopt – Generic, Copycat, Premium and Value Innovators.

Generic PL - products are cheap and undifferentiated and provide the customer with a low-cost
option.

Copycat labels - copy the offerings of the brand leader but offer them at a slightly lower price.

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Premium PLs - provide added value and differentiation; prices are either close to or higher than the
market leader.

Value Innovators - provide the best performance to price ratio, much cheaper than the leader but
provide exceptional value for money.

Generics

• A traditional retail brand

• No name product or a sub-brand with poor quality at a very low price

• 3 strategies:

– Store brand + a sub-brand (Tesco and Sainsbury)

– Stand-alone brand: “1” of Carrefour (“premier prix”)

– Consortium brand: Euro shopper (Ahold + 8 other European retailers)

Copycats

• imitation of the leading manufacturer brands in the category

– Quality ensured by reverse engineering

– Similar packaging

– Placed close to the national brand to enable comparison and cause confusion among the

Consumers

• It entails troubles for manufacturers on:

– Innovation, research and product development efforts

– Image-building efforts

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• Zara is considered a copycat fashion brand through:

– the sale of knock-offs of famous designers

– redesigned by young talented unknown designers

– at a reasonable price

Premium store brands

• Premium-lite store brands

– When a retailer makes a superior product at a lower price

– Well-known ex.: Staples (US)

• Premium-price store brands

– Pioneered in the UK:

• Sainsbury

• Marks and Spencer

• Tesco

– priced higher than manufacturer brands

Private labels of retail stores in India are on growth path. With the retail sector poised for growth,
national brand manufacturers will have to contend with competition within distribution channel,
which calls for revised marketing strategy locally, to thwart the threat of the private label in a store.
The phenomenon also offers national brand manufacturers the opportunity to service the production
needs of the private labels efficiently.

Private labels in India are poised to grow in near future. Store-brand labels in apparel industry in
India are on a complete upswing. With more and more retailers offering products under their own
private labels, consumers have not had it so good as far as shopping for apparels is concerned.

The Government of India is looking for foreign direct investment in retail sector and therefore one
can expect greater growth in large retail chains or outlets in the first decade of the current century.

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Marketing managers struggle between cost-saving standardization for a mass market and high-cost
customization for a specific niche to improve consumer-acceptance. Given the technological
developments in recent times, standardized products no more enjoy unique selling propositions as
imitations cannot be prevented from entry.

Organizations continuously strive to find a method of creating unique selling proposition (USP) to
retain their existing customers and acquire new customers. Such an outlook, in recent times, has
called for a better understanding of distribution channels in meeting specific customer-needs. The
current thinking emphasizes mass customization, a seeming synthesis of the two extremes of mass
production and customisation. This has been enabled by innovation in the area of distribution
management that provides scope for modification of production process to suit customers’ specific
needs. This phenomenon is becoming increasingly relevant in the changing scenario of distribution
in India, where the urban markets witness frequent birth of private labels introduced by large retail
stores, posing challenge to the brand-strength of national players. Private label products
encompass all merchandise sold under a retailer’s brand. That brand is the retailer’s own
name or a name created exclusively by that retailer. In some cases, a retailer may belong to a
wholesale group that owns the brands that are available only to the members of the group
(PLMA). A popular private label changes the status of the retailer from a customer to a competitor
for a national brand marketer. When customers are competitors, standard predatory strategies and
tactics may not be appropriate; instead, there is a premium on creating a successful basis for
coexistence (Dhar and Hock, 1997, p. 209). This calls for improvisation in the elements of marketing
strategy of the national brands. Manufacturers of national brands need to look for ways of carrying
out business due to the potential loss of business resulting from such local onslaughts.

Though private labels have attracted attention of channel researchers about forty years ago (Stern,
1966; Boyd and Frank, 1966), in India, private brands have attracted attention primarily only in the
last decade. However, research work in this area appears to leave a void. For Indian conditions, the
current era symbolises the wakeup call that national brand manufacturers should take note of, to
effectively combat the threat of private labels. This paper assesses the recent trends in the changing
scenario of distribution in India with specific reference to the growth of large retail stores and their
private labels. It dwells deeper into the performance of private labels and its implications to national
brands in their marketing strategy. The paper explores the aspect of customization and cost of such a
proposition and examines the application of postponement in the context of private labelling.

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There is a thin line between losing a customer and retaining him. Customer memory is short for good
experiences, but a negative experience will stay with him forever. A single experience can decimate
the whole relationship with the customer. It is the interaction point where the personality of the brand
is reflected and it has to live up to the expectations that the company builds for the brand. It is the
branding that pulls in the customer, but the delivery propositions and experiences retain him.
Delivery point should not act as the point of deflection; rather they should cement the relationship
with the customer. Customers would buy where they would feel comfortable. Customers evaluate
when they have a problem; the tenacity is in hoe well a store is equipped to handle it. The aim is to
deliver real value to customers.

This clearly indicates that branding is at a turning point. The very definition of brand is undergoing a
change. In future, brands would constitute the whole gamut of interaction the product would have
with the customer. Brands which fail to deliver might not see the light of another key. The key to
success is building experiences which retain the customers and make them talk about it. Successful
branding would be about delivering products and experiences to the customers and making him talk
about it.

GROWTH OF RETAILER BRANDS

The growth of retailer brands, variously known as own brands, own labels, private labels and store
brands, has paralleled the growth of multiples, particularly in the grocery sector. Recently the major
multiple retailers began to realize that they could increase their margins significantly if they did not
have to pay for manufacturers’ branding overheads. The substantial coats associated with the task of
branding mean that branded products are unable to compete on level price basis with own brand
lines.

Although in the past, own-brand products were positioned as cheap alternatives to manufacturers’
brands, in recent years retailers have upgraded the quality of their own-branded goods. Hence, many
shoppers now accept that own-brand products are of an equal quality to their branded rivals.
Individual multiple retailers have also made their own-brand ranges more consistent and are, in
effect, now making a brand statement of their own. One of the main reasons why such a strategy has
been implemented is because multiple retailers are now competing head- on against other multiple
retailers; the independent sector has been reduced to an insignificant size and most future growth of
multiple retailer must be at the expense of other multiples.

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Private label products or services are typically those manufactured or provided by one company for
offer under another company's brand. Private label goods and services are available in a wide range
of industries from food to cosmetics to web hosting. They are often positioned as lower cost
alternatives to regional, national or international brands, although recently some private label brands
have been positioned as "premium" brands to compete with existing "name" brands.

22
Private labels offer several benefits to both retailers and customers, driving the segment's rising
popularity. For retailers, margins on private label goods are an average of 10% higher than those on
similar branded products. Customers benefit from private labels' lower prices, which are often
significantly less than those of national brands. This combination, while beneficial to retailers and
consumers, can put substantial pressure on the manufacturers of branded goods, who have to
compete against their own customers (the retailers) for market share.

Changing Face of Distribution in India

The turn of the twenty first century witnessed many changes in distribution channels in India.
Smaller sized convenience stores encounter challenge from large chains of Private Label versus
National Brands departmental stores that offer many product categories under one roof. Though
convenience stores such as general merchants, grocers and mini self-service outlets will continue to
exist in our country, large cities will witness the growth in one-roof shopping malls of different
kinds.

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Already, large specialty stores such as Subhiksha, Food World in FMCG sector have set their firm
foot in South India, surpassing local chain stores such as Nilgiris and Vitan in size and reach. As of
September 2004, there were over 72 outlets of Food World. Subhiksha has 115 outlets and is still
growing in number and gaining popularity among consumers. The RPG Group that owns Food
World has plans afoot to expand into the hyper store category even more vigorously. Home Store
India Limited (HSIL) is reported to be planning for expansion in the North. This will result in
expansion in two types of retail stores: one in the hyper malls and the other in large chain of The
Sabka Bazar. Mega malls such as Shoppers’ Stop and Forum have gained currency among upper
middle class shoppers seeking one-roof shopping combined with class and exclusivity, and discount
stores such as Big Bazaar are frequented by middle class families who seek one-roof shopping
combined with value for money. Shopper’s Stop is said to have plans for expansion which
symbolizes more growth in private labels.

Reports based on European experience reveal that private labels grow faster than national brands, the
former’s growth rate being estimated to be two to three times of the latter. Interestingly, consumers
will witness more and more of competition in retail stores between national brands and the store’s
brands. A case in example is the South Indian retail chain Nilgiris that stocks dairy products under its
own brand and under national brands such as Amul. Food World has its own brand of jams selling
over its counters side by side of Kissan and Sil. It is easy to comprehend that when the retail store
uses its own private label on an otherwise generic product, it commits to the customers its guarantee
for the quality of the store’s brand. Such quality assurance will lead to greater trust among the store’s
customers, resulting in greater store-loyalty. This enables the store to charge a premium on an
otherwise generic product, thus making private labelling an attractive proposition to the large
retailers.

However, in FMCG sector, the current practice is in contrast to this phenomenon, where mainly
destination goods good are packed under retail labels, mostly at cheaper prices than other retail
outlets. If this becomes the trend, then retail labels can be expected to offer value for money to
customers mainly on price-plank and price-competition to national brands. Price wars often breakout
when most brand leaders in a particular category do not provide private label products, and when
competition comes mostly from smaller companies with lower cost structures and overheads.

24
If such be the case, then Indian companies of national brands will have a lesson to learn from the
disposition of the American consumer goods manufacturers, captured comprehensively in the
following statement: Private labels are anathema to many consumer goods manufacturers. They are
viewed as “category killers” – cheap, me-too products that suck all the profits out of a market by
making consumers more price-sensitive. And they are also a painfully visible symbol of retailers’
growing control over the distribution chain. By diminishing the power of traditional brands, private
labels remove a key source of manufacturers’ influence over consumers, and in turn, their leverage
over merchants. They threaten to turn manufacturers into invisible vendors who must contend
themselves with supplying cut-rate commodities to all-powerful retailers. A similar assessment of
Indian manufacturers’ disposition towards store brands is not readily available. However, the
margins on own-store brands are nearly two-and-half times higher than on FMCG brands and this is
likely to attract more and more private labels in FMCG sector. Though private labels in FMCG
sector in India account for less that 1% of the overall sectoral sales, private labelling is a
phenomenon that will grow in near future, owing to the benefits it provides the stores. It is predicted
by industry sources that retail sector in FMCG will grow by 30% per year in a few years.

Economics of Private Labelling

Store brands are the only set of brands for which the store is entirely responsible. Thus, the store has
to bear all the costs (development, sourcing, marketing effort, time, risk and promotion) and it reaps
all the rewards of the brand’s success. It is intuitively evident that a store will enter into that product
category that has (a) high profit margin (b) low entry barrier to labelling and (c) low switching cost
to the consumers, which may be either monetary of affective. Commodities offer the best scope to
stores for private labelling since competition against the store label will be minimal from the
unorganised market. Further, commodities are products over which, through allocation of shelf or
floor space, retail control can be quickly established (Stern, 1966, p.44). This is because the suppliers
of commodities do not “purchase” shelf-space and therefore there will be little restriction or
objection to the store’s stacking and shelf-display of its own brands. These commodities are called
“Destination” categories, normally stacked at the far end of a store, inviting the consumers to take a
long walk through a maze of other products so that they may pick up some of them on the way.

25
For retail chains such as Food World, these categories represent high tactical usage to bring in more
customers and the price-related promotion of these categories falls under aggressive classification
(Raghuram et al, 1999, p.5). In the case of manufactured products being introduced under private
labels, the characteristics that enable store brand introduction are: (a) inexpensive, easy, low risk
purchase for customer (b) easy to make from commodity ingredients (c) perishable, therefore local
supplies are favoured (d) category sales are growing fast, enabling the private brand’s garnering
reasonably high volumes and (e) low number of national players dominating the category so the
retailer feels the need to reduce dependency on them (Quelch, 1996, p.102). However, Raju et al
(1995) propose, in a counterintuitive manner, to suggest that retailer’s profits will increase more
likely in product categories consisting of a large number of national brands. They explain that the
profitability of a store’s brand depends more on the directness of high competition between the
private brand and the leading national brand, as against a high competition among national brands
which is detrimental to the store brand.

Though this aspect is not clearly explained by the authors, it seems to be their assumption that high
competition among national brands implies high brand loyalty among consumers for the national
brands and therefore the affective switching costs will be high. They also found support to their
argument that where large number of national brands were available, introduction of a store brand
increased the category profits, thus falsifying the much-held belief that a crowded category has no
place for store brands. An aspect that is left wanting in their analysis is the independence of
competition among national brands and competition between store brand and national brand.
Evidently, this poses four possibilities of one being low or high and the other being low or high, as
shown in Figure 1. The figure has been constructed with the underlying assumption that (a) it is
technically feasible for the store to introduce its own brand (b) the competitive scenario does not
change the position from one quadrant to another and (c) the switching costs for the consumers are
not high, per sé .

26
• Quadrant I: Low-Low: This quadrant represents a situation in store where both types of competition
are low. A category that manifests low competition in both dimensions may be, per sé, unattractive
for private label. Such a phenomenon may be caused by (a) high degree of commoditisation (b) low
importance of the product category for the customers (c) high input-output ratio in manufacturing.
The retail store may never enter such a category with its own label.

27
• Quadrant II: High-Low: This quadrant represents high competition between the store’s brand and
the major national brand and low competition among the national brands. This occurs when the
consumers’ affective attachment to national brands is high and achieving brand loyalty is a short-
term process. This implies that the retail brand is in direct competition with the national brand and
therefore the chances of consumers’ positioning it along with the national brand are also high. The
retail brand will not suffer from me-too syndrome. The store can promote it extra vigorously and the
brand is likely to be among the top two brands in shelf-movement. The store is likely to witness a
counter move by the national brand through extra point of sales promotion. Thus, the total profit
through the product category will be high for the retail outlet. So, the store is better off launching its
brand.

• Quadrant III: Low-High: This quadrant represents high competition among national brands but low
competition between the store brand and national brands. This happens when the national brands are
highly advertised and the customers’ awareness of those brands is high, both cognitive and affective,
while facing the store brand on their visit to the store. Such a situation is not favourable to the store
brand since the switching costs for customers is high and hence the store will find its brand
positioned among fringe brands. Therefore, if the store assesses its position in this quadrant, it is
better off not launching its brand.

Quadrant IV: High-High: This quadrant depicts an all-out competition among the national brands
and if the store introduces its private label, it will come under direct fire as much as it will be caught
in the cross-fires of the national brands. Therefore, it is expected that a store that views itself in this
quadrant is better off not introducing its private label.

Essentially, a retail store introduces its own private label (a) to increase customer loyalty (b) to
improve their positioning and image (c) to improve margins in the category (d) to lower prices to
provide value for money to its customers and (e) to improve its bargaining power vis-à-vis national
brand manufacturers who use the store for distribution. (f) to enable the store to differentiate

28
customers through price-quality association by premium pricing the store brand. This is represented
in Figure as a model of store-brand’s attractiveness.

By introducing a private label, the store creates a situation of conflict with the national brand; this
also makes the store’s position better on the bargaining table. Thus, it shifts the power in the channel
downstream. This may compel the national brand manufacturer to offer greater commission or
discount to promote his brand in the store. Another, but important benefit of introducing private label
for the retail store is the differentiation it provides to the store itself, and thus store loyalty.
Therefore, the benefits of store brand cannot be confined to merely the profits the category yields but
the additional footfalls it brings in. These economic benefits are not amenable to simple numerical
calculations. More importantly, such benefits cannot be confined to any specific period and therefore
calculation of economics of a private brand is more complex than what a static economic analysis

29
can do. In sum, the benefits to a retailer from the introduction of store brands are (i) higher unit
margin on national brands (ii) expansion of the category sales and (iii) higher category margin from
sales volume.

Managerial Aspects of Store Brands

Research is available on (a) motivation for store brand entry (b) strategic positioning of store brand
(c) success of store brand (d) impact of store brand on retailer profitability and (e) impact of store
brand entry on the national brand.

(a) Motivation for store brand entry: Store brand entry is motivated by the following:

(i) Store brand enables the store to discriminate consumers on price dimension. In most of the product
categories, there are two types of consumers, namely, those who prefer quality-guarantee even at
higher price and those who expect reasonable quality at reasonably low prices. The former display
brand loyalty, purely due to their faith in the quality of nationally advertised brand. The latter are not
affected by national advertising. They are either ready to risk the quality aspect for the gain in price
or not ready to risk. Those who are ready to risk quality for price choose one of those brands from the
competitive fringe in the store shelf. Those who are not ready to risk quality need a brand that is an
acceptable balance between quality and price. These are the customers who can be targeted by store
brand, since the quality assurance by the store that is in the vicinity provides them the confidence of
accessibility in case anything goes wrong with the product.

Thus, such price discrimination is possible only when national / regional advertising does not create
high level of utility to a sizable chunk of the store’s customers. In Indian conditions, table butter
stands as an example for such products where the national advertising offers high utility to the
customers, and thus there is no significant growth in any store brands in this category. On the
contrary, pulses and cereals such as gram, rice and wheat flour offer least utility through their
advertising and thus we see a growth of store brands in this category.

(ii) Gap between marginal and average costs is another motivating factor for the store brand.
Normally, the average cost of the national brand is more likely to be higher than the marginal cost,
due to national level advertising. If not very high degree of economies of scale is present in the
product category, this difference between average cost and marginal cost is an attraction to the store

30
to launch its private label. This cost-gap is availed by the store by getting its brand manufactured or
packed by a smaller producer, perhaps locally, or in its own premises.

(iii) Store brands enable the retailer to differentiate the store from other stores in the vicinity. By
standing guarantee to a variety of store brands, the retailer signals to the consumers his USP of higher
quality. When consumers face large number of stores, their uncertainty about the outlets is high. Store
labels cuts through such uncertainty and enables their faster and frugal heuristic decision.

(b) Strategic positioning of store brand: Store brand positioning is motivated by the aspects given
below:

(i) In a situation when more than one national brand is sold in the store, it makes profit-sense for the
store to sell the store brand priced as high as the leading brand to offer its customers the utility of
perceived quality associated with the price. Thus, though there may be a temptation to sell at lower
price, on par with fringe brands, the store will be better off reaping a higher profit through a higher
price. If one thinks of a perceptual map, the perceptual positioning of the store brand is guided
primarily by the price-quality association and therefore the pricing should be such that it is closer to
the leading national brand.

(ii) On aspects such as product packaging, pack size, design etc, it is suggested that by positioning the
store brand to mimic the leading national brand the retailer can strengthen its bargaining position.

(c) & (d) Success of store brand and Profitability: Success of store brands depends on the following
factors:

(i) Introduction of a store brand in a category that consists of large number of national brands
increases store’s profitability. A caveat must be added here that this is possible only in such a
situation where the competition among the national brands is low (Raju et al, 1995). These two
aspects should be present in conjunction for the introduction of store brand to lead to greater
category-profits. The intuitive explanation of this phenomenon is as follows: In a situation when large
number of national brands is present, the store’s dependence in any one brand is small. Therefore, if
the leading national brand retaliates to the store brand’s introduction by stoppage of supplies, the loss

31
of opportunity profits to the store is minimal. On the contrary, when the national brands compete
within themselves fiercely, the utility to the consumer about the quality of the brands is high.

In such a situation, the store brand may not be able to effectively cause a switch from the national
brand, and the cost of promoting the store brand may prove exorbitant. Also, despite the store’s
efforts to promote the store brand, the consumers may perceive it as a fringe brand. This means, in
this situation, the profits (after such promotional expenses) will be lower from the category.

(ii) Dhar and Hock (1997) find six factors affecting the success of the store brand. They are

• Quality of store brand relative to national brands is high.

• The quality of store brand is consistent over a period of time.

• The product category is large in absolute value terms in store’s sales revenue.

• The percentage of gross margins in the product category is high

• The number of national players is fewer than in other categories. Interestingly, this seemingly
opposes the suggestion by Raju et al (1995) mentioned in the previous paragraph. Raju et al are
talking, in effect, of low competitive battle in a set up of high number of competitors whereas Dhar
and Hoch are talking of low competition through sheer number of brands. Thus, both the works
converge on one point that the store brand will be successful when it do not have to contend with
high competitive retaliation or cross-fire.

• National advertising expenditure in the product categories is low.

All these works cited above lack in analysis as to the specific aspects of marketing strategy to be
adopted by the retailer in various conditions. Evidently, the quadrants in Figure 1 can be influenced
by the strategic approach by the retailer. For example, if the store reckons itself falling in Quadrant
III which prescribes non-introduction of the store-brand, it can generate competition between its
brand and the national brand by aggressive in-store promotion of its private label. This shifts the in-
store context from Quadrant III to Quadrant IV in the short-run and eventually, once customer loyalty
for the store brand has been built up to Quadrant II, which is favourable to the store-brand.

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Marketing Strategy against Private Label

In this section, we shall view competitive strategy from the national brand’s view-point. Marketing
strategy will no more be restricted to boardrooms and strategy tables. The real battle is taken to the
war-field - the retail space - where the thick of action is witnessed. Companies no more compete
solely with other companies for mind-space and shelf-space, but with their own distribution partners.
Distribution management will no more be confined to managing distributors, ensuring supplies to
retailers and sporadic managing of product movement from retail shelves through promotions.
Managing large retail chains and mega malls will be a reality, which calls for different types of
business-deals, calibre, aptitude and attitude among the boundary personnel. Pricing strategy will not
be simply based on competitors’ moves; it will consider how the retail outlets act as well as will react
to the company’s strategy. This may have a bearing on the segment-targeting strategy of national
brands, due to the competition arising out of retailers’ private labels. Introduction of private labels
reduce advertising space at the points of sales, since the retail outlets may prefer promoting their own
brands to promoting national brands. Alternatively, advertising through points of sales may become
more expensive, with the retail outlets charging premium on shelf space and advertising space. These
may cause a fundamental change in the approach of the national brands in their overall strategy of
segmentation, targeting and positioning. Companies may revert to mass-media advertising by giving
up the costlier point-of-sale advertising. In the following paragraphs, the impact of private labels on
the elements of marketing strategy is assessed.

(a) Product: Introduction of private labels at retail stores implies to the national brands that the
consumers have greater options among products they buy. This means that a wider product-range will
be available. When the store competes vis-à-vis national brands on product range, the short term
inability of the national brands to respond to the challenge is a matter to be contended with, since (i) a
large enterprise requires longer time to respond with changes in product-strategy and (ii) the

33
minimum quantity of production that enables the national brands to avail the economies of scale may
not be available when it reacts to a single store. Alternatively, if a chain store introduces a premium
or economy brand in a category, then the national brand gets the benefit of market testing from the
experience of the store brand and can thus decide whether or not it, too, should enter that segment.
Thus, store brands offer an opportunity for national brands to know about consumer-response to
different variants of a product category.

(b) Price: In case the store competes with the national brand on price range, it can effectively do so,
by locally promoting the price-advantage to the price-sensitive consumers and by highlighting the
higher quality of the premium-range products to quality-conscious consumers through its counter-
salesmen. Under such conditions, the national brand has two options: (i) it can fight the store brands
on price or (ii) it may increase its prices and highlight its higher quality through national campaigns.
Fighting is an option the national brand can exercise when the customers’ loyalty to the national
brand is greater than the customers’ store-loyalty. The decision to fight price-reduction in kind has
both advantages and disadvantages. The advantage is that the store brand will find it difficult to gain
acceptance among consumers, if an established national brand is available at a similar price. The
national brand may succeed in nipping a budding store brand. For a national brand, response to a
reduction of price need not be in kind. It can respond with special consumer-offer or discount which
prevents long term commitment as well as avoids reduction of price across all markets or stores. The
response may be confined only to the specific store. Further, price-reduction by the national brand
can cause a setback to it in the form of price-quality association. Therefore, the best response is to
counter the threat with promotional offers. One common tactic is to change customers’ choices and
limiting price reductions to areas where the national brand is vulnerable, thus localizing a price war.
However, fighting on price can cause vertical conflict in the distribution channel between the
company and the store, a proposition that is unhealthy to the national brand’s success in the long run.
In all, the best response to a store’s introduction of a low price brand is to resist the temptation to
respond with a similar move and focus on other aspects of marketing mix.

(c) Place: Private labelling symbolizes the shift of intra-channel power downstream. Whereas the
national brands have conditioned the perceptions and preferences of consumers by the quality of their
brands and the content of their communication, retailers who own private labels are in a position to
dictate terms to their manufacturers about the standards to be adopted in quality (and even in

34
production process) that may provide the example of Coke and Pepsi in Canada when they refused to
supply private labels to grocers in Canada. The grocers located a small company, Cott, who gained
20% market share in the process, bringing down the bigger brands’ margins considerably. Well
change the consumer perceptions and preferences away from the national brands. Where the specific
quality of the product is not contractible by a private label owner, the retailer may contract the
method of production or insist on obtaining certain certifications such as ISO.

This may result in shift of certain investment costs upstream, an eventuality that the manufacturers of
national brands and private brands should be aware of. In essence, the major impact of private labels
may well be the increase in transaction costs for the manufacturers. Every channel arrangement is
characterized by a common goal on the one hand and a channel conflict on the other. The common
goal is to achieve transfer of utility from manufacturer to consumer whereas the conflict is about the
sharing of costs and benefits of this transfer. Private labelling heightens such conflicts by adding a
dimension of contrary marketing interests; that is, the national brand competes with the private label
of the retail store for shelf space and consumer-attention. Which way the needle will tilt in this power
struggle will depend on the relative degrees of brand loyalty and store loyalty. When the national
brand enjoys greater brand loyalty than store loyalty, the retailer is compelled to store the brand.
Besides, the national brand manufacturer may be in a position to penalize an opposing retailer by
supplying less quantity of such high-loyal brands or withdrawal of supplies altogether, an eventuality
that may affect the image of the retailer among the public. Manufacturers of near-monopoly brands
enjoy this position, vis-à-vis retailers. In a situation where the brand loyalty enjoyed by the national
brand is less than the store loyalty, the retailer is in a position to dictate terms about the terms of
supplies, delivery and payment in addition to further schemes and discounts. Depending upon the
quantum of business the retail stores provides to the manufacturer, the manufacturer acquiesces or
withdraws his dealings. Manufacturers of large national brands may be tempted by the thought that
private labels can be choked if the national companies refuse to manufacture such brands. This
thinking can be myopic and harm the national brands if the stores are able to locate alternate sources
of supply.

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(d) Promotion: As is evident from the previous paragraphs, private labels take the brand-battle to the
point of sales. The national brands compete with the private labels for store’s shelf-space and
consumers’ attention-space. With the store brands understandably getting the best shelf space in
terms of visibility at eye level, strategic points such as entry point and shelf display, national brands
need to compete for the same facilities at higher cost than earlier. Thus, private labelling increases
transaction costs for the national brands through higher promotion costs. However, given an
understanding that it may be difficult to beat the retail brand in its own store through promotion,
national brands may resort to increased mass media advertising to create consumer pull. This will
prove meaningful only if the national brand faces competition from private labels all over the
country. Though regional mass media advertising can be increased, the cost may still prove to be
supra-optimal.

Opportunities for National Brand Manufacturers

Private labels also offer opportunities to national companies. The retail labels need to maintain high
quality to survive and compete with established national brands. This provides the opportunity to the
national level manufacturers to offer manufacturing to the retail outlets under private labels. This will
make business sense especially when private labels’ being introduced may affect capacity utilization
adversely. This also poses peculiar challenges of customized production. When retail stores choose to
carry their own brands, the merchandise requires packaging and standardisation to meet the needs of
the local consumers. It will be cheaper for the retail stores to outsource the packaging work than to
carry out the job themselves. National brand manufacturers stand a better chance to service the retail
outlets in this regard since the job requires no additional overheads. Marginal cost based calculations
may well work favour of the national brands in winning such job orders that may enable them to
utilise their production capacities better.

However, such job-orders also pose a new type of challenge to the manufacturers. The job orders,
which may follow partly stochastic variations in time and quantity, mean a newer type of production
planning than when a standardised product was manufactured. Suppose a national brand
manufacturer reconciles to the phenomenon of manufacturing own brand as well as a few private
labels has a new challenge of scheduling production that meets the two opposing ends effectively: (i)
minimising inventory carrying cost and (ii) minimising waiting time for the retailer. Whereas the

36
former warrants postponing production after getting the retailer’s orders, the latter demands
speculative, anticipatory production. Postponement as a concept is useful in this context, which
enables balancing between these two opposing needs.

Postponement

Postponement is defined as the act of delaying the completion of production for achieving cost-
saving by moving differentiation nearer to the time of purchase. The purpose of postponement can be
two; it can be for (a) meeting unpredictable demand for specific variants (b) ensuring higher level of
customization. Benetton casual ware is an oft quoted example. The casual ware market in the West
witnesses frequent change of fashion. The company could not plan its production of various colours
accurately, which resulted in stock-out in some colours and excess inventory in other colours. The
problem was overcome by shifting the completion of dying to (a) the time of purchase by the
consumers and (b) to the location of such purchase. That is, “the company began dying assembled
garments rather than yarn”.

This enabled the company to meet the local demand accurately, simultaneously reducing the costs of
both excess inventory and stock-outs. In mid-90s, Hewlett-Packard reduced its costs in channel
through customization achieved by postponement of assembling its printers and transporting
components to its regional warehouses. In the case of hi-tech products such as semiconductor, it has
been shown that postponement of both production and process have enabled mass customization to
suit the customers’ specific needs that display a wide range.

Postponement becomes desirable when the degree of customization expected by customers is high.
However, this requires modularization, which means that (a) production involves such processes
where a part of the sub-process can be shifted in space without the need for re-entry into factory for
completion or (b) production involves such processes where a part of the sub-process can be delayed
and resequencing, which means that production involves such processes that do not depend upon one
another and shifting the order of the processes is a possibility. Majority of the common processes are
finished at the factory and the semi-finished components are either kept aside for finishing later (time
postponement) or sent to regional warehouses for assembling depending upon the local demand (form
postponement).

The first known paper on postponement dates back to 1950 by Wroe Alderson, quoted by Bucklin
(1965). In that paper, the Bucklin contrasts postponement in time against holding speculative

37
inventory. The aspect of postponement for better customization was not touched upon. For over half-
century, the bicycle industry in India has been following this practice while distributing products to
dealers. Much of the consignments shipped to the dealers were in components. This gave three
advantages to the companies: (i) Components could be packaged compactly and therefore more could
be shipped, economizing shipping cost (ii) compact packaging implied less transit damages, as
compared to finished products and (iii) customization at dealer-point was enabled. Paint industry in
India adopted postponement concept by creating a simple technology that enabled the companies to
ship the common base-liquid to its regional hubs along with small quantities of tinge materials. The
specific colour needs of the customers, today, can be met by a dealer in as short a time as a few
minutes. This process is aided by the use of computers that calculate the specific quantities of
different colour pigments needed to achieve the customer-specific colour-needs. Computer
assemblers practice postponement by first getting the requirement of the customers before even
ordering for the components to be assembled. The customer is happy as his needs are met; the dealer /
assembler is happy as his inventory holding is minimized, improving his bottom line.

Essentially, postponement aids delayed product differentiation through customization and quick
response to customer’s needs as opposed to standardization where the customer-specific model may
not be readily available and where the cost of keeping inventory of customer-specific models in
anticipation of demand is too prohibitive.

Types of Postponement

Zinn and Bowersox (1988) identify five types of postponement one of which is Labelling
Postponement. This occurs, typically, when large retail outlets outsource manufacturing and
packaging of their products to a third party manufacturer. The manufacturer of such products
undertakes production and packaging for many retail chains, though the core product is the same.
Under conditions where the preferred pack sizes are identical across retailers, the manufacturer faces
the problem of uncertainty of demand in terms of the specific labelling to be done. Whereas the
retailers expect quick delivery, packing and storing the specifically labelled packs increases the cost
to the manufacturer. Postponing labelling to the time of receiving the order from the retailer enables
the manufacturer to economize on cost of inventory. However, to the extent the labelled packs are not
kept ready, it involves waiting cost to the retailer. Increased levels of postponement cause lead time,
caused by certain customers shunning the manufacturer, unwilling to wait long. Since greater
customization is achieved through postponement, the inventory holding by both the manufacturer and

38
the retailer is reduced, thus decreasing the inventory-holding cost. Thus, two forces cost-reduction
and cost-increase, work on the decision on postponement. The optimum level of postponement,
implying the cost minimizing level of postponement is determined by these two opposing forces. The
optimum level of postponement is also influenced by the technology level and the degree of
customization demanded by customers.

It should be noted that postponement is possible only when the pack containers are identical across
the retail brands, so that unlabelled packs can be packed in advance and labelling can be done as and
when orders are received. This implies that variance in ordering by all retail brands are combined,
which is less than the sum of individual variances for each brand. Only if the production and packing
process enables this separation of packing and labelling, postponement solves the inventory problem
effectively.

Cost of Postponement

The best model of cost of postponement is available in Waller et al (2000). The cited work considers
production postponement in a supply chain and does not provide a systemic model. Rather, the model
emerges to a keen reader. Cost of postponement is divided into (a) Cost of Inventory (CI) and (b) Cost
of Lead Time (CL). The former varies negatively due to (i) reduction in stock-holding of common
components and (ii) holding finished stocks is always costlier than holding raw materials or semi-
finished products. Cost of lead time varies positively since postponement results in some waiting time
for customers, and some of them may not like to wait, and therefore may switch to other brands /
outlets. Thus, the cumulative effect of CI and CL determines the total cost of postponement and there
exists a cost-optimising level of postponement, denoted by P* for a given level of CI and CL. When
the desired level of product customisation (PC) increases, the optimal postponement level too
increases, since when PC increases; it increases CI and decreases CL. When the speed of production
(λ) increases, decreases the total cost. But the impact of increase in speed of production on the
optimal level of postponement is indeterminate.

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Impact of Private Label

Brand Loyalty

National brands are sold all over, so there's no real sense of brand loyalty in terms of
where consumers buy them. Because private labels are unique to one retail chain, there is
the possibility for retailers to cultivate a sense of brand loyalty. Though they used to be
seen as knock-offs of "name brands", private labels have become increasingly more
accepted by the public as quality has increased and retailers have expanded their offerings
of private label goods. Many consumers now seriously consider private labels as
acceptable alternatives to national brands. Retailers can capitalize on this shift in public
perception by offering quality private label products, which can foster a feeling of brand
loyalty. This can give retailers a significant advantage over competitors.

Lower Prices/Higher Margins

Private label goods are generally much cheaper to produce than branded goods, due to the lack of
advertising and marketing expenses. As such, retailers are able to purchase private label goods for
much less than they would have to pay for comparable branded products. The cost difference is
usually large enough that retailers can offer customers lower prices while still making higher profit
margins themselves. Lower prices can be enticing to customers and increase a company's
competitiveness. Small chains have a particular incentive to offer private label goods; they are often
unable to match larger retailers' prices for branded goods, but private label can allow them to price
more competitively.

Retailers as active Marketers

 In the past, retailers were merely the last stop on a product's way from the manufacturer to the
consumer. Retailers are now becoming increasingly established as brands themselves,
marketing their private label products as alternatives to national brands. This has resulted in a
growing shift in the balance of power between retailers and manufacturers, with retailers not

40
 only becoming less dependent on manufacturers for product offerings but actually making
manufacturers dependent on them for sales volume.

Success stories in private label management?

 Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Costco (NYSE:COST), and other retailers

for whom private label goods constitute a significant percentage of total sales. Stores such as
these would benefit from the higher margins that private labels provide.

 Whole Foods (NASDAQ:WFMI), Kroger (NYSE:KR), and other supermarkets with strong
private labels could benefit from the further penetration of private label into the food retail
industry.

 Cott Corporation (NYSE:COT) is the largest manufacturer of retail-branded carbonated soft

drinks in the U.S., producing 68% of all private label soda sold by U.S. retailers. Cott's
largest customer is Wal-Mart, who accounted for 38% of total revenue in 2006. An increase
in demand for private label soda could benefit Cott greatly, as its entire business is focused on
this segment.

Caution for Brands:

 The Coca-Cola Company (NYSE:KO), PepsiCo (NYSE:PEP),Procter and Gamble

(NYSE:PG), and numerous other manufacturers of branded products could be harmed by a
rise in private label's popularity. Some manufacturers have hedged their bets somewhat by
beginning to produce private label goods as well as branded products. Examples
include:Kraft Foods (NYSE:KFT), Nestle (VTX:NESN), Kimberly-Clark
(NYSE:KMB), H.J. Heinz (NYSE:HNZ), Del Monte Foods(NYSE:DLM), and Unilever
(NYSE:UL). By producing private label goods, these companies would be somewhat less
impacted by a decrease in demand for their branded products. Private labels, however,
provide much lower margins than branded products, especially since these companies already
cover R&D and marketing expenses for their existing products.

The Case of Supermarkets and PL

41
Supermarket operators in Australia perhaps provide the best snapshot of what is happening to our
shelves with regard to PL products.

As can be seen from the graph below, mid-2006 showed a marked jump in PL products stocked in
grocery stores. From June onward the number of PL products on supermarket shelves can be seen
rising – more than doubling from May 2006.

From a Retailers point of view PL products can offer:

Potential sales growth – potential because unless the ranges are managed together with other brands,
the real rewards may not be realised;

Potential margin enhancement – potential because margin and volume management are critical to
ensure that real dollar margins grow and are not just theoretical percentages, particularly given some
of the wide price gaps between National Brand and some PL products

Differentiation and leverage – important for retailers to stand out from their competitors particularly
in categories that may be considered as commodities. Some categories are unique where the national

42
brand is so dominant there is no real advantage in going head to head – Chewing Gum as an example
where Wrigley holds around 98%market share;

Increasing retailer influence and control over a category – again important when influencing
customers to buy one brand over another especially where the quality of the product(s) is equal to or
superior to national brand alternatives;

Opportunity to build brand equity and store loyalty – PL products is usually only available at the
retailers that have developed them, or negotiated to have these products exclusively in their stores.
Rather than the supplier stance of “buy it anywhere…we don’t really care, just as long as you buy
it”, retailers have a chance to build loyalty because their philosophy will be more reflective of “buy it
from us…again and again…we do care that you buy from us“;

The opportunity to create consumer value – very important when considering the ranges of products
to be developed; the greater the purchase frequency, the more often customers will revert to those
that offer ‘value’

A downside in those customers may find their choices further diminished by just having a National
Brand and PL choice with no real newness or innovation in range

An opportunity to create a value perception across the store a PL product is generally perceived to
offer good value.

For the big national brands, private label brands present a unique set of competitive challenges that
also go beyond product comparison. For example:

• Retailer’s profit margins are generally higher for private label products

• Private label, in many cases, has more opportunity to gain exposure in the Retailer’s store,
market and consumer’s pantry.

• The retailer’s relationship with manufacturers enables private label to discover in advance
what their competition is doing in media, trade promotions and new product introductions.

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 • Retailers are investing more in developing and marketing their brands. Consequently, they
are not just the “me-too” brand anymore.

That is not to say that private label brands do not have their own challenges. Retailers are ramping up
capabilities in areas that their branded competitors have been doing for a very long time. They
include:

• As Private label grows, retailers have had to invest more in marketing and servicing a brand
that goes beyond the basic value brand they used to be.

• They have to invest in building equity like their branded competition.

• In many instances, the national branded manufacturer is making private label.

• Retailers still rely on manufacturers to provide consumer and shopper insights, beyond their
walls, that enable innovation in building store traffic.

The shifting competitive climate is forcing manufacturers of branded products to get better at
innovation and positioning for their brands while marketing budgets are being cut. Manufacturers
must find ways to develop innovations in product development and reach their consumers more
efficiently and effectively. The battleground is clear:

Marketers must be more rigorous in looking objectively at their business. The ability to utilize real
time cause and effect data to obtain lead indicators in order to building and adjusting strategic
direction and determine where they invest their marketing, sales and operations dollars is critical.

When you consider 70 percent of purchase decisions are done in store, the retailers pose both a
tremendous threat as well as the key to the shopper. Developing innovation in driving consumers to
the centre of the store and finding ways to get your products on the store’s perimeter are imperative.

Finally, a tiered brand strategy is where the manufacturer wants to propose: a core premium brand, a
core mainstream brand and a value brand with the correlating Private label as it fits. At a primal level
it is a two brand strategy is where the manufacturer wants to drive the retailer to.

Manufacturers are at a point in time when going back to the old way of inferred insights and long
analytic studies are not good enough. Getting to a place whereby they are using the power of the data

44
they have in turning modelled insights around fast to steer the ship is the key to successfully
navigating the waters of economic recovery and sustaining their brands long-term.

FACTS AND FIGURES

Woolworths currently operates 900 PL SKUs under three main brands:

• HomeBrand (entry level) - Woolworths currently offers 830 products under its generic brand.
• Woolworths (brand equivalent) - The retailer offers three sub-brands under the 'Woolworths'
private-label: Organics, Naturya and Fresh.

Woolworths Select (premium label launched in May 2005) - The retailer plans to increase this range
from 300 products to 1,000 by year-end 2008.

Coles supermarkets began its PL initiative in June 2005, with the introduction of the midtiered
"You'll Love Coles" brand, first sold in outlets in New South Wales and Victoria.

The retailer now operates 3 PL brands across its supermarkets:

Smart Buy (entry level) - currently available on 225 SKUs with a further 300-500 products planned.

You’ll Love Coles (brand equivalent) - aims to be a brand equivalent, but with a lower price position.
Currently available on 1,602 SKUs, with a further 3,000-5,000 planned.

Coles Finest (premium label) - their newest range of 200 premium products was launched by year-
end 2006.

A study by A.C. Nielsen found that nearly 72% of consumers believe private label brands are good
alternatives to national brands while 62% of consumers consider private label brands to be as good as
national brands.

This trend is showing up at the cash register; private label product sales accounted for more than $81
billion in the United States, up 10.2% over 2008 while unit share has grown to 22.8%, remaining
strong even as the economy rebounds, according to the same report.

Target's Archer Farms and Safeway's O Organics are good examples of private labels that are on the
same level as national brands in the eyes of consumers.

45
Private labels are large in developing markets — they account for 40 per cent of Wal-Mart sales
($126 billion or Rs 5,16,600 crore), 50 per cent for Tesco ($36 billion or Rs 1,47,600) and are eating
into a larger chunk of the organised retail sale in developed markets. In Germany, for instance,
private label has shot up from 12 per cent of sales to 34 per cent. This has, in effect, changed the
balance of power between brand manufacturers and retailers, giving the latter a decided advantage
when negotiating terms with the brand manufacturers. And apart from the multibrand retailers, a
category of private label-only retailers has also been created — Ikea, Toys ‘R’ Us, Zara — who sell
only private label brands.

The writing, say Nirmalya Kumar and Jan-Benedict E. M. Steenkamp, is on the wall: private labels
are growing faster than manufacturer brands. They are ubiquitous across categories and they now
compete on quality — in fact, they are now brands! Private label share is expected to grab almost 22
per cent of sales in developed markets by 2010.

Kumar and Steenkamp trace how private labels have evolved from ‘cheap and nasty substitutes’ to
the real thing. Indeed, ‘copycat’ private labels still remain a strong strategy for retailers. However,
the copycat no longer depends on the price advantage to fight the branded product; it has improved
on quality and offers a value proposition to the consumer. Similarly, the earlier theory that that
recessions fuelled private labels while an economic boom resulted in growth of brands no longer
holds good.

Indian Scenario

Tie-ups with international retailers and brands, emphasis on profitable growth and increased focus on
private labels are set to be key trends in the Indian retail sector in 2010, say retailers and consultants
Business Standard spoke to. Though foreign direct investment in single-brand retailing and cash-and-
carry ventures are allowed along with franchising and licensing pacts as of now, 2009 saw most of
the foreign retailers focusing on manage the business in their home countries, where they were
seeing declining sales.

“In 2010, a lot of international retailers and brands are most likely to look at India as global markets
have stabilised and the Indian economy has proved to be better than most other countries. These

46
factors give a lot of confidence for them to invest in India,” said Arvind Singhal, chairman of
Technopak Advisors, a business consultancy.

Wal-Mart has set up its first unit in the country and Tesco, the UK’s largest retailer, is providing
back-end support to Tata’s hypermarket Star Bazaar, Carrefour is said to be talking Kishore Biyani’s
Future Group for a possible tie-up.

Industry sources said a number of international brands are also holding talks with Future Group,
Reliance Retail and Spencer’s Retail for tie-ups.

Devangshu Dutta, chief executive of business consultancy Third Eyesight, believes franchising and
licensing agreements could be a major avenue used by overseas brands to enter the country.

“Our research shows that 45 per cent of fashion and lifestyle brands, which have entered India in the
recent past, have used this route because it gives a quick entry and allows tie-ups with partners who
have good real estate capabilities,” Dutta says.

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A profitable growth

Though retailers such as Reliance Retail, Aditya Birla Retail and Spencer’s Retail closed hundreds of
stores or shifted stores to economical locations in 2008 and 2009 and took various steps to cut costs,
they are likely to continue to focus on profits and boosting margins in 2010.

Shoppers Stop’s top management took 15 per cent salary cuts, while 300 floor-level staff were not
replaced. The company shrank its office space 20 per cent and corporate office expenses by 40 per
cent to cut losses.

Delhi-based Vishal Retail, which has been battling cash woes and mounting debt, relocated 25 stores
in the financial year 2009 and 10 stores since April 2009. It is now planning to close 20 more and go
only through the franchisee route.

“In 2010, our strategy is to increase margins, reduce costs and boost revenues. In 2009, we mostly
focused on controlling costs,” says Thomas Varghese, chief executive officer of Aditya Birla Retail,
part of the Aditya Birla group. “We will watch the situation and open stores,” Thomas adds.

“Retailers will not book properties at ridiculous rentals and look at private labels to boost margins.
Growth with profitability is the main mantra in 2010,” says Singhal.

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Private labels to rise

Most retailers like Future Group, Spencer’s Retail and Aditya Birla Retail, among others, are
stepping up their private label plans to boost margins. The reason: Private labels in food and
groceries carry margins of 25-35, while private labels in apparel and accessories offer more than 40
per cent margins.

Future Brands, which manages the private labels of Future Group, is expecting a turnover of Rs 750
crore in 2010 (the group’s flagship Pantaloon’s financial year ends on June 30), 14 per cent growth.

Private labels contribute 30 per cent of its sales in FMCG and 25 per cent in personal care products.
The group is expanding its private label portfolio further. It is planning to launch its own brands in
lingerie and a toothpaste brand ‘Sach’, according to Future Group CEO Kishore Biyani.

Aditya Birla Retail, which has more than 400 products in its private labels, plans to take its share of
private labels in overall revenues from 19 per cent to 25 per cent next year.

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RPG’s Spencer’s Retail is also planning to double the contribution of private labels and fashion to its
overall revenues in the next couple of years.

Spencer’s plans to launch several new private labels across categories. Under its brand ‘Smart
Choice’, the company will launch floor cleaners, savories and chips, wines, air-freshners and cakes
in the next two months. Under its ‘Livin Smart’ brand, the company has launched categories like
quilts, handloom towels, dining accessories and, under its ‘Gerat’ brand, Spencer’s recently launched
a mixer grinder and plans to launch a DVD player soon.

THE RFID DEBATE: BOON FOR RETAILERS OR MANUFACTURERS

The pendulum has long since swung back in the retailer’s direction, and big box stores can now
pretty much dictate the terms of product distribution to national brands. Says Robert Spector,
author of Category Killers: The retail revolution and its impact on consumer culture, “The
relationship between retailers and vendors has always swayed one way or the other. Today, the
retailers, the distributors, as it were, are in the ascendancy and they have been for a long time
because of Wal-Mart and Costco. We’ve always had large retailers, but we’ve never had retailers
this large in relation to the rest of the economy.” Adds Spector, “For a brand, it’s harder to get
established.”
The mantra of the big box stores, of course, is everyday low prices. To deliver on this score,
retailers like Wal-Mart place continuous pressure on brand manufacturers to cut their costs.
Consumers presumably stand to benefit, but some critics argue that the price pressure brought to
bear by the big boxers on manufacturers is so great that it stifles product innovation and reduces
product quality.

Whether or not product innovation has actually suffered—and there is simply not enough data
available to answer that question, national brands may still be behind the eight ball. With an
increasing number of retail outlets providing consumers with more choices for buying products,
enhanced retail capacity requires that advertised national brands be available almost everywhere at
the same low prices. There is hardly any way left for the national brands to negotiate promotions
and preferential pricing with selected retailers.

Meanwhile, some big box stores have shifted their product mixes toward lower-margin grocery
products in their pursuit of store traffic and sales volume. Not a few of these retailers have
invested heavily in private-label brands that, unlike national brands, do not incur added costs for

50
shipping, marketing, and advertising. While the resulting improved margins may allow retailers to
stock national brands, these brands end up going head to head against the stores’ private-label
brands.

However, with the anticipated adoption of product tracking technology radiofrequency

identification (RFID), there may be changes in store for retailers and brand manufacturers alike.
RFID has the potential to allow manufacturers to track individual packages—not just stock
keeping units, and some speculate that the technology might eventually give manufacturers more
say about how and where their products are marketed.

Most retailers say they cut their inventory movement costs using RFID from 2.5 hours to 15
minutes. Clearly there is significant savings—if not significant at least expected savings, on the
cost side in inventory. The technology may also offer other advantages to retailers, including
reduced loss due to theft.

If manufacturers do get a better handle on how customers are using their products, Sethurman
concedes they could realize major benefits. “That eventually could be wonderful for the
manufacturer,” he says. “The reasons manufacturers don’t have power is because they are unable
to have a direct conduit with the consumer when it comes to the physical movement of goods.”

Although Sethurman believes manufacturers have traditionally had this power, he says they do not
have it now because today’s supply chains favour the mass retailers. “But if RFID could actually
trigger a mechanism by which the manufacturers directly know when these people are out of
stock, maybe there would be some way to respond to that quicker.” He also sees the possibility
that RFID could encourage greater product innovation. “Definitely, the potential is there. It will be
interesting to see.”

Even if consumers stop short of inviting RFID technology into their homes—and that remains a
strong possibility given concerns about personal privacy, manufacturers may still have other
options for mining RFID data.

Cox believes the stores could end up losing influence if manufacturers gain access to this data.
“Right now a manufacturer has no way of knowing what the throughput is for any individual
stores, because individual stores now act as distribution centers for the companies themselves.”

If RFID does allow manufacturers to interact more directly with consumers, manufacturers will

51
still need access to retail shelf space to market their products. Notes professor Michael Levy of
Babson College in Massachusetts, “The manufacturer’s job is to try to figure out what people
want. So they’re always going to be coming out with new products. I don’t think that’s really
changed. If they’ve gotten more sophisticated trying to figure it out—what people want before
they make it, it’s still going to be their job to keep coming out with new this or new that.... That’s
the whole game. Coming out with new products and getting shelf space in the store.”

But professor Stephen J. Hoch of the University of Pennsylvania’s Wharton School told us he
doubts that RFID in itself will make it easier for manufacturers to get that shelf space. On the
other hand, Hoch has also argued that stores like Wal-Mart may be vulnerable to, among other
threats, the emergence of new competitors and changes in consumer buying tastes. Certainly, the
knowledge of how, and how often, consumers use their products could go a long way in helping
them identify the most appropriate distribution channels. Even the once mighty A&P eventually
floundered on not too distant shoals. Following a long history of growth, the Tea Company
entered a period of decline in the 1960s as it lost market share to more aggressive competitors. By
the early 1970s, the company was clearly in trouble. Finding it unable to keep up with
competition, A&P opted to convert its retail operation to a mass marketing format. High margin,
slow-moving products were discontinued as the chain began concentrating on low margin, fast
moving goods.

Savings Continue for Consumers Buying Store Brands

After Cost-Cutting by National Brands, New Market Basket Research Shows Store Brand
Shoppers Still Save 30%

NEW YORK - Supermarket shoppers continue to reap sizeable savings on products throughout
the store when choosing the retailer’s brand, but it also seems the price difference vs. national
brands is not their only motivation.

Despite an increase in couponing and price promotion by national brands, the latest market basket
research by the Private Label Manufacturers Association documents that shoppers can still lop
30% off their grocery bill by purchasing store brand products in their weekly trips to the
supermarket. The savings were virtually identical by percentage to results from a similar study
released by PLMA four months earlier.

52
Meanwhile, a recent poll of consumers shows that the quality of store brand products is a big
factor in convincing shoppers to keep buying them. In a survey by GfK Custom Research North
America, 9 in 10 shoppers agreed that the store brand products they buy are as good as or better
than national brand products, and the same percentage said they will keep buying store brand
products after the recession ends.

Conducted over a six-week period, the research on consumer savings tracked prices on 42 basic
grocery and household items at a typical supermarket. The results indicate that consumers buying
the store brand would save $40.91, on average, on the total market basket, representing savings of
30% when compared to weekly purchases of national brands in the same categories.

Products comprising the typical market basket included staple food items like breakfast cereal,
peanut butter and orange juice, in addition to non-foods such as bathroom tissue, paper towels,
aspirin and mouthwash. A number of seasonal items such as hot dogs and rolls, pickles, iced tea
mix, barbecue sauce, bagged salad, charcoal, aluminium foil, and paper plates were also tracked
for the study.

In total, 31 of the 42 foods and non-food items PLMA examined saved consumers more than 20%
off their grocery bills. In 23 categories – more than half of those tracked – the savings exceeded
30%, and nine of the products saved shoppers over 40%.

PLMA's 6-week price comparison research was conducted in a typical suburban supermarket
located in the northeast. The survey was repeated on a weekly basis during the 6-week period
from April 18, 2009 through May 23, 2009. A market basket featuring 42 frequently purchased
products from both food and non-food categories were used. A leading national brand product was
compared to a similar store brand product in each category and prices were adjusted to account for
all known discounts, coupons and promotions available for each of the weeks included in the
study.

The Private Label Manufacturers Association is the industry trade association devoted exclusively
to store brands. Founded in 1979, PLMA today represents over 3,000 companies who are involved
in the manufacture and distribution of store brand products. The products supplied by PLMA
members include food, beverages, snacks, health and beauty aids, over-the-counter drugs,

53
household cleaners and chemicals, outdoor and leisure products, auto aftercare and general
merchandise.

PLMA Yearbook Documents Private Label Sales Surge of More Than 10%

New Market Share Records Set For Dollars and Units Across All Major Retail Channels

NEW YORK - Sales of store brands in the major U.S. retail channels surged by more than 10% in
2008 to a record $83.3B. Supermarkets, drug chains and mass merchandisers combined sold a
billion more private label units versus a year ago, and store brands accounted for 42% of the total
gain in dollar volume coming into the three mainstream channels, according to data compiled by
The Nielsen Company and published in PLMA’s 2009 Private Label Yearbook.

In supermarkets, store brand sales soared by +9.4%, outdistancing national brands, which added
only +1.4% in sales versus the year prior. Store brands were up $4.6B for a total of $53.8B in the
channel. Private label dollar market share increased to 18.2% (from 17.1%) and set a new record.
Private label also saw a +1.6% gain in unit volume, while national brands units declined -4.3%.
As a result, private label unit market share advanced more than a full point to 22.3%, another all-
time high.

In drug stores, dollar volume grew +14.4%, or nearly four times the rate of national brands, which
were up +4.1%. As a result, store brand dollar market share climbed to a record 13.2%. Private
label units meanwhile increased by +9.1%, and private label unit share rose to 15.2%, yet another
high.

The solid gains in unit volumes when measured against the results for national brands indicates a
real shift in shopping behavior, as consumers increasingly made the switch from national brands
to purchase retailers’ brands instead. Clearly, the economy was a leading reason for the
extraordinary growth in store brands. A recent series of polls conducted by GfK for PLMA
revealed that three out of American shoppers agreed that current economic conditions were
important in their deciding whether to purchase supermarket or grocery stores’ brands.But the
outstanding results at year-end can also be attributed in part to a strong foundation of consumer
acceptance and patronage of private label products that predates the current economic situation.
Supporting this view, fully 91% of shoppers in the GfK survey said they will continue buying
store brand products after the recession ends.

54
The PLMA 2009 Private Label Yearbook is available to association members, retailers and
wholesalers at no charge. It is also available to others by request at a cost of $1,500. In today's
most challenging of times for the apparel business, there is a glimmer of hope. Hope that brands
and licensed products have a better road to recovery than non-branded and private label
products.When you compare the performance of branded vs. private label product over the past
decade, it is evident that it has been a challenging time for brands and licensed products as
retailers made significant investments into private label. Private label apparel product reached a
peak of 4 percent of merchandise in stores. The good news here is that retailers are finally
beginning to recognize that private label merchandise isn't necessarily the safest bet in challenging
times.

As consumers reign in their spending, they have become more discriminating and expect more for
their dollar. Brand power does have its place in the spending equation during recessionary times.
Just take a look at the past year and you will see that consumers were more likely to have spent on
branded product than on private label product. Sales for the private label market share dropped 1
percent during the 12 months ended May 2009. While that may not sound like a lot, consider that
the dollar amount is $2 billion in lost private label sales. Those sales have shifted over to branded
and licensed products.Here's what's happening. In the past decade, retailers have made such a
significant investment developing proprietary brands and private label programs that they have
gotten things out of balance. Too much of their own merchandise and it is owned from start to
finish. Longer lead times and less consumer acceptance all add up, over time, to maximizing the
risk retailers take.

There is no margin for error. But with consumers looking for products that offer greater value
these days, brands and licensed products that also bring passion into the equation have a huge
advantage.

Sales of branded product are actually fairing better than those of private label. While total apparel
is down 4.8 percent, the good news is that branded product is doing better. Branded product is
down only 3.5 percent compared with private label product, which is down 7.2 percent. That
reflects a performance that is twice as challenging for private label products.

So timing is everything in apparel, and the time is now to take licensed and branded products to

55
market with confidence and realize that retailers are beginning to get the message. That message
being consumers prefer known and trusted products and are not willing to experiment or just settle
for the lowest-priced product. They expect more from the products they buy and are willing to
reward those retailers that carry the right mix of brands and licensed products. Passion and brand
recognition play a huge role in purchasing in a down economy. Licensors are in a position to take
advantage of the fact that timing is on their side now. Therefore, showcase your brand and help
the retailer remember what the consumer wants and why your brand and product resonates better
than the lesser known or unknown product.

PRIMARY RESEARCH / CONCLUSIVE

56
 SAMPLE DESIGN

• SAMPLE: The sample includes men and women in the age group of 20 to 35 years,
belonging to the different classes of the society.

• SAMPLE SIZE: The sample size was 30 people.

• SAMPLING: JUDEGMENTAL

COMPARATIVE DATA ANALYSIS OF QUESTIONNAIRE

What is your gender?

Gender Male Female

No. of 18 12

57
 respondents

INFERENCE: Out of 30 respondents, 63 %( 18) of them are male and 37 %( 12) are female.

What is your age?

Age(years) 20-25 25-30 30-35

No. of respondents 20 9 1

INFERENCE: Out of 30 respondents, 67 %( 19) of them are between age group of 25 to 30 years.

B. What is your marital status?

INFERENCE: Out of 30 respondents, 100 %( 30) of them were single.

Where do you often go for shopping?

58
 Shopping Malls EBO MBO Local
destinatio vendo
ns rs
No. of 14 10 6 0
respondent
s

INFERENCE: Out of 30 respondents, 47 %( 14) of them go to malls for shopping followed

by EBOs 33% (10).

How often do you go for shopping?

Frequenc Once Once Once Occasionall

y in a in in y

59
 mont every every
h two six
month month
s s

No. of 3 8 1 18
responden
ts

INFERENCE: Out of 30 respondents, 60% (18) of the respondents shop occasionally.

How much do you spend on clothes in a month?

Expendit Below Rs. 1500- Rs. 3000- Above

ure Rs. 1500 Rs.3000 Rs.4500 Rs. 4500
range
No. of 17 12 1 0
responden
ts

INFERENCE: Out of 30 respondents, 57% of respondents spend below Rs. 1500 for
shopping.

60
 Your wardrobe composition of Premium Branded Garments to Sub-premium RTW to
Tailor-made garments is:

Ratio 10:50:40 30:40:30 50:30:20 70:20:10

No. of respondents 17 3 7 3

INFERENCE: Out of 30 respondents, 57% of respondents prefer sub premium ready to

wear apparels to premium brands.

61
What prompts you to go for Sub-premium RTW compared to Premium Branded Garments?

Rank in order of most important to least important. (4=most imp & 1=least imp)

Attribut 1. 2. 3. 4.
e no.
Weighte 2.5 1.73 2.6 1.93
d
average

INFERENCE: Weighted average of attribute 3. is 2.6 which is maximum which

shows that most respondents feel minimum assured quality at reasonable price
as the product is from a relatively trustworthy source is reason for them going
for sub-premium RTW apparels.

What prompts you to go for Tailor-made compared to Premium Branded Garments?

Rank in order of most important to least important. (4=most imp & 1=least imp)

Attribut 1. 2. 3. 4.
e no.
Weighte 2.13 2.4 2.53 2.93

62
 d
average

INFERENCE: Weighted average of attribute 4. is 2.93 which is maximum which shows that
most respondents feel Keeping up with the latest fashion trends at lesser prices is reason for
them going for tailor made apparels.

Do you feel Private Labels provide the same benefits as listed above?

Response Yes No
No. of 18 12
respondents

INFERENCE: Out of 30 respondents, 60% find the above attributes beneficial.

63
What among the following attributes you look for while purchasing private labels?

Attributes Price Quality Style Image

No. of 16 7 7 0
respondents

INFERENCE: Out of 30 respondents, 54% of respondents look for best price for private labels.

When do you prefer to buy Private Labels most?

Wester Ethnic Indo Wester

Occasion n wear western n party
formals
No. of 0 6 16 8
64
 responde
nts

INFERENCE: Out of 30 respondents, 53% of respondents prefer indo western in private labels.

Should Retailers incorporate a local feel in the Private Label merchandise?

Response Yes No
No. of 22 8
respondents

INFERENCE: Out of 30 respondents, 73% respondents’ agreed that retailers incorporate a

local feel in the Private Label merchandise.

65
If Yes, Why?(Rank in order of preference. 4=most relevant & 1=least relevant)

Attribut 1. 2. 3. 4.
e no.
Weighte 2.93 1.6 1.13 1.66
d
average

INFERENCE: Weighted average of attribute 1. is 2.93 which is maximum which shows that most
respondents feel better local consumer connect leads to increase store patronage.

How many of the below mentioned Private Label brands are you aware of?

Brands LI SR ST GING CO RANG A n

FE C OP ER DE MAN ll o

66
 CH n
e
No. of 12 2 10 12 2 2 2 2
responde
nts

INFERENCE: Out of 30 respondents, 12 respondents each were aware of both life and
ginger followed by stop (10).

How did you come to know about private labels?

Source Adverti Promotio In store Word On

sement nal offers promoti of sto
s on mout re
h visi
ts
No. of 4 0 12 14 0
responde
nts

INFERENCE: 40% of respondents got aware of private labels through word of mouth.

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 How often should new collections be added to private labels?

Frequen Once a Twice a Thrice Four

cy year year a year times a
year
No. of 6 0 0 24
responde
nts

INFERENCE: Out of 30 respondents, 80% (24) feel that new collections should be added to
private labels.

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Do you feel there is a direct connects between the Store image and the Private Labels
offered by the store?

Response Yes No
No. of 24 6
respondents

INFERENCE: Out of 30 respondents, 80% (24) feel there is a direct connects between the
Store image and the Private Labels offered by the store.

Associate the following Brand Ambassadors with the store that they promote.

1. Asin ------ 0
2. Bipasha ------ 2
3. MS. Dhoni ------ 1

INFERENCE: Only three respondents could associate with celebrity endorsing for retail stores.

Therefore celebrity endorsement is not a success in case of retail stores.

FINDINGS

• Out of 30 respondents, 63 %( 18) of them are male and 37 %( 12) are female
• Out of 30 respondents, 67 %( 19) of them are between age group of 25 to 30 years
• Out of 30 respondents, 100 %( 30) of them were single.
• Out of 30 respondents, 47 %( 14) of them go to malls for shopping followed by
EBOs 33% (10).
• Out of 30 respondents, 60% (18) of the respondents shop occasionally.
• Out of 30 respondents, 57% of respondents spend below Rs. 1500 for shopping.

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• Out of 30 respondents, 57% of respondents prefer sub premium ready to wear apparels to
premium brands
• Weighted average of attribute 3. is 2.6 which is maximum which shows that most
respondents feel minimum assured quality at reasonable price as the product is from a
relatively trustworthy source is reason for them going for sub-premium RTW apparels.
• Weighted average of attribute 4. is 2.93 which is maximum which shows that most
respondents feel Keeping up with the latest fashion trends at lesser prices is reason for them
going for tailor made apparels.
• Out of 30 respondents, 60% find the above attributes beneficial.
• Out of 30 respondents, 54% of respondents look for best price for private labels.
• Out of 30 respondents, 53% of respondents prefer indo western in private labels.
• Out of 30 respondents, 73% respondents’ agreed that retailers incorporate a local feel in the
Private Label merchandise.
• Weighted average of attribute 1. is 2.93 which is maximum which shows that most
respondents feel better local consumer connect leads to increase store patronage.
• Out of 30 respondents, 12 respondents each were aware of both life and ginger
followed by stop (10).
• 40% of respondents got aware of private labels through word of mouth.
• Out of 30 respondents, 80% (24) feel that new collections should be added to private
labels.
• Out of 30 respondents, 80% (24) feel there is a direct connects between the Store
image and the Private Labels offered by the store
• Only three respondents could associate with celebrity endorsing for retail stores.
• Therefore celebrity endorsement is not a success in case of retail stores.

Conclusion

Private labelling in India is here to stay. It is likely to grow significantly, especially in major
urban areas, where the national brands will find this phenomenon a force to reckon with.
Though at this juncture private labelling occurs predominantly in “destination” categories
such as cereals and pulses in FMCG sector, it will not be long before the mega stores move

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towards labelling other packaged products as well. Brand loyalty will face assault not only
from other brands but also from store loyalty, aiding the growth of private labels. Such a
growth of private labels offers challenges to the national brands in terms of the elements of
marketing strategy. It also provides the manufacturers of national brands the opportunity to
(a) Move away from mass marketing to segment or niche oriented marketing in the specific
market area.
(b) Utilise their production capacity better by tying up with the retail stores to pack their
brands under the store labels.
However, whether private labelling is worth bothering about in India where the share of
private brands is far below 0.5% - borne out by the country’s name not figuring in the AC
Nielson’s July 2003 report – is a question that deserves attention. Whereas it is
understandable that retail chains are more powerful vis-à-vis national brands in Europe due
to the sheer size (small) of European countries as compared to the USA, the largeness of
India may well allow the national brands in our country to wield considerable power over
retailers for more years to come.
Possibly, the national brands may obtain their power position vis-à-vis large retail stores
through direct dealing – bypassing distributor network – thus passing off better
commissions to the large retailers. This means that the retail brand introductions in India
may cause win-win arrangements between the manufacturers and retailers at the cost of
other intermediaries. Manufacturers may be better off avoiding a direct confrontation with
retailers. The phenomenon of introduction of retail brands in India offers the greatest scope
to testify that marketing ceases to focus merely on competition and has started to look at the
prospects of co-opetition as the core of strategy, a phrase that has gained currency in recent
times in marketing literature. It can be expected that retail outlets will focus more on quality
of their brands for better positioning.

To counter their quality-threat, the national brands may come up with innovations in
packaging as well as the same quality at lower prices. Since retail outlets are predominantly
unorganised, localised competition may set the national brands thinking of unique methods
by which they can ward off all such dispersed threats in one sweep.

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Store brand entry (a) increases consumer choice in store and (b) it makes the national brands
to switch to just price and to avoid near-monopoly pricing. What was prophesized for the
US will hold true for India: Private labels will grow; and, national brands will dominate.
Consumers will be better off due to this brewing conflict, a sign of competition promoting
consumers’ welfare.
Success stories like CODE, GINGER, STOP, and LIFE are a proof that Indian retailers are
also on the right path.
With organized retail contributing 4% of total market share, the future of Private Labels
looks bright.

APPENDICE:

QUESTIONNAIRE

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 This questionnaire is being administered purely for academic purpose and the
information given will be kept strictly confidential.

A. Where do you often go for shopping?

1. Malls 2. Exclusive brand outlets 3. Multi brand outlets 4. Local vendors
____________________________

A. How often do you go for shopping?

1. Once in a month 3. Once in every six months
2. 2. Once in every two months 4. Occasionally
____________________________

A. How much do you spend on clothes in a month?

1. Below Rs. 1500 2. Rs. 1500-Rs.3000 3. Rs. 3000-Rs.4500 4. Above Rs. 4500

A. Your wardrobe composition of Premium Branded Garments to Sub-premium RTW to Tailor-

made garments is:
1. 10:50:40 2. 30:40:30 3. 50:30:20 4. 70:20:10
___________________________

A. What prompts you to go for Sub-premium RTW compared to Premium Branded Garments?
Rank in order of most important to least important. (4=most imp & 1=least imp)
1. Lower investment hence more liberty to experiment.
2. Bulk purchase giving more freedom to mix-n-match and create different looks.
3. Minimum assured quality at reasonable price as the product is from a relatively
trustworthy source.
4. Keeping up with the latest fashion trends at lesser prices.
___________________________

A. What prompts you to go for Tailor-made compared to Premium Branded Garments?

Rank in order of most important to least important. (4=most imp & 1=least imp)
1. Lower investment hence more liberty to experiment.
2. Bulk purchase giving more freedom to mix-n-match and create different looks.
3. Minimum assured quality at reasonable price as the product is from a relatively
trustworthy source.
4. Keeping up with the latest fashion trends at lesser prices.
________________________

A. Do you feel Private Labels provide the same benefits as listed above?

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 1. Yes 2. No
___________________________

A. What among the following attributes you look for while purchasing private labels?
1. Price 2. Quality 3. Style 4. Image
__________________________

A. When do you prefer to buy Private Labels most?

1. Western Formals 2. Ethnic Wear 3. Indo-Western 4. Western- Party
__________________________

A. Should Retailers incorporate a local feel in the Private Label merchandise?

1. Yes 2. No
__________________________

A. If Yes, Why?(Rank in order of preference. 4=most relevant & 1=least relevant)

1. Better Local Consumer Connect leading to increased Store Patronage.
2. Local Traditional Merchandise from a reliable source.
3. Saves time for the consumer who would otherwise need to tailor the merchandise.
4. Innovative tweaking can be done to the traditional range leading to consumer delight.
___________________________

A. How many of the below mentioned Private Label brands are you aware of?
1. LIFE 2. SRC 3. STOP 4. GINGER 5. CODE 6.
RANG-MANCH
___________________________

A. How did you come to know about private labels?

1. Advertisements 2. Promotional offers 3. In store promotions 4. Word of mouth 5. On
store visits
___________________________

A. How often should new collections be added to private labels?

1. Once a year 2. Twice a year 3. Thrice a year 4.
Four times a year
___________________________

A. Do you feel there is a direct connects between the Store image and the Private Labels offered
by the store?
1. Yes 2. No

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 A. Associate the following Brand Ambassadors with the store that they promote.
1. Asin ------
2. Bipasha ------
3. MS. Dhoni ------

Personal Details:

Name:____________________ Occupation:________________

Sex:________________

Age: _____________ Monthly Household

Income:________

Marital Status:___________

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 BIBLIOGRAPHY
• www.privatelabelmag.com.

• www.plmainternational.com.

• www.iplc.nl

• www.privatelabelintl.com

• “FDI for Retail Brands”, Business India

• “Invading Private Labels”, Retail Biz

• “The Rising”, Retail Biz

• “RPG Retail Blue Print Ready for 21 Giant Hypermarkets, Financial Express

• “HSIL: From Homes to Malls”, Images Retail

• “The Ebony In-house”, Retail Biz

• http://www.plmainternational.com/plt/WPL-WEB-2K5-PLT_en.html

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