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Retailers see big potential in private labels

21-April-2005
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Retailers see big potential in private labels

After apparel, it is now the turn of fashion accessories, watches and even kitchen essentials such as spices and edible oils to sport the private label.

The big names in retail industry are now all investing behind private labels, or brands they have created themselves, in a bid to improve profitability and generate customer loyalty.

And for the consumer, the prices turn out to be more competitive.

Having tasted success with this endeavour in apparel, more and more retailers are now extending it to other product categories.

One of the prime examples is the Hyderabad-based Trinethra grocery retail chain.

It has had consumers literally eating out of its hands - its private labels in staples and groceries have had great success.

"The growth in the private label business shows the confidence consumers have in Trinethra and its products. At present, private labels account for 27 per cent of our topline but we intend to generate at least half of our total sales from this business by 2006-07", said Managing Director, Mr K. Anjaneyulu.

In fact, the company is planning to extend this concept to spices, edible oils, tea and coffee.

Besides serving as a pointer to the credibility of the retail chain, private labels also ensure better profitability since the investment needed in brand building of the private label is much less.

Also, since the manufacturer has a grip on quality, the consumer is satisfied on the price-value equation.

Retail consultancy KSA Technopak's Mr Arvind Singhal says that world over, the private label business accounts for as much as 40-60 per cent of all retail industry sales.

"So far, very few retailers had a national footprint and consequently did not have the necessary sourcing and marketing muscle, but this scenario is changing very fast. Besides, the private label business is expected to grow very fast in India because a large section of the semi-urban, rural consumer is still not brand-focussed. Such a consumer welcomes quality products at affordable prices".

Take the case of Ebony Retail Holdings. After making its apparel brand ETC a success, it is now planning to take the concept across to a host of product categories such as fashion accessories and watches.

"We are a departmental store and must keep a balanced portfolio of branded versus private labels. This not only helps us cater to a national footfall, it also allows us good margins and fill price gaps between mass and premium brands", said the Chief Executive Officer, Mr Lalit Kumar

Trent, the retail venture of the Tatas operates two separate formats - Westside (which is a hundred per cent private label business) and hypermarket Star India Bazaar.

A Trent spokesperson says that the company leveraged its private label knowledge gathered at Westside and has now launched its own brands across a host of product categories in the Star India Bazaar's Ahmedabad outlet.

"Getting the quality and pricing right for private labels is tough, but then this strategy works well. Private labels are the top sellers across many product categories, pushing established brands to the backburner".

He says after having tested consumer preferences at Ahmedabad, Trent is now keen to establish Star India Bazaars across more cities.

Analysts caution that while private labels spell good business for retail trade, there should be strict quality control and prices should be kept much lower than established brands to generate profits.

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