Private labels threaten brands in India
December 1, 2009
Private labels are increasingly posing a threat for fmcg companies in India, according to a new consumer report published by Datamonitor.
In its study - The Impact of Private Labels on FMCG Companies in India - Datamonitor reveals that while the adoption of private labels began with a value proposition, consumers perceive these store brands are offering quality on a par with national brands.
“The increased scale of operations of retailers is shifting the bargaining power from fmcg companies to retailers. The growing adoption of private labels can compel fmcg companies to reassess their trade margins or relationship with retailers,” said Vaibhav Khera, director, India consumer markets research at Datamonitor.
Indian retailers are putting a strong emphasis on the growth of their private label brands, which is bringing in greater margins and is helping them gain greater bargaining power with fmcg companies, Datamonitor reports.
Retailers, which started launching their private labels as a value alternative to national brands, are now mirroring these national brands with respect to product packaging and claims. They are also offering these products at a lower price, it says.
Retailers are launching products with tiered pricing to cater to a wider audience too, while holding on to their store positioning.
The adoption of private label brands has been rapid in the household care segment, say researchers, and the increased satisfaction level of consumers buying products in this segment has helped in building retailers’ credibility.
Datamonitor expects that a customer satisfied with a private label brand in a low involvement category such as household care will have a greater propensity of trial in other categories such as food and beverages and personal care.
Datamonitor has analysed several product categories on the basis of their private label penetration and attractiveness, where attractiveness is defined by category involvement, brand loyalty, and price sensitivity. As a result, it has been able to pinpoint the product categories which are a current and potential threat to fmcg companies in the near future (see graphic below).
The report provides insights on consumer shopping behaviour and preferences and it reveals the strategies which fmcg companies can adopt to avoid competition from private labels.
Brands can avoid competition by investing in innovation and product differentiation, Datmonitor says.
“FMCG companies should play on their strengths and monetise emerging opportunities due to changing consumer behaviour,” said Khera.
Current and potential threat to national manufacturers across product categories, 2009
December 2009 Issue