Private Labels / Store Brands - The Money maker

By

S. Pradeep Kumar

L. Dhamayanthi

Final Year MBA

School of Management

Sri Krishna College of Engineering and Technology

Kuniamuthur PO, Coimbatore–641 008

Introduction

Today in the present scenario retailing has to be given more importance, this can be understood from the growth of the retail industry and also its contribution to the GDP of a country. Retailing means a vendor who sells goods or services with in a certain territory only through a single retailer or a limited number of retailers. It may also apply to wholesalers. This paper explains about the various factors which will lead to the creation of the retail store brands and the important things to be considered for the creation of a retail store brand. This is done with the help of analyzing one of the famous Supermarkets in Coimbatore.

Retailing in India:

India has been rated 5th for most attractive emerging retail market. India has been rated 2 nd in global retail development index of 30 developing countries by A.T.Kearney. A.T. Kearney has estimated India's

total retail market at $202.6 billion which is expected to grow at a compounded 30 per cent over the next five years.

In 2003-04, organized retailing, which has an annual growth rate of 8.5 per cent, swept past the Rs.200-billion mark ($4.5 billion), a figure that appears quite small if one were to compare the extent of the total market. Organized retail, at present comprises merely 2 per cent of the total market in India. This means that the untapped segment amounts to a whopping Rs.9,800 billion (approx. $225 billion). The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade, analysts feel. The above facts clearly shows that in India, though retailing is a developing industry, it is going to be a very big industry in India and retailing is going to contribute a lot to India's development.

Store brands:

Store brands are products developed by a retailer and available for sale only from that retailer; some retailers may attempt to utilize this measure of exclusivity to differentiate them from the competition. Store brands help retailers to increase sales which indirectly add to the bottom line (profit). However store brands are priced 20-30%less than the branded goods. Store brands can used as a powerful tool i.e. The general feeling is that in times of recession, private labels increase their market share, but tend to maintain that market share as economies recover. Thus store brands prove to be a useful tool, depending upon how it is created.

Percentage of sales of private labels:

In US 15% of sales is from private labels whereas in Canada and Europe it accounts for 25% and 50% respectively (2002). These figures clearly show that a retailer can gain more by having retail store brands.

Store brands in India:

Store brands in India in a growing stage. It will be difficult to get the details of sales in India because of the highly unorganized structure of Indian retailing. But still it contributes a turnover of Rs.700 Cr in the organized structure. Though the margin of Rs.700 Cr is considered as low when compared to other

countries, India is expected to achieve a sizeable volume in the coming 3-5 years. Moreover in India the products come under store brands include mainly food and apparel industry.

Some of the retail players having store brands in India are as follows:

FOOD AND GROCERY

FASHION

OTHERS

Spencer's Daily

Shoppers' Stop

Vivek's

Adani- Rajiv's

Westside

Planet M

Subhiksha

Lifestyle

Music World

Nilgris

Piramyd

Crossword

Nirma-Radhey

Ebony

Gautier

Globus

Lifespring

Each of these retail stars has identified and settled into a feasible and sustainable business model of its own. Rather surprisingly, each has developed a unique model. Westside has very successfully emulated a Marks & Spencer model (of 100 per cent private label, very good value for money merchandise for the entire family). Spencer's Daily and Nilgris have successfully shown the viability of the `supermarket'

format in India and its ability to co-exist with the ubiquitous Kirana store. Pantaloon has both demonstrated the potential of "speciality" retailing in India.

Why store brands?

1. You have control over your pivotal product, and that means over your business.

2. It is the only way to be able to market high quality product, if you so choose.

3. You save substantially in product cost. You can spend these savings on anything you please, including higher product quality.

4. You have no competition for the brand of coffee that you carry. No one can trade on your name legally. This is a strong motivational plus for your salespeople.

5. With your exclusive brand you can, if you wish, enter the entire Out-of-Home market supply for the product, selling in different places.

6. You can sell the mystique as well as the real quality of your product, enabling you to achieve a higher average selling price (though many operators make the mistake of selling their private label for a lower price than the national brands).

Consumer buying behaviour:

In order to have store brands or any other product, it is more sensible to know the consumer buying system or their buying behaviour. The management has to know about the retail buying process of a consumer to have success of both long term and short term. The buying process of a consumer is as follows:

Thus the consumer behaviour starts with arousal of need and ends with post purchase behaviour, which would result in store loyalty.

Decision factors for buying:

Though the buying process goes like the above chart, there are some factors that would influence the decisions of the buyer.

They are shown in the following chart:

Creating retail store brands

Creation of retail store brands involves both long term and short strategies. In order to a create retail store brand, are

Things to be considered before introduction of the store brand

Things to be considered during the introduction of the brand

Things to be considered before introduction:

For the introduction of the brand, the following are very important in order to make the brand a successful one, if the following is not right then the brand cannot have a long term success.

Target customers:

Though there is a good response for the store brands introduced by the retailers, it should be directed towards target customers i.e. to whom the products must reach. More over for a retail store, the target customers would be the people above middle income group and people above high income group (very rich). Because they are people with more income and as a result of it they are often making visits to the retail store.

PricewaterhouseCoopers (PwC) report claims that the number of households earning more than Rs.45000 will go up from 30 million in 1999-2000 to 81 million by 2005-06. It also further claims that the number of 'very rich' households will increase six fold from 1 million to 6 million during the same period.

The PwC report further adds that the 'consuming class' and 'climbing class' – the two segments that offer tremendous opportunities to retailers are expected to grow by 38.8% from 124 million households in 1994-95 to 159 million households by 2005-06. This increase in the consuming class will lead to greatly increased purchasing power, signaling a bright future for the organized retailing. So with the above facts if target customers are targeted correctly then it do wonders for the store. The income of the people is on a rise, so if the product is liked by them then it would be a successful one for the outlet.

Identify the needs of target customers:

Having the target customers, the store has to find the needs of the people which remain unsatisfied. The needs of the customers have to be given due importance because the consumers buying behaviour starts with it. If the needs are found, a product can made in such a way that it satisfies their need. If the consumer finds that the product is satisfying him then the retail store brand can be successful one. In order to identify the needs of the people, survey can be made on the target customers. If this is costly, then information is got from the key customers.

Feedback is got from the customers regarding their brands performance and if any need is found not satisfied, the store would be designing a product based on that. The store is also getting information voluntarily from their customers i.e. they would be giving the information to their salesmen voluntarily and they are using this in order to design or develop a product.

Quality of the product:

First and foremost thing which makes the consumer to buy the product is the QUALITY of the brand. If the quality of the product is good then customers will be attracted towards it. When the quality is good, during alternatives (consumer behaviour) are evaluated, the consumer attaches more importance to the retail brand.

The store attaches more importance to the quality of their brands and on anything else. Similarly UK based supermarket Sinsbury launched a store brand 'taste the difference' (food product). It showed its quality through using of quality ingredients and it promoted well known chef Jamie Oliver to improve the brands quality. So if a store wants to sell its store brand it should attach more importance to quality than any other thing. In order to have a long term success, the quality of a brand should be consistent over a period of time.

Price of the brand:

Price plays an important role in the creation of store brand. Most of the store brands are purchased because they are priced 10% to 40% below the national brand. Because of this most of the consumers are attracted towards the brand and this also used to differentiate the store brand and the national brand.

The following chart shows the extend of store brands being priced below the national brands.

Thus the above chart shows that the store brands are normally priced below the national brands price. In some it can also be premium store brands. There are two strategies for this. The first strategy is to identify the gap in the market in accordance launch a premium store brand. Supermarket Sainsbury did this while launching its brand 'Taste the difference'. The second strategy is to exploit the gap in such a way that the prices become secondary. Target has launched a range of private labels as apart of its store brand collection. The store has a series of designers like Sonia Kashuk, Michael Graves, Steven Graves, Steven Sprouse, Philippe Starck, Todd Oldham and Issac Mizrahi. The strategy has been to launch the coveted products and in doing so, it circumvents the 'Low price issue'.

Positioning:

Positioning attracts the customers a lot easily towards the brand. When positioning of the store brand is perfect, then pricing the brand above premium is possible. Moreover, when introducing store brands, retailers may use either a differentiation strategy or an imitation strategy in positioning the store brands.

Examples of a high quality differentiation strategy where retailers introduce high quality differentiated brands that differentiate them from the national brands include "Sam's Choice" from Wal-Mart. Alternatively, the retailer may differentiate by offering a white-label generic or a low quality store brand targeted to low quality oriented customers. The more common strategy however is an imitation strategy, where a retailer introduces a store brand as a me-too product relative to a popular national brand. This strategy accounts for more than 50% of the store brand introductions in the grocery industry.

"Food Bazaar" positioned its private salt brand as premium health salt which is available in the price of the ordinary salt. It enjoys 40 - 45% market share in its category among all the "Food Bazaar" outlets. Thus it has used the differentiation strategy and got success. The long-term losses that can happen due to retaliation (imitation strategy) from national brand manufacturers who may withdraw promotional and advertising support, which are essential to the development of the category itself. Such support helps the whole category because it builds awareness and drives traffic to the store.

Packaging:

Packaging plays a very important role because even if the customers are not aware about the store brand, the packaging will make the consumer to see the product and it make the customer to inquire about the product. The store have a special unit for packing their store brands and the design, look etc., of the package is vested with the packing unit. It is already said that the customers of the retail outlet will be middle and upper class people. So the packaging should be in such a way that it matches their taste.

Training to the employees:

Training is said to be important because the customers of the store will not be aware about the store brands, its uses, its merits, etc. In order to fill this gap the employees of the store must be given adequate training regarding their brand. Every time when the store introduces its new store brand, they are providing one month training to their employees. The main advantage of giving training to the employees is that, media advertising is not given for the store brands, so the training can act as a substitute for advertising.

Things to be considered during the introduction:

Now the brand is available in the retail outlet. The following things are very essential for the complete creation of the retail store brand.

Promotion of the store brand:

Promotion is that aspect of marketing communications that keeps the product in the minds of customers and helps stimulate trial and repeat purchase. Most retail owners and marketing managers are familiar with promotional strategies such as:

Advertising

Personal selling

Sales promotions (buy one get one, coupons, introductory offers, etc.)

Public relations & publicity

For a retail store, media advertising is not needed, because it is already provided by the national brand.

In this particular store, they are providing hand bills and hoardings type of advertisements.

Thus the above chart shows how store brands create customer loyalty and also how it competes with the national brand.

Feedback from the customers:

Feedback can be got from the customers regarding the store brand's performance and its improvement. Feedback gives the satisfaction level of the customers. The store receives feedback from the customers regarding their brand's performance. Feedback can also be used for improving the qualities of the brand.These are the things which should be considered during the introduction of the retail store brand.

Conclusion

We have discussed about retailing and store brands in India and the buying behaviour of the consumers. Under creation of retail store brand we have understand the following. First, the things to be considered before and during the introduction of retail store brand. Then understanding the needs, quality, pricing and positioning plays a very important role before the introduction of a brand. Lastly, feedback and promotional activities are very important for the success of a retail store brand during the introduction.