Organised retail in India is rapidly gaining momentum with estimates projecting its share of the overall retail sector at 20 per cent in 2020 from 8 per cent in 2013. Simultaneously there is a noticeable steady maturing of players and the consumer market itself. One of the factors that points to this trend is the growing acceptance of private labels.
In the initial phase, the success of private labels was largely restricted to low involvement categories like food, apparel and personal care. The category is steady evolving as is evident from its successful deployment by large electronics retail chains despite strong competition from established multinational and domestic brands. The private label Croma, which is owned by the Tata Group, commands around 22 per cent of sales in the air conditioners segment. Even its tablet brand is the second largest within its portfolio with 22 per cent of total sales. With Next Retail owned by the Videocon Group, sales of flat panel TVs are dominated by in house brand Hyundai with 40 per cent share of sales.
Overall Next's private labels account for 30 per cent of sales. Reliance Retail's private label Reconnect is also making a major contribution to its top line with 18 per cent share in categories like flat panel TVs and air conditioners.
Quality products and aggressive pricing have been critical to the success of these private label businesses. More importantly, the players have ensured the support of a strong backend service network and leveraged consumer insights to launch differentiated and locally relevant products. This traction in the private label business certainly augurs well for the sustainability of these players. Besides the obviously higher margins that are estimated at around 15-30 per cent (as compared to 8-12 per cent for market leading brands), private labels are a strategic asset to these chains as they help create competitive differentiation in the long run.