Private labels threaten FMCG companies in organised retail
November 11, 2009
More and more private labels are increasingly posing a threat for fast moving consumer goods (FMCG) companies in India, said a survey from Datamonitor, a business information company.
According to Datamonitor’s consumer survey titled 'The Impact of Private Labels on FMCG Companies in India', while the adoption of private labels began with their value proposition, consumers perceive that these store brands are offering quality at par with other 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 for India Consumer Markets Research, Datamonitor.
Retailers, who 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 and are offering these products at a lower price, the report said.
Indian retailers are placing 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. Retailers are also launching products with tiered pricing to cater to a wider audience while holding on to their store positioning, the survey added.
According to the survey, the adoption of private label brands has been rapid in the household care segment, and the increased satisfaction level of consumers buying products in this segment has helped in building retailers' credibility.
Datamonitor said it 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.
Though private labels are increasingly gaining a strong foothold in the organised retail segment, FMCG companies can avoid this competition by investing in innovation and product differentiation, Datamonitor said.
Mr Khera said that FMCG companies should play on their strengths and monetise opportunities emerging due to changing consumer behaviour. -Yogesh Sapkale[email protected]