Branded firms facing rising tide of private labels in crowded market

At a time when customer loyalty has become a moving target for a company, enjoying the loyalty or exclusivity of its new-age channel partners has become even tougher to achieve. Zomato and Swiggy foraying into private label food service and effectively competing with their restaurant partners is the latest instance of how this risk factor is playing out in a marketplace.

To be sure, private labels are not new. According to the Deloitte-FICCI report on ‘Spurring growth in FMCG, retail and ecommerce sectors in India’, private labels represent 4% of total retail sales, of which 70% belong to food categories.

Consumer product companies have for several years faced such competition from their channel partners, when modern trade stores began selling household products under private labels. Delivery platforms like Amazon sell products under their own labels along with selling branded products. Pharmacy chains sell medicine brands of pharma companies, while also retailing some generic medicines under their own private labels. With private labels being 25-40% cheaper than branded products, they tend to gain popularity among consumers during inflationary times. While the branded players spend on marketing and build the category, the private labels ride on this investment with discounted products.

For the price-sensitive, brand-agnostic Indian consumers, private labels hold appeal since they come at a lower cost. They could even be sourced and manufactured from the similar value chain as the branded product.

Besides, private labels are expanding beyond the mass-market categories into high-margin premium categories like organic food, skin care, and gourmet food. They are also making inroads into Tier II and III markets. With modern trade and quick commerce becoming the fastest growing channels for consumer companies, private labels pose a clear risk to their business going ahead.

As companies become omni-channel in their distribution, they have to ensure that they don’t veer much towards any particular channel.