Private labels pose increasing threat

According to a new consumer insight report published by Datamonitor titled “The Impact of Private Labels on FMCG Companies in India”, private labels are increasingly posing a threat for FMCG companies in India.

This report, based on a consumer survey, reveals that while the adoption of private labels began with its value proposition, consumers perceive 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”, explains Vaibhav Khera, Director, India Consumer Markets Research at Datamonitor.

Indian retailers are laying 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, 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 and are offering these products at a lower price. Retailers are also launching products with tiered pricing to cater to a wider set of audience while holding on to their store positioning.

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 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.

To highlight this threat, Datamonitor has analysed several product categories on the basis of their private label penetration and attractiveness where attractiveness is defined with respect to category involvement, brand loyalty, and price sensitivity, and through this Datamonitor has highlighted the product categories which are current and potential threat to FMCG companies in the near future.

The report analyses survey results and insights on consumer shopping behaviour and preferences while making purchase decisions. It also reveals the strategies which FMCG companies can adopt to avoid competition from private labels and highlights the consumer dynamics which will be relevant for FMCG companies in framing their product strategy.

Though private labels are increasingly gaining a strong foothold in the organized retail segment, FMCG companies can avoid this competition by investing in innovation and product differentiation. Vaibhav believes that “FMCG companies should play on their strengths and monetize opportunities emerging due changing consumer behaviour.”

Source: Datamonitor

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