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Private labels
Here are the key PESTEL factors affecting More Private Labels: Political: FDI policy changes, land acquisition policies, local politics Economic: Inflation, economic growth, financial institution support, free market competition, infrastructure quality Social: Changing demographics, lifestyle changes, social media influence Technological: E-commerce growth, supply chain technologies, automation Environmental: Resource scarcity, waste management regulations Legal: Taxation policies, labor laws, product safety laws This highlights both opportunities and threats across political, economic, social, technological, environmental and legal external factors. Careful monitoring of these macro trends is important for More's private label strategy.
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Private labels
- 1. PRIVATE LABELS: NEW SUCCESSMANTRA FOR RETAILERS? By Group 9: Prity Jha Vikas Marwaha Arpit Mohanty Kaustaba KV Sumit Kumar Mohit Pandey 1 Akash Tyagi
- 2. WHAT ARE PRIVATELABELS? Products that are typically manufactured or provided by one company for offer under another company's brand. Products like tasty treat, koryo, john miller all are classified as private labels. Not manufactured by large scale manufacturers 2
- 3. RISE OF PRIVATELABELS 19th Century- 20th Century-Large Brand Creation by Inconsistent quality Scale Manufacturers the usage of mass products produced by replaced small scale communication tools local farmers farmers like TV, Radio. Present- Focus of Retailers on Private 21st Century- Labels has Retailers dominate 1970's-Retailers increased. Top the manufacturers. began to develop Retailers like Wal- Top 5 retailers are 2- national and Mart earns about 40 3 times by sales of international chains % of their sales from top 5 manufacturers private labels 3
- 4. FOCUS OF WORLD’SMAJOR RETAILERS ON PRIVATE LABELS 50 Major part of the sales of the top 40 40 retailers in the world comes 30 25 25 from private 20 17 labels 10 0 Wal-Mart Kroger Safeway SuperValu 4
- 5. APPROACH OF INDIA’SMAJOR RETAILERS TOWARDS PRIVATE LABELS Depth of Private Labels by Retailers Ebony 10% Spencers 10% Subhiksha 19% Shopper's Stop 20% Foodworld 22% Indiabulls/Pyramid 30% Nilgiri's 38% Pantaloon 75% Reliance 80% Trent 90% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % Share in Private SOURCE: Image Retail Report 2009 quoted in KFMG's Indian Retail: Time to Change Laces Report 5
- 6. WHY ARE COMPANIESGOING FOR PRIVATE LABELS? Different - iation Freedom to Lower Price create their but higher own margins marketing plan Benefits of Private Labels Freedom Strong with pricing Customer strategy Positioning Safeguard against economic downturns 6
- 7. 1. DIFFERENTIATION Develops exclusivity and Creates Trade mark Creates the store brand And better sales opportunities Increases the overall profitability 7
- 8. 2. HIGHER MARGINS Eliminates Increased the middle Supply man Chain Efficiencies Reduces cost of delivery Higher Margins 8
- 9. 3. FREEDOM TOCREATE OWN MARKETING PLAN Independence to the retailer to use its own innovative marketing strategies For National Brands, Poor marketing strategy by the manufacturer not only result in the failure of product but also erodes the profit margin of the retailer. For Private Labels can use its own marketing strategy and budgets 9
- 10. 4. FREEDOM WITHPRICING STRATEGY Similar to the marketing strategy, private labels also gives the retailers a chance to adopt their own pricing strategy. Shields retailer from the losses due longer shelf life of poorly priced products. Retailers can directly pass on the price benefits to the customers 10
- 11. 5. STRONG CUSTOMERPOSITIONING Helps in developing the customer loyalty. Since private labels are unique to one retail chain, there is the possibility for retailers to cultivate a sense of brand loyalty. By nurturing customer loyalty, retailers can have significant advantage over its competitors. 11
- 12. 6.SAFEGUARD AGAINST ECONOMICDOWNTURNS Act as a shield Private label sales growth (%) against the Emerging Markets 17 economic downturn and global North America 7 recession. Latin America 5 Asia Pacific 5 Higher Margins at lower price, offered Europe 4 by private labels World 5 helps retailer in maintaining the Source: Images Retail Report 2009 healthy sales during recession. 12
- 13. Needs Wants Demands 13
- 14. NEEDS >> WANTS>> DEMANDS Historically, private labels have not been too keen on innovation. Have mostly been trying to imitate national brand competitors rather than looking at consumer needs directly The only differentiating factor would be to sell the goods at a lower price The branded labels would then be forced to reduce their own price to survive the competition, thereby erasing the margins for themselves and for private labels alike 14
- 15. PRIVATE LABELS &INNOVATIONS It is more important for private labels to innovate and customize to stay in the market and retain margins Imperative to find out the customers needs and then create wants and desires based on those needs An advantage - Retailers know their customer base better than branded companies and can develop products that fit their unique customer attributes. Can have customized products for a small base of consumers. Big brands would have to cater to a larger and a more diverse population 15
- 16. HOW DO PRIVATELABELS BRING OUT LATENT NEEDS? Looking for gaps in the market that branded players cannot fill "Tesco Finest". Tesco Finest introduced the idea of ready meals and chilled foods Difficult for branded players to prepare and distribute Exceeding the effectiveness of similar products from big brands Certainly less risky to duplicate a successful product But if the products have a definitive differentiating factor that the original lacks, will work in their favour More and more US retails introducing products that are USDA- certified, „green‟ and support health and wellness. 16
- 17. HOW DO PRIVATELABELS BRING OUT LATENT NEEDS? (CONTD…) Targeting wants that ideally become needs needs are more or less rational i.e. no emotions are involved wants are very emotional, and products and services addressing emotions will be more successful. Ethnic Merchandizing - depending on the demographics of a store location bringing non regional products into right ethnic catchments Subhiksha retails south Indian pickles in RK Puram at Delhi. 17
- 18. NEEDS Not onlybeneficial for retailers but are equally beneficial for the customers. Needs are basic human requirements. Products like wheat, rice, sugar etc. Private label products of same quality are available at lower prices. Example: Big Bazaar sells 5 kg sugar under the brand name of Renuka, which is around 15-20 % cheaper than other 5 kg packs available in the shop. 18
- 19. WANTS Needs directed to specific objects/services that might satisfy the need. Segments like Microwave ovens, TVs Big Bazaar has developed Koryo brand for catering the demand of the customers in the category Microwave ovens and television. 19
- 20. DEMANDS When a private label becomes highly successful, it grows from private label to private brand. The superior quality at lower price creates demand for the product. Example John Miller from Pantaloon 20
- 21. VARIOUS PRIVATE LABELSOF BIG BAZAAR Product Brand Name Need / Want / Desire Sugar 5kg Renuka Ghee 2kg Fresh n Pure Need Detergent Clean Mate Microwave-Ovens, TVs Koryo Wants Apparel John Miller Demand 21
- 22. JOHN MILLER –AN ILLUSTRATION OF SUCCESS Facts about John Miller Decade old brand which came into existence in 1995 as an extension of the Pantaloon Targeted at the premium segment customer Priced at a range of Rs 300- 600 Over the years, John Miller has grown from a private label to a private brand 22
- 23. KEYS TO THESUCCESS OF JOHN MILLER Was one of the very first private label apparel product that came into existence in India. The brand provides higher quality at lower price. Tough competitor for brands like Peter England. Price range of John miller shirts are in the range of Rs 300-600, significantly lower than branded shirts like peter England. Attractive option for value buyers. 23
- 24. MATURITY OF JOHNMILLER Maturity Phase- Presently, John Miller is in maturity phase. The quality Second Phase- This is of prime was more like a importance. It has transition phase, grown as a Private where the focus brand from Private slowly got shifted on Label. product quality along Initial Phase- with product price. During this nascent stage, the focus was more on price rather than quality 24
- 25. More – PrivateLabels SWOT ANALYSIS 25
- 26. STRENGTHS • High LocalReputation: MORE FOR YOU…the private label received the “Most Admired Private Label” Golden Spoon Award at Food Forum India. • Joint business plans: With other fmcg companies and farmers as well • Membership offers: ClubMore for memebers • High Capital Reserves: Has a huge capital reserve because of the $28 billion Aditya Birla Group. 26
- 27. STRENGTHS CONTD.. • High Variety of Products: High Promises to be a one stop solution for everyday needs with an assortment of over 4000 products. • Growing Private Labels: Private labels contribute to around 18% of the whole stock as compared to the 5% industry norm. This provides greater margin to the company and lower prices to the customers. • Country wide presence: More than 600 supermarkets all over India. 27
- 28. STRENGTHS CONTD.. • DeliveryServices: The megastore offers free home delivery, variable mode of payment and discounts. • Strategic Locations: Strategically located in cities to increase footfall. • Intelligent Promotional Offers: Promotional offers on private labels shown near the entrance, thus tempting the buyer to purchase a private label as compared to another brand. 28
- 29. WEAKNESSES • Substandard Quality:Some of the items sold under Feast label were found to lack in quality. Secondly they were even found to be of inferior quality, especially for the price they were sold at. • Lack of Variety: In terms of either the product itself or the flavours of the product. Most of the products only seemed to be an imitation of the big players in the market. (Feedback had been collected from people who used Feast's Corn Flakes and Chatpata which is a competitor to Kurkure) 29
- 30. WEAKNESSES CONTD.. • HighPrice: Feasters, the private label owned by more, sells most of it's goods at a higher price, or in some rare cases at par, compared to the market leaders. • Examples: A one litre bottle of Feasts Mango drink is sold at Rs 45 whereas Frooti offers 1.2liters at Rs 50 500 grams of Feast's tea powder cost Rs 160, whereas the same quantity is sold by Tata Tea for Rs 144 30
- 31. WEAKNESSES CONTD.. • Packaging:More had very little option for customer testing unlike Big baazar, and every product was sealed and packed in fixed quantities (mostly 1kg and 500 grams packs). The only exception to this was rice which was available for closer inspection from the customers. • Limited Geographical Presence - eg. in entire UP, More is present only in Noida and Ghaziabad that is NCR 31
- 32. OPPORTUNITIES • Huge growthopportunity: As the current market share of the organized sector in retail is about 4% thus there is a huge opportunity available. The organized retail sector is expected to grow stronger than GDP growth in the next five years. • Growth in Tier 1-2 cities: Targeting Tier 1-2 cities to increase market penetration. • Global expansion: Presence of ABL in 125 countries gives it an opportunity to setup stores abroad. 32
- 33. OPPORTUNITIES CONTD.. • GrowingMarket: The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, increase in income and favourable demographic outline. • FDI: Government approval of FDI in retail sector will give it a huge boost. • Rural Retailing: Rural retailing holds a lot of future potential. 33
- 34. THREATS • Intense LocalCompetition: Competitions from other retail giants like Big Bazaar, Reliance Fresh, Trent, etc. • High Inflation: Inflation has been on a high for a long time affecting operating costs and margins. • High Resistance from Unorganized Sectors: The unorganized sector has dominance over the organized sector in India because of low investment needs and nostalgia factor. 34
- 35. THREATS CONTD.. • ComplexSupply Chain Management: Supply chain for perishables, the system is too complex. Government regulations, lack of adequate infrastructure and inadequate investment are the possible bottlenecks for retail companies. • Complex Taxing System: Differential Tax Rates for different states makes operations difficult to manage. • Employees: Labour rules and regulation are also not followed in the organized retails. The sector is unable to employ retail staff on contract basis. • High Zonal restrictions: Lack of lands and zonal restrictions makes it difficult to find good properties. 35
- 36. More – PrivateLabels PESTEL ANALYSIS 36
- 37. POLITICAL FACTORS FDIPolicy: Opposition to Foreign Direct Investment from small traders affects retail industry. Land Allocation policies: Land and property acquisition and Land-Use conversion is time consuming and complex. Local politics: Local politics plays a big role in setting up ventures. 37
- 38. ECONOMIC FACTORS Inflation: Due to inflation the cost of production increases rapidly due increase in cost of required raw materials, labor etc, thereby increasing cost of commodity and decreasing its demand. Economic Growth: With a rise in GDP, the purchasing power a country‟s people increases and they tend to demand more of premium products. Effectiveness of financial institutions: In India, the retail sector has not yet gained the „industry status‟ which makes it difficult for retailers to acquire funds from financial institutions. Efficiency of free market: In India the retail sector is open to all, hence it is fiercely competitive. Retailers like MORE find it difficult to capture and maintain a profitable market share. Quality of infrastructure: There is a lack of proper infrastructure like roads, electricity, cold chains, distribution ports and commercial property most retailers have to confine their operations mainly to the urban and metro areas. 38
- 39. SOCIO-CULTURAL FACTORS Young Consumer: Young India is exposed to early money making capabilities and better living standards. Availability of Easy Credit: Presence of credit cards and debit card has increased the appetite for buying. Awareness level: Rise of social media and other mass communication tools has played to the benefits of both buyers and sellers. Aspiration: Changing aspiration value of the customers provides an opportunity in front of the retailers to catch the opportunity. Conversion from net saver to net spenders Unemployment: High level of unemployment adversely affects the industry. Increase in no. of working women: Because of increase in the work force of women, the families are looking for convenience. 39
- 40. TECHNOLOGICAL FACTORS Supply Chain Management: It has made possible high participation of the manufacturer and retailer in the market flow of commodities. Inventory Management: Advanced planning and scheduling and inventory management has been incorporated in large retail houses to bring down inventory expenses. Demand Forecasting: Demand forecasting, merchandising and seasonality management tools which if effectively used can change fortunes. Data Mining: Understanding of market demand patterns and consumer buying behavior to arm themselves with the best offerings. Customer Support Activities: Better customer support and grievance addressing has been possible due to advancement of Technology. Going Online: Effective online activities can be used for building customer relations, advertisement & promotion, customer support and brand building. 40
- 41. ENVIRONMENTAL FACTORS Environmentalpolicies: Environmental policies are becoming more stringent than before. Hygienic condition: Proper Hygiene should be maintained across stores. Green Stores: Building Green stores can reduce the operating costs as well as create goodwill. 41
- 42. LEGAL FACTORS CustomDuties: Duties are levied on imported goods. Rigid building laws: Rigid building laws makes procurement of retail space difficult. Pro-tenancy laws: Presence of strong Pro-tenancy laws makes it difficult to evict tenants and this is posing problems. High stamp duties: Very high stamp duties on transfer of property affect the 42
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- 44. SEGMENTATION, TARGETING AND POSITIONINGOF PRIVATE LABELS •Segmentation: On the basis of Demographic, Geographic, Psychograph ic, Behavioral and other factors •Targeting: Target the relevant segment for a particular private label. •Positioning: Devise the positioning strategy to position the private label in the targeted segment. Illustration by MORE‟s Feasters. 44
- 45. SEGMENTATION Factors Geographic City-Tier 1, Tier2, Tier3, Metros Demographic Age, Family size, Income, Occupation, Psychographic Lifestyle Behavioral Loyalty Status 45
- 46. TARGETING Factors Geographic Tier 1, Tier2, Tier3 Demographic Young people in medium income group Psychographic health conscious lifestyle Behavioral low loyalty status 46
- 47. POSITIONING Private labelproduct Target Customers Benefits Value Proposition Point of Parity Point of Difference Differentiation Strategy 47
- 48. POSITIONING STATEMENT: To young working customers in medium income group, who are conscious about their health, “Feasters corn Flakes” is a high quality widely available product at lower price. With Feasters corn Flakes, you can get best quality and healthy breakfast at lower price. 48
- 49. Positioning Diagram forFeasters corn Flakes High Quality Kelloggs Corn Flakes more. Feasters Low Price High Price Mohun’s Feasters Low Quality 49
- 50. A visit tothe supermarket of Aditya Birla Group MORE. hamesha extra RDC Address : Opposite Gurudwara, 10/51, Ground Floor, Sector - 10, Raj Nagar, Ghaziabad - 201002 Tel : 9540055532 50
- 51. A LOOK AT“MORE.” Aditya Birla Group Retail Chains:- Super-market Hyper-market “more.” – supermarket – food items, personal care, home care, merchandise, apparels, staples, bakery, dairy products, drinks, etc. Over 640 more. stores across India In UP – Noida & Ghaziabad only 51
- 52. OWN/PRIVATE LABELS Feaster‟s 110% Kitchen‟s Promise Pestex Best of India Paradise Select Germex Enriche 52
- 53. AUGUST 22, 2011- @ MORE. Mango drink (ready to serve): Frooti (Parle) – Rs. 42/L Feaster‟s Mango – Rs. 45/L Tea Tata Tea – Rs. 144/500g Select Tea – Rs. 160/500g Red Label – Rs. 169/500g Fruit flavored concentrated syrup Rasna – 500g @ Rs. 75 Feaster‟s – 500g @ Rs. 75 53
- 54. AUGUST 22, 2011- @ MORE. Breakfast Cereal – Corn Flakes Kellog‟s– 500g @ Rs. 145 Feaster‟s – 500g @ Rs. 128 Mohun‟s – 500g @ Rs. 70 Snacks & Chips Lay‟s– Rs. 10/28g = Feaster‟s potato chips Kurkure – Rs. 20/125g Chatpata – Rs. 20/120g 54
- 55. AUGUST 22, 2011- @ MORE. Detergent Powder Rin– 1kg @ Rs. 58 110% – 1kg @ Rs. 60 Wheel – 600g @ Rs. 20 Mahasaver – 600g @ Rs. 20 Wheat flour / Maida / Spices Sealed, unlike other stores – no sample testing 55
- 56. Questionnaire >>People >>Data >> Analysis >> Findings SURVEY & ANALYSIS 56
- 57. THE QUESTIONNAIRE Atotal of 13 questions 5 personal-details questions 7 questions on Private Labels Sample Size: 117 Surveying method: Online Form Filling Surveying Period: FirstEntry – 5th Sept‟11 – 22:00hrs Last Entry – 8th Sept‟11 – 23:55hrs 57
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- 65. THE SURVEY ANALYSIS You enter a supermarket (say Big Bazaar or More) and you see Britannia biscuits besides a private label (Feasters) offered at the same price. How likely are you to buy the latter?
- 66. Private Labels SUMMARY ANDCONCLUSION 66
- 67. DISADVANTAGES The disadvantages of private labels are: Highly competitive market. If even a single product doesn‟t live up to the expectations of the customers, then the image and brand value of the retailer as a whole goes down. 67
- 68. DISADVANTAGES CONTD… Risks of getting into a price war, thereby reducing margins even further High inventory cost Excessive focus on private labels inside stores Intellectual property rights can be a issue Excessively dependent on the supplier 68
- 69. PRECAUTIONS They should have large base of loyal customers before launching private labels Strong QA and QC checks are required The main objective should be to provide value for money products and not to target the branded products 69
- 70. PRECAUTIONS CONTD… The retailer must take into proper consideration the price-quality and willingness to pay(PQ&WP) quotient The Indian players can study the business models of Wal-Mart and Sears to understand the nuances 70
- 71. CONCLUSION Private labels are a quite attractive proposition because they create a win-win situation for both the customer and retailer Lower prices and higher margins Quality is comparable to that of national brands 71
- 72. CONCLUSION CONTD… If the customers needs for value-for-money products are met then they can become huge success stories like John Miller The business needs to be handled with extra care and detail from the retailer as the products are directly his liability 72
- 73. CONCLUSION CONTD… The organized retail sector on the whole has a huge growth potential which can be exploited More deep market penetration required Innovative marketing and promotional activities are the need of the hour 73
- 74. We will behappy to answer any queries!! THANK YOU 74