Online platforms turn to private labels to boost profit

Until a few years ago, large supermarkets such as Big Bazaar, Reliance, and Croma had private label in their kitty. But now, online platforms too, have also jumped into the space and are expanding their business shelves through in-house products.

In the last two years, this trend has picked up pace. Both e-commerce platforms, Flipkart and Amazon are selling a slew of products under their own labels at prices lower than the regular brands. Infact, online supermarket platforms such as Grofers and BigBasket are aggressively building their portfolio of in-house brands. Having in-house products has become a key strategy online players use to boost their profit margin.

Private label brands also have an enormous presence in the consumer electronic chain, most of the consumer electronics companies in India sells under its own private label. Like, Amazon Basics Ac’s,Vijay Sales Vise, Reliance’s Reconnect and Croma.

Last year, Grofers decided to start its own private label in the FMCG segment, as part of an expansion strategy. The company launched private label brands under two categories — budget and the premium G-brands. Budget category includes ‘HaveMore and SaveMore' to cater to price sensitive consumers, whereas G-brands offers premium quality products under ‘G Mother’s Choice, ‘G Happy Day and ‘G Happy Home’.

According to Saurabh Kumar, founder, Grofers, “We're building a supply chain that allows us to get products from manufactures to consumers in a cheaper way, by removing in-between channels. Earlier, we only had branded products because at that point of time, we didn't have the capability to have private label products. But as the business has grown, we are building a supply-chain for grocery, which allows us to pass on savings to consumers.”

He goes on to add, “We are seeing a shift, where consumers are betting on in-house products. For us creating a spectrum of choice around branded and private label products is important from the customer's side, but private label helps the business.”

“Private label products work on two major components, 'Quality and trust'. 35-40 per cent of revenue comes from private label products. We're looking for this to grow between 50-60 per cent, we will continue to invest and expand the segment,” Kumar shares.

BigBasket also runs its own private label for fresh food under the brand name ‘Fresho’. It has a large portfolio of private label products across staples and home ingredients.

Until now, online grocers acted as a middlemen between the brands and consumers. But now, there’s no denying that FMCG companies will feel the heat because online grocers will eat into their market share. So, would it be fair to say that partners will become rivals in the coming times?

According to Sita Lakshmi Narayan Swamy, brand and consumer expert, (former Rediffusion Y&R, UTV Media, Zee, JWT), “It is a natural progression for e-commerce platforms to start e-tailing their private label brands. They will continue to partner with other company brands because they are aware that the consumer wants to have a wide array of brands to choose from. However, they will always become rivals from a consumer choice standpoint, since finally the consumer will pick only one brand in a category, despite the plethora of branded offerings and price points.”

She also defines, “Consumers who value a certain brand over the other in a given category, would definitely be willing to pay a premium for it. While those who want to economise, or believe that a certain category is commoditised may opt for a lower priced alternative.”

“Market place e-commerce platforms have the capability to build brands through their platforms because of high traffic volumes. This is due to the availability of multiple brands at attractive price points. Their own brands have the potential to give stiff competition to other products simply because of the backing of the platform. However, there are complaints from Indian retailers and traders terming this as unfair”, says, Aman Abbas, co-founder, Commwiser Consultants.

Do major FMCG companies need to worry because of this new development in the online space and what could the possible repercussions be?

“I don't think major FMCG companies need to worry, I certainly believe that the current scenario puts tremendous pressure on them. They cannot afford to be absent on e-commerce sites, simply because of the massive volume of sales happening online, especially among the youth. On the other hand, they would need to ensure that they are continually innovative, invest in building genuine brand equity and consistent brand value, in order to justify their price premium and to stay ahead in the race for consumer preference,” Swamy defines.

Abbas explains, “Bandwidth offered by online platforms is limitless, but they lack speedy delivery. FMCG is a sector where consumers tend to go for easy and fast availability and there is a very low scope for price difference. Now, even though planned purchases are done online, offline retail is still the first choice because of proximity and timeliness.”

Kumar too, agrees, “We're giving a stiff competition but I believe everyone is going to adapt here. FMCG companies will continue to innovate and make their product accessible to customers. At the end of the day it's all about value.”

“FMCG companies will not let go any of their distribution channels, they will continue to fight for their market share on all channels,” he concludes.