It's an option that every retail chain shopper must weigh on her monthly trip to the store: Buy, say, the more expensive manufacturer branded jam, or pick up the cheaper, in-store brand (or private label, in retail lingo). Typically, the trade-off boils down to cost versus comfort. While the private label is cheaper, it is also untested and comes without the snob value associated with brands. The manufacturer brand (which we'll simply refer to as brands or branded product for the sake of simplicity) is typically more expensive but carries a huge stamp of approval, besides being an ego massager.

For the retail chain, private label makes a lot of sense. Since most of the private label products are bought directly from the manufacturer, the profit margins on them are higher. In India, they can be as high as double that of the branded product. It is also easier for the retailer to manage the inventory in terms of volumes and segmentation. Finally, private labels allow retailers to create their own band of loyal customers. Says Himanshu Chakrawarty, General Manager (Marketing), Trent, whose Westside chain of stores is heavily (more than 90 per cent) reliant on private labels: "In the private label approach, the customer bonding is also based on the experience of the product, not just the shopping experience." Others like FoodWorld are increasing their count of private labels.

But the trend is hardly India-specific. A global survey by ACNielsen of private labels in 36 countries and 80 different categories shows a steady growth in their value. Between March of 2002 and 2003, private label sales in terms of value rose 4 per cent to $85 billion, and share in sales stood at 15 per cent-a meagre 0.2 per cent growth. Among five regions that the survey covered, Europe continued to have the highest value share of private labels at 22 per cent, but emerging markets (comprising Hungary, South Africa, Czech Republic, and Poland) clocked the fastest growth of 48 per cent, although its value share was just 4 per cent. North America, the biggest market for private label in dollar terms, had 16 per cent value share, but growth was nil. But growth in the other two regions, Latin America and Asia Pacific continued to clip as multinational retailers expanded geographically, building new stores, and introducing their private labels into the marketplace.

Traditional Categories Rule: Looking across product areas, the categories within the paper products, plastic bags and wraps had the highest private label share, with an aggregate value share of 29 per cent for the six categories included in the study. Private label also had a strong share in most of the food categories studied. In fact, of the top 20 private label categories in the study, over two-thirds were food categories. Unlike food and paper products, personal care had fewer private labels with a 4 per cent share. Cosmetics and baby food have the smallest private label shares, but grew year-on-year in the double-digit range.

Gurgaon's Lifestyle (L) and Big Bazaar: While the former focusses on niche customers, the latter's strength is price

Price Differentials Vary: On a global basis, private label products were found to offer the consumer on average a discount of 31 per cent versus its manufacturer counterparts. The price differential range, however, was wide-from 50 per cent in Poland to a more modest 10 per cent in Hong Kong. Even within product areas, there was a wide variation in the level of discount. The personal care and healthcare areas were seen to experience the highest price differentials, with the average price for private label products in the personal care categories at 45 per cent less than their branded rivals. In the health care categories, the price differential was 43 per cent.

The individual category with the largest price differential was pain relief (55 per cent cheaper). Other categories where private label products were priced 50 per cent lower than brands were face moisturisers, after shave, mouthwash, fresheners and deodorisers, and shampoo. At the other end of the spectrum, refrigerated food, frozen food and cosmetics were the product areas with the smallest price differential.

It's About Price, Almost: For most, the concept of private label being a more economical option is widely accepted and historically factual. Retailers have provided their own brands as the low-priced, high-volume alternative for years. Even in India, the hard discounter stores have been particularly strong in offering consumers these types of choices. Take Big Bazaar, for example. Its own brand of tea is 40 per cent cheaper than competitor brands, and accounts for half of its tea sales. Says Kishore Biyani, Managing Director, Pantaloon Retail, which owns the Big Bazaar chain: "We have studied consumers and found that they have loyalty towards price in most products." In the case of global retailers, the strategy seemed to work better where consumers were more focussed on price than quality.

But as the study found, there are exceptions. For example, while home care products in general were lower priced, specific categories such as toilet care and insect control were higher priced than their branded counterparts. One reason, as the survey reveals, is that a different type of private label product has begun to emerge-the premium "branded" private label product.

Some of these quality products may be branded with the retailer's name or even have a brand image all of their own. In India, Shoppers' Stop has three private labels: Stop, Life, and Kashish. Each of the brands has a clear positioning. While Stop is a value-for-money category, Life is a fashion label, and Kashish, a premium ethnic wear brand.

Similarly, Lifestyle has three private labels: Splash, Nexus, and Two Extremes. The first is a womenswear brand, the second, menswear, and the third is a high-end imported line for both men and women. Splash, however, accounts for half of the revenue from womenswear. "Conventional brands have lesser flexibility because they have to cater to various types of customers across the country, but we have only one kind of customer," says Nidhi Jaiswal, Head of womenswear purchases at Lifestyle.

Almost all the big retail chains in India have plans of stepping up their private label business, but few-with perhaps the exception of Westside-want to bank too heavily on it. After all, the most important thing about retail is offering consumers a choice.

THE INDIAN SCENARIO Russell Farmery, MD, ACNielsen South Asia

Private label consumer packaged goods are an emerging segment within the Indian FMCG universe. Our monitoring of the Indian retail environment looks closely at the various upcoming modern trade channels like supermarkets, hypermarkets, department stores, discount stores, convenience stores, pharmacies and grocery chains, to reveal the increasing occurrence of store brands across urban India. Across the top 28 cities in urban India, private labels are present in almost as many as half of all stores classified as modern format stores. While private label packaged consumer goods find a place on the shelves of all Indian hypermarkets, close to 60 per cent of the over 1,400 supermarkets possess store brands. Amongst modern format stores, department and health and pharmacy stores register the lowest penetration of private labels at 14 per cent and 9 per cent respectively. Private Label and Product Area An analysis of private label penetration across the broader product areas of shelf-stable grocery products, shelf-stable packaged food products and household care washing products suggests that private labels have populated grocery shelves in greater abundance. Nearly 45 per cent of modern format stores observe the presence of private labels in the product area of shelf stable grocery items like rice, atta, and pulses with 60 per cent of supermarkets retailing private label grocery items. A fourth of all modern format stores record the presence of private label shelf-stable packaged food products while a relatively lesser proportion (16 per cent) stock private labels in the household washing material product area. The Southward Swing Across cities, private labels differ in their presence within the modern trade across geographies. Since supermarkets comprise over 60 per cent of modern trade formats in urban India, our analysis looks at the penetration of private labels within supermarkets across 28 cities. While northern cities such as Lucknow, Kanpur, and Ludhiana indicate that all supermarkets in these cities stock store brands, supermarkets in southern cities like Coimbatore, Hyderabad, Bangalore, Madurai, and Vizag show a greater presence of store brands on an average. The Presence Of Private Labels Evidently, emerging markets like India have only begun witnessing the emergence of private labels recently. There is no doubt, however, that this phenomenon, though as yet in its embryonic stage, will come to be a significant segment as it has in other developed markets in Europe and North America and compete for the Indian consumer's share of rupee with manufacturer brands. While modern format stores contribute just over 12 per cent of FMCG sales across 28 urban cities, they have witnessed a respectable 25 per cent compounded annual growth rate in the last five years and can only bode well for the future of the private label in India. Deconstructing The Phenomenon Can the private label ever be a public favorite? As the brands are restricted by their parent retailers' geographical progress and the lack of mass advertising it is hard to imagine what brought about their genesis in the first place. After all brands with a limited distribution and little or no traditional above-the-line marketing seem programmed to fail. Au contraire, as ACNielsen Power of Private Label report suggests, with a large chunk of the FMCG sales in developed markets the private label industry has now burgeoned into a $85 billion market. So what brought this about in the first place? With the rapid evolution of modern format stores, retailers began battling the need to differentiate between themselves. Enter the private label. This offered retailers a variety of benefits-primarily that of being able to address various consumer segments by offering products at various points along the price spectrum. Or, for that matter, offering consumers a greater choice in categories with too few manufacturer brands, creating a better value proposition for consumers by granting them lower prices and comparable quality. Of course, negligible marketing costs and lower distribution costs allows the private label to offer value, especially in categories that are more functional and not formulation-led such as paper towels and aluminium foil. Nevertheless, private labels have also, in some instances, been able to create enough of an equity to command a price premium and, may well choose to do so in India as well. Progress and the Private Label Paradox Does this then mean that private labels pose a threat to manufacturer brands themselves? Again, to the contrary. Doing so would be tantamount to 'biting the hand that feeds you'. Retailers depend on manufacturer brands to offer consumers wider choice so that they don't feel they're missing out on anything by coming to a certain retailer. Moreover, the symbiotic retailer-manufacturer relationship means that manufacturers often provide retailers greater visibility in advertising, promotional incentives and drive consumers towards them. Having said that the private label phenomenon is bound to become even bigger in the days to come in rapidly developing economies like India and marketers who understand consumer dynamics within these new retail environments will find themselves better able to ride the wave. The rise of mass retailers and modern formats means a greater proliferation of store brands that will seek to differentiate one retailer from another by actively supporting themselves through brand-building activity and mass advertising. The mushrooming of modern format stores is all set to nudge this eventuality forward.