Modern retail: In India, where the share of organised retail is minuscule, manufacture brands still dominate

Anybody who's taken note of Wal-Mart's phenomenal growth in the US is aware that the balance of power in the marketplace is shifting in favour of the retailer. As if that weren't bad enough for the marketers, there's another growing phenomenon that threatens to further weaken their hold on shop shelves. And this is the growing popularity of private label brands, which are essentially the retailer's own brands. According to a recent ACNielsen retail audit of private label across 38 countries and 80 product categories, in more than two-thirds of the countries surveyed, private label grew faster than manufacturer brands. While the consumers in developed markets like Europe and North America are already big believers in private label, the next round of converts will come from emerging markets. One reason why private label products are growing in popularity: On an average, they cost a third less than comparable marketer brands. But if you thought that private label would be popular only with lower income households, you'd be only partly right. Across regions (think Europe, North America, Asia Pacific and Latin America) there isn't any significant difference between what a high- or a medium-income household spends on private label and what a low-income household does.

Shopping@Lifestyle: Private labels are popular in apparel

What determines the penetration of private label in a market? The answer shouldn't come as a surprise. It has to do with retail concentration; that is, the more the number of retailers, the larger the number of retail brands. Which is why the ACNielsen survey should be of particular significance to both marketers and retailers in India. At present, modern, or organised, retail accounts for a bare 3 per cent of the overall market in India. But there's no doubt that its share, at least in the urban markets, is growing. According to some estimates, organised retail already has a 7 per cent share in urban India. More retailers will inevitably mean greater private label-an issue that manufacturers have not had to face in India so far. After all, how many kirana stores have the savvy, forget the wherewithal, to come up with their own brand of, say, jam, toothpaste or body lotion?

Until now, few retailers or manufacturers had any idea about what consumers in India think about private label. Thanks to a parallel, online survey by acnielsen of 21,261 consumers in 38 countries, including India, we now know exactly what they feel about own-store brands. A good 56 per cent of them consider private label to be a good alternative to manufacturer brands. Yet, if that figure is lower than the global average of 68 per cent, it is because it points to the differences between the Indian retail environment and the ones abroad. There are three key lessons that emerge from the survey. Let's take a look at them one by one:

Lesson #1: Not All Private Labels are made Equal

In other words, for Indian consumers, the category matters. When asked if they thought there were some products where quality really mattered and hence not suitable for private label, a staggering 80 per cent of them said yes. In contrast, the global average was just 40 per cent. Even in highly retailer brand-friendly markets in the Pacific, two in five consumers agreed that there were certain products not suitable for private label. Only in North America did nearly one-half of consumers (48 per cent) disagree. The point: In less developed markets like India, consumers may be happy with the quality of private label when it comes to kitchen towels and staples like wheat flour, but are wary when it comes to buying a store version of, say, baby food or shampoo.

Lesson #2: Pay Attention to Packaging

The ACNielsen survey indicates that the visual cues and positioning provided by packaging are clearly deficient in private labels sold in Indian modern retail stores. A whopping 70 per cent of the consumers polled cited poor packaging as a reason for not buying a private label product. Therefore, retailers who are serious about their own brands will do well to pull their packaging up by the bootstraps.

Lesson #3: Invest in Building Brand and Awareness

India's modern trade shoppers (67 per cent of them) also consider private labels to be 'budget brands' and claim (a higher 70 per cent) that not knowing enough about these brands will most likely prevent them from purchasing those brands. This is in contrast to the global average of 42 per cent. That is, fewer people disagree that private labels were worse packaged. More worryingly for the retailers, more than two-thirds of consumers in India (along with other developing markets like Taiwan, Malaysia and Indonesia) believe that private label was for those who couldn't afford the 'best' brands.

Manufacturers would be wise not to get smug about the survey findings. The writing is on the wall: Sooner rather than later, as retail chains spread their wings across India, building critical mass in volumes, they will want to step up their private label business. Already, at big retailers like Pantaloon, a good 15 per cent of grocery sales (under the Food Bazaar umbrella) comes from own-store brands, while in the case of Big Bazaar apparel, it's 40 per cent. At Shoppers' Stop, the share of private label is 18 per cent and could go up to 25 per cent by 2010. And remember, these guys have just got started.