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Online grocery players BigBasket and Grofers are betting big on private label brands as it has become one of the largest source of revenue for these companies. BigBasket and Grofers currently witness 40 percent and 35 percent of their overall revenues coming from their own brands respectively.
While BigBasket has been seeing around 2 percent increase in revenue from the private brands every year, Grofers is aiming to increase the revenue share from private labels to 60 percent by the end of this year.
"Private labels or as we call them ‘G-Brands’ at Grofers, contributed to almost 35 percent of our revenue last year. At present, almost half of our sales are from our own brands' offerings and we plan to take this number to 60 percent by the end of this year," said Saurabh Kumar, founder of Grofers.
The e-retailer is also looking to aggressively increase the offerings and assortments of their private brands.
"There are over 800 products spread across various categories such as staples and kitchen ingredients, FMCG products, personal hygiene products like soaps, shower gels, face wash, hand wash, hand sanitizer, etc, personal care products like moisturiser and deodorants, home needs like cleaning products and furnishing items, food products and snack items, baby products and a lot more under these 8 brands. We plan to increase it to 1200 products by the end of 2020," said Kumar.
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The demand for private label brands is on a rise as consumers are seeing the value of getting the same quality product as a national brand at least 40-50 percent lesser cost, feels Kumar.
Out of 600 categories that BigBasket has on its platform, the company has private label brands in around 150 categories, according to Seshu Kumar Tirumala, national head, buying and merchandising at BigBasket.
"Every month we launch private brands in around 6-7 categories. We keep exploring when and which category we need to launch private brands. There is still a huge gap and we need to address it," said Tirumala.
Tirumala also said around 90 percent of the agricultural commodity like rice and dal available at BigBasket is their own private brand while 100 percent of the fresh produce like fruits, vegetables, and meats are private labels.
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According to Pinakiranjan Mishra, Partner and National leader, Consumer Products and Retail at EY, private brands are a good strategy for online and offline retailers provided they offer value to consumers beyond just price. This means that they should have equivalent quality, new product introductions, etc, he said.
"However retailers often underestimate the cost of private brand development," Mishra noted further.
According to industry experts, while private label brands help in building the stickiness to the customers, it also gives the retailer control over the quality and supply chain of the product apart from ensuring better gross margins.
"Private labels can fulfill one or more objectives. They have the potential to deliver better gross margins, a critical element in the thin-margin grocery business. Retailers can address specific need gaps for their customers that are not addressed by established brands. Thirdly, retailers can pitch private label at opening price points in a category, to entice consumers.
Private labels are usually, but not always, cheaper than comparable products from established brands," said Devangshu Dutta, chief executive of a retail consultancy firm, Third Eyesight.
In the offline grocery space, one in every five products sold at the country’s biggest hypermarket chain Big Bazaar is owned by Future Consumer, a sister concern of the Kishore Biyani led Future Group.
"While we have challenged companies, especially MNCs, the customer decides to buy products or brands at our stores eventually,” Biyani, founder of Future Group told ET earlier. “There was a void in several categories since FMCG companies were not strong or didn’t invest in building them. FCL brands have filled that gap, and our aim is to have 70% share at our stores by 2022,” he had told ET.
ET had earlier this month reported that fashion e-commerce player Voonik has decided to move to fully private label business after struggling to survive independently and scaling down and downsizing staff significantly.
“We always had the plan to increase our private labels, we are now expediting it,” said Sujayath Ali, co-founder of Voonik to ET earlier. He said the company would move to a completely private label-led business in the next 3-6 months.