Private Labels Flood Retail As Shoppers Prioritise Spending Amid Soaring Prices

Shoppers hit by soaring inflation are choosing private labels over branded products, prompting retailers to introduce their own brands across online fashion, food, and beauty space, especially in the aftermath of the pandemic.

The concept isn’t new with multi-brand retailers from Reliance Retail to DMart to Shoppers Stop Ltd., V-Mart Retail Ltd. and Nykaa investing in the category for the last several years as it offers better margins than regular brands.

The strategy of having own brands has also helped instant grocery delivery apps such as BigBasket and Swiggy grow sales and market share. Swiggy started selling private label brand 'Supreme Harvest' on Instamart in July, while 'Fresho' and 'BB Royal' are the private labels of BigBasket.

Venu Nair, managing director and chief executive officer at Shoppers Stop, in a recent earnings call, said that its private brands clocked the highest sales ever in the April-June quarter of the ongoing fiscal.

“Our private brands grew by 29% and our share of private brands within apparels has now grown to 21%,” Nair said. Within beauty, its private brand sales were impacted because of supply chain disruption yet its labels like ‘Arcelia’ grew eight times during the quarter. “We have seen good sales coming in from a number of new brands that we have introduced,” Nair said.

Arcelia currently covers bath, body, fragrances, and deodorants and will soon have products for the face and lips, according to the company. The average selling price for its private brands increased by 50% during the quarter. Currently, Shoppers Stop's private labels account for 15% of the total sales.

The private label strategy is also important for billionaire Mukesh Ambani's Reliance Retail. It has widened its portfolio of private brands with the introduction of 14 new ‘own’ brands across staples, fashion, home and personal care as well as in general merchandise, according to Gaurav Jain, head—strategy and business development at Reliance Retail. This has increased its own brand’s contribution to 30% of total sales, an increase of 300 basis points over last year, Jain said, addressing post-earnings conference call.

Its own fashion brands, the company said in its yearly report, generated an annual turnover of $100 million. Share of Reliance Retail’s 'own' brands in hand wash and hygiene category stood at 15% in FY22. Its own brand business grew six times year-on-year in the quarter ended June, Jain said.

Households are abandoning branded food products in favor of stores' own versions, while also trading down to cheaper "unbranded" versions, according to a Kantar World Panel study. That comes as consumer goods giants like Nestle India Ltd., Hindustan Unilever Ltd., among others, have been passing on the steep cost rises in commodities and transport to customers.

Unbranded edible oil, for instance, has seen a 7% volume growth as against a 2% degrowth for branded products, said Kantar, while unbranded bathroom cleaners, floor cleaners, butter and cheese have seen a volume growth of 13%, 16% and 10%, respectively, as against a degrowth in their branded counterparts. Unbranded spices, too, grew 8% as against 3% growth in branded.

V-Mart Retail, which is predominantly present in smaller towns and cities, also uses private labels as its key business strategies to drive volumes. It has nine key private brands contributing 54% of its apparel sales in FY22, up from 52% a year ago, according to the company’s latest annual report.

Crisil Ltd. estimates operating margin of apparel retailers to improve 175-200 basis points year-on-year to 7.75-8.0% in the current fiscal aided by greater share of private label even as higher input costs keeps margins below pre-Covid levels.

Covid-19 helped the private label business relatively better than the overall franchise, according to Neville Noronha, managing director and chief executive officer at Avenue Supermarts, which operates the D-Mart retail chain. The company, however, focusses its private labels only on fast-moving consumer goods because “that is where the cost arbitrage is available”.

Noronha, however, doesn’t see private brands having an edge in the apparel or general merchandise categories as the company focus is on low-priced products. Sales of Align Retail Trades, which makes DMart's own grocery brands, rose 22.4% to Rs 1,587 crore in FY22, its annual report showed.

Online beauty and fashion retailer Nykaa has also been expanding its own brands. It added four fashion brands to its portfolio taking the total count to 11 as it expects its own brands to "contribute a larger percentage of the overall business quarter-on-quarter." Its owned brands share stood at 7.8% of fashion gross merchandise value in FY22, according to its annual report.

In the beauty and personal care space, it owns brands such as ‘Nykaa Cosmetics’ and ‘Nykaa Naturals'. After having established a wide customer acceptance on and off platform in the country, the company now plans to take its private labels abroad.

"We are taking baby steps into international business," said its founder and chief executive officer, Falguni Nayar, in an earnings call. "We have done some listing in the Middle East and there are plans for more because we see it as an attractive market for our private labels.”

“We also want to take our hair, bath and body ranges into the US through Amazon," she said.

Nykaa's own brands in beauty and personal care space contributed 11.2% to gross merchandise value in FY22, the company said.