Private labels to continue growing in retail sector: KPMG

Private labels constitute around 10-12 per cent of the organised retail product market in India and their share is likely to grow even in the current economic environment, says a report by global consultancy firm KPMG.

Private labels are brands that are not owned by a manufacturer or producer but by a retailer or supplier who gets its goods made by a contract manufacturer under its own label.

In a report titled 'Indian Retail: Time to Change Lanes', KPMG said India is witnessing an increasing presence of private labels in various segments and retail players are adopting such brands to address consumer needs and increase profitability.

"In India there is an increasing trend towards acceptance of private label brands and thus their penetration is on the rise especially in the apparel, consumer durables, home care and FMCG segments.

"Overall, in India private labels constitute 10-12 per cent of the organised retail product mix," it said.

The growth of private labels is likely to continue in the current financial environment as "cash-strapped consumers' perception of the products as a 'cheaper option' changes," the report added.

"Part of private label growth in a recession is permanently sustainable," KPMG said.

Among the major Indian players, the degree of private label penetration was the highest in Trent with 90 per cent, followed by Reliance Retail (80 per cent), Pantaloon (75 per cent), Nilgiri's (38 per cent), Indiabulls/Piramyd (30 per cent) and Foodworld (22 per cent).

In comparison, international retailers like the US-based Wal-Mart and Tesco of the UK have 40 per cent and 55 per cent own label brands representation in their stores, respectively, the report added.

Among the reasons for the likely growth of private labels, KPMG cited higher margins, cheaper price and better bargaining power for the retailers.

"In the long run, the retailer can use the private labels to attract customers to his outlet. Thus, many retailers are considering increasing their private label offerings significantly," the report said.

Citing retail players like Shoppers Stop, Tata Trent, Pantaloon, Reliance, Spencer's, and Vishal Retail, the report said that in India the predominant trend of third party sourcing due to increase in categories for private labeling and volumes.