Retailers to use private labels to counter Reckitt's cut

Big retail chains are planning to counter multinational consumer goods giant Reckitt Benckiser's decision to cut sale margins on its products. Their plan is to substitute RB’s products — Lysol, Harpic, Dettol, etc — with their own, termed private labels in industry jargon.

"We have enough private labels in those categories (antiseptic liquids, toilet cleaners). We will increase these if Reckitt does not withdraw the margin cuts,'' said Thomas Varghese, chief executive officer, Aditya Birla Retail, which runs stores under the More brand. "All big retailers have private labels in those categories and can replace these products.''

According to a vendor dealing with the Future Group, the latter’s own brand, Clean Mate, outsells Reckitt's Harpic in group stores. “Most of Reckitt's brands are functional ones and the group can easily replace them. The trick lies in giving more value to customers,” he said.

Last quarter, Future Group relaunched its own hygiene brand Caremate Handwash, along with 18 products in cosmetic and germ fighting variants, categories in which Reckitt operates. In the oral hygiene space, it launched three variants of its Sach toothpaste.

Another top executive of a Delhi-based retail chain added, “We both (FMCG firms included) outsource production. I think we need to ask our vendors to buck up now.”

Retailers' aggressive stance comes after Reckitt wrote to the Future Group, Aditya Birla Retail, Reliance Retail and Bharti Retail, among others, saying it would cut the margins of modern retailers by two per cent to offset the increase in its input costs. In response, Future Group has held back purchases from Reckitt and other chains have planned to do likewise. "We have asked them to give a final decision on margin cuts, otherwise we will delist their products,'' Varghese said.

Though Reckitt's products are generally perceived as very niche, retailers disagree. "Dettol (Rckitt’s antiseptic liquid) is sold mostly in pharmacy stores and its share in modern retail is very small. In that, we have options such as Johnson & Johnson's Salon,'' said a business head of a Mumbai-based retail chain.

He added that other fast moving consumer goods (FMCG) companies such as Hindustan Unilever (HUL) and Godrej would gain if retailers stop buying from Reckitt.

Part of trend
Big retailers such as Future, Reliance Retail, Tata’s Star Bazaar, Aditya Birla’s More and Spencer’s Retail are increasingly taking FMCG companies head on, with forays into new categories, aggressive marketing and brand promotion, to push margins and profits.

Future Group has 300 products under eight of its home brands. Its own brands account for nearly 20-25 per cent of its total business in FMCG. A few days earlier, it launched glycerin-based soaps under the Sach brand and deodorants under the John Miller brand. The group plans to launch several products in personal care and toiletries, the stronghold of companies like HUL and Procter & Gamble.

Tata's Star Bazaar has already introduced many products from its partner Tesco's stable and is planning more such launches. Last year, it said its own brands were 21-37 per cent cheaper than national brands.

However, Arvind Singhal, chairman of retail consultancy, Technopak, says not all retailers can come out with private labels in all categories. “It is not easy. Barring one or two, not all have the scale to do that,” he said.