As retail strategy consultants, we advise firms on how to enter the Indian market. Most of our clients either have innovative products or run large manufacturing facilities catering to the wholesale industry . Our firm provides them with brand strategy, marketing collateral for launch and sale estimates based on interaction with potential retail partners. Plus in some cases, we also help open doors and get brand placement by providing outsourced sales services.
Recently I noticed interesting phenomena – especially for goods classified as FMCG (Fast Moving Consumer Goods). While meeting Modern Trade buyers, to evaluate the potential demand for a new brand, the conversation moves quickly to supplies for in-house private label brands. This information, when relayed to our clients, leads to an interesting conversation.
Should the client launch a new brand with its attendant high costs or opt for becoming a supplier for private labels?
The lure of the Private Label :
Our clients are either innovators or are established manufacturers in their respective categories. Hence they can easily become a preferred supplier for an in-house private label. This retail entry route is attractive as it will immediately provide the client with the necessary revenue to build a sales and logistics team (for their own brand) and indirectly gain an understanding of the B2C market. As retail consultants, working on an unbiased business plan, we always explore this opportunity to use existing facilities for higher returns and fund the growth of a fledgling brand.
Private Label vs. New Brands :
There are reams of research published on the changing roles of brands in a modern trade scenario. As consumers shift from general trade to modern formats and e-business options, the role of the private label increases. Hence while determining demand for a new brand – we never under estimate the role of the in-house hero.
That said, all of us know the value of a brand. A strong brand commands shelf space, receives the loyalty of the consumer and holds its own in a sea of private labels. It is also easier to sell to Supermarkets and achieve scale in the longer run. Of course, all this comes at a cost, but the reward of a well build brand is evident to all. Specially in today’s world of start up success.
Weighing the Pros and Cons :
In our discussions, we evaluate multiple options of building the client’s revenue from ‘stable sources’ and one of them is private label. At the same time, we also urge our client to remain committed to building a strong, consumer facing brand that will pay them huge dividends in the long run. This is specially true in the case of a product innovation or a differentiated offering – where the potential to create a differentiated brand is high.
So while private-label becomes the preferred choice of a certain group consumers – well defined brands can still command a premium in the competitive context.
Hence it’s evident both brands and private labels will coexist and it is up to the entrepreneur to decide which path to walk.
The Entrepreneur’s Perspective:
Interestingly, in several of our retail strategy engagements, our client’s are emphatic about building a brand of their own. They agree that private label supplies (in undeveloped categories) are a potential, low cost growth avenue with faster paybacks. However they are not a guarantee for future business. Eventually there will be a hungrier, more cost effective supplier. And most of our client’s don’t want to go down that path.
An increasing number of entrepreneurs are optimistic about the future. They believe a branded offering meets certain emotional and functional needs of the consumer. By creating a focused, differentiated and relevant brand – they can create value for themselves and the consumer, over a longer period of time. They are ready to walk along the retail path – inspite of it being cost intensive with longer gestation periods.
Managing brand and private label dynamics in modern trade is a balancing act. A rising number of entrepreneurs are committed to building world class brands for the future.
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