Shambhavi Anand, The Economic Times
New Delhi, 17 June 2015
labels in daily household, personal care and food products are
soon expected to drive nearly half the sales for online grocers,
as they aggressively expand their portfolio for higher margins.
Several players including BigBasket, LocalBanya, MeraGrocer and ZopNow have been selling their own brands in fresh fruits and vegetables segments, which account for 10-30% of their total revenue. By entering newer product categories such as staples and FMCG, these companies expect private-label contribution to go up to 40-50% by the end of this year.
"The margins on private labels are two times more than those on any other," said Saurabh Chadha, cofounder of online grocery store MeraGrocer, which plans to extend its private label for staples such as pulses as well as powdered and whole masala within the next two months. By December, it will also launch FMCG products such as jams, ketchup, muesli and cornflakes. Other projects will include a range of cleaners such as floor cleaner and toilet cleaners.
BigBasket sells fresh fruits, vegetables, meat and bread under the brand name Fresho and staples such as pulses and spices under the Popular and Royal brands. These labels contribute 35% to the company’s revenue.
The strategy is similar to that adopted by several brick-and-mortar retailers nearly a decade ago, when they started pushing private labels, hoping to earn higher profit margins than from selling products of national brands. While it worked in favour of a few companies such as Big Bazaar and HyperCity, many retailers exited such categories and consolidated their portfolio after consumer product companies slashed sticker prices that matched some of the retailer pricing. But the online companies expect selling own brands to be still more rewarding.
"We aim to increase the share of the private labels to about 40% as they give us better margins and better quality control," said Vipul Parekh, cofounder of BigBasket, which sells its labels not just through its own platform but has also tied up with grocery stores. In the online segment, fashion retailers have been pushing private labels for a while as purchases are mostly driven by price tags and not necessarily by brands. But grocery retailing on the net is new. Online consumers in India are deal-seeking value hunters, UBS said in an April 2015 research report on India’s consumer sector. But trade margins are already low leaving little room for discounts. "Therefore, convenience and availability of niche products may be the only reasons to buy consumer staples online," the report added.
World’s largest e-commerce retailer Amazon agrees. "Online grocery shopping in India is very nascent and we see potential in it, particularly for emerging segments like gourmet, organic food and speciality products which are not easily available," said an Amazon India spokesperson.
According to a global Nielsen report, there has been a five-fold growth in ecommerce sales in past one year for skin care, baby nursing, make-up, deodorants and cosmetics with ecommerce accounting for 5.2% of global FMCG sales by 2016, up from 3.7%. Asia will be the next major growth market.
"To focus on private labels is a logical step for online grocery manufacturers, one for higher margins," said Devangshu Dutta, chief executive of retail consulting firm Third Eyesight. "Secondly, if we compare it with private labels in fashion where retailers have to focus on getting the products customised, grocers have to focus just on packaging. The major effort is in looking for manufacturers and focus on packaging which is incremental. Keeping that in mind private labels in grocery have potential of making a play."
(Published in The Economic Times.)