Retail chains in India are in the process of becoming full FMCG (fast moving consumer goods) companies. After testing the waters in staples, apparel, and food and beverages (F&B) with their private brands, they are now entering the toughest category, personal care.
The Future Group recently launched a toothpaste and toothbrush (Sach) and a deodorant (John Miller). More launches under John Miller and Sach are in the offing. Future entered personal care with Caremate Liquid Soap. Spencer's Retail is also set to launch a deodorant (name not finalised) within 60 days. Spencer’s is already present in two categories in personal care, toothbrushes and liquid handwash, under the Smart Choice name. Aditya Birla Retail also entered this category, launching Fresh-O-Dent toothpaste some time earlier.
Retailers forayed into personal care with liquid soap and toothbrush, the low-value and minimum-risk categories. After reaching a scale in liquid soaps, they are now tapping high-value categories like deodorants, toothpaste, etc.
Private labels were a runaway success for retailers in F&B, as people like to experiment in this category. But, personal care is a risky category, as retailers’ investment will be very high, unlike in F&B. Consumer loyalty is another factor.
Retailers contest on this. They note that in personal care, seven per cent of in-store sales happens from imported products. If consumers are open to try these unknown brands, certainly private brands (PBs) will stand a better chance, as they have the retailer’s endorsement.
Mohit Kampani, Vice President – Merchandising, Food and FMCG, Spencer's Retail (an RPG Group firm), hopes to replicate the F&B succees in personal care. “Spencer’s endorsement as a retailer is very high. The trust we have built in consumers through our quality, value for money brands, shall be able to break the consumer’s loyalty to FMCG brands and try our PBs.”
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Analysts believe personal care would be a game-changer for retailers. It happens to be a high-margin category, operating on 30 per cent profit margins. Retailers started the PB story with staples and apparel simultaneously. The margins in staples are thin, 17-18 per cent, while in apparel, it is as high as 35 per cent. But, then, in apparel they have inventory issue and high brand loyalty to tackle. In F&B, margins are around 25 per cent, but the perishability issue remains.
Raghav Gupta, President, Technopak Advisors, says, “There are only some categories in personal care where the penetration level is very high. Otherwise, most categories are low-penetration. This will work for the retailers. In fact, it’s good for the industry as a whole, as these PBs will increase the consumption in low-penetrated categories and help the category grow.”
Retailers are going for small packs initially, to get consumers to try their PBs. In addition, it will mitigate their risks. Kampani says Spencer’s has adopted a two-pronged strategy for personal care PBs. “In many categories in personal care, there’s a huge gap in terms of both price points and pack size. We see huge opportunity there.”
Consider retailers phenomenal success in diapers. While FMCG majors’ brands are priced at Rs 12 each, retailers grew the category by launching diapers at entry price points of Rs 8. That would be their strategy for personal care brands. For instance, Future Group’s John Miller deo is priced a tad below (at Rs 99) the existing brands.
Retailers plan no mass media advertising for these brands and are confident these will fly off the shelves through in-store activities itself. “We will drive all of our personal care PBs through multi-sensorial experience in our stores like sampling, in-store visual merchandising, participating in thematic formats and festival promotions and running brand-led campaigns like the Tasty Treat Khao Piyo mela recently, which was a super-success,” says Devendra Chawla, Head of PBs, Future Group.
The trend, if it succeeds, would ring an alarm for FMCG companies. Most of them bank on the personal care portfolio for profit margins, considering the volatility of food commodities in India.
However, at present, Gupta says it would not affect FMCG companies much, as modern trade contributes only three-four per cent of FMCG companies sales. However, down the years, as modern trade penetration in India increases, and with retailers planning to sell their PBs through other channels like kirana shops, FMCG companies will have a real challenge at hand. Organised retail’s penetration of all channels, say sector analysts, is barely five per cent in India today and set to rise three-fold in five years' time.