Slowdown helps sales of private labels

A global slowdown, which is forcing companies to curtail production, cut salaries and jobs, is helping retailers who have launched private labels.

Companies in the aviation, real estate and automobile sectors have slashed salaries forcing consumers to opt for cheaper products, also known as down-trading, helping boost sales of private labels.

"In the past three months, sales of private labels have gone up by 25 per cent in our stores. In the food and grocery segment, sales of noodles, cold drink, wafers and mineral water under private label has increased compared with branded products such as Maggie, Pepsi and Lays and Bisleri," said Vishal Retail President Ambeek Khemka.

Companies are stepping up the introduction of private labels as margin on the products can be as high as 30 per cent compared with 10 per cent on branded products. Last month, Future Group announced its foray into FMCG, consumer durable and apparel segment with its Future brands. It expects sales of private labels to make up for one-third of its total revenue by 2012.

"People will not stop consuming branded food items or expensive fruits like apple but the proportion of cheaper products in the monthly budget will go up as people try to maintain their consumption level within their decreased salaries," said Arvind Singhal, chairman, Technopak.

Spencer's Daily, the retail outfit of the RPG Group, which mainly caters to affluent customers, has seen sales of its private labels jump by as much as 20 per cent compared to the earlier quarters. The company plans to generate at least 35 per cent of its revenue from the sales of private labels in the next two years. As a result, the company is increasing its stock keeping units of private labels.

Similarly, companies are also introducing products which are in the lower price point to generate higher volumes. Parle Agro, a food processing company, has decided to increase its market penetration by introducing a low-price candy.

The company has introduced candies in the Re 0.50 and Re 1 segment. Food items in the low-price category see no fluctuation in demand even though the margins on such products are very low and the companies' profits are achieved through higher volumes.

"People are looking for value for money products. People will go to only those retailers and companies who offer value for money," Singhal added.