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Brand vs. private label: The young entrepreneur's dilemma

Brand vs. private label: The young entrepreneur's dilemma

By shifting their approach from manufacturer to brand owner, young entrepreneurs are likely to change the Indian retail environment in the near future.

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As retail strategy consultants, we advise firms on how to enter the Indian market. With the slowdown in global markets and Indian retail consistently growing, several larger exporters or manufactures of food, home appliances, accessories etc. are attempting to enter the Indian market.

In the past, several large manufactures entering the Indian market have preferred to launch via private label for modern trade or institutional business. However, recently I have noticed an interesting phenomena – especially for commodities or other products that can be classified as fast moving durables. Entrepreneurs are increasingly bullish about launching their own brand and building a solid asset for the future.

The private label lure:

Our clients are usually large players in their respective categories. Hence, they can easily be positioned as a reliable supplier for modern trade with in-house private labels. This retail entry route is attractive as it would immediately provide the client with adequate business. This would in turn allow them to build a sales and logistics team and gradually gain an understanding of the B2C market. Plus the cost of entry would be negligible and sales are relatively assured.

• 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.

• In the past, we have found this route to appeal to a majority of manufactures - for while the margins are thin, existing capacity is utilized for significant volumes. However, there are signs that this attitude could be changing.

Build a new brand vs. supply the private label

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 underestimate the role of the in-house hero.

“A rising number of Indian entrepreneurs are committed to building world class brands for the future. They believe a branded offering meets certain emotional and functional needs of the consumer.”

Plus there is always the cost of creating a new brand. As part of our engagements, we advise our clients on the cost of retail entry, the number of months or years they will take to break even and potential challenges they will meet on the journey to profitable growth. The picture is not always a rosy one.

In most mature categories, established players and in-house brand are always given the maximum benefits by the category heads of modern trade. New brands have to fight for shelf space in a very crowded market. 

• Hence, often the decision to enter the Indian market is taken on the basis of cost of retail entry and brand building over a specific period of time. Choosing the private label route usually appeals to a bottom line driven decision maker.

• But as a new breed of forward thinking entrepreneur emerges, this trend may gradually change. A new generation of financially secure, well-travelled and professional entrepreneurs are emerging.

Weighing pros and cons:

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.

As a retail consultant, who has seen the rise of department stores and other forms of modern trade, I have witnessed the rapid growth of private labels, first hand. But 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:

Increasingly, in several of our retail strategy engagements, our clients 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 clients don’t want to go down that path. This is an interesting trend. By shifting their approach from manufacturer to brand owner, young entrepreneurs are likely to change the Indian retail environment in the near future.

A rising number of Indian entrepreneurs are committed to building world class brands for the future. They believe a branded offering meets certain emotional and functional needs of the consumer. They are ready to walk along the retail path – in spite of it being cost intensive with longer gestation periods. By creating a focused, differentiated and relevant brand – they can create value for themselves and the consumer, over a longer period of time.

The author is Co-Founder and Principal, Centric Brand Advisor

Disclaimer: This article is published as part of the IDG Contributor Network. The views expressed in this article are solely those of the contributing authors and not of IDG Media and its editor(s).