Monday, January 17, 2022

Private Label Food: Growth of the category amid Covid-19

The Covid-19 pandemic had initially created panic buying, causing demand to surge. Demand in categories like core grocery staples such as rice, pasta and flour and also meat produce & snacks have tended to increase. This has led to an overall increase in sales for most grocery retailers during this time, and for many, they have seen private label growth outstrip that of branded products.

Several factors are contributing to private label’s relative gain. The foundations for this opportunity to grow already existed in many markets, with private labels slowly increasing share in the last few years. Whilst each market and channel differ, the major reasons contributing to this are the increasing quality and perception of private labels, the competitive prices and the range and product attributes available.

The pandemic caused availability issues for many products and this led to many shoppers switching brands or purchasing private label products as availability of their usual products was limited. Many shoppers have also widened the selection of stores they visit, in a bid to get the products they need. This has given them access to private labels they may not have previously encountered.

Several retailers pushed their private labels in the early part of the lockdown as FMCG companies struggled with supply constraints and distribution.

Growing demand for ready-to-eat & ready-to-cook food categories
The ready-to-cook foods segment is seeing accelerated growth as the stay-at-home advisory gives people a chance to broaden their culinary engagement and bring home the joy of dining out.

Fresh packaged food brand iD Fresh Food has seen paratha sales rise by 60%, while meat products and seafood brand Licious has seen more than 300% jump in sale of ready-to-eat meat spreads, a two-fold increase sale of ready-to-cook kebabs, marinated meat and seafood.

According to RedSeer Consulting and Research, there has been a 61% rise in consumer spending on home cooking, mostly because the possibilities of dining out dwindled amid the viral pandemic.

In the ready-to-heat segment, sale of idli batter and paneer, too, has registered robust growth — iD Fresh said sale of these items jumped by 20% over the previous quarter.

Vivek Gupta,
Co-founder of Licious

Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns the Amul brand, said that sales of packaged Indian sweets, like ras-malai, have ticked up too.
Vivek Gupta, Co-founder of Licious said that during the lockdown, there has been a drastic increase in the number of people cooking and eating at home. Consumers are opting for better quality and safer food products. These behavioral shifts are expected to be long term, if not permanent.”

Value for money
It is expected that consumers increase their private label purchases when the economy is struggling, Nielsen said in a 2018 global report on private labels. With Covid-19 having left millions jobless or working with reduced incomes, consumers are likely to trade down, driving demand for such value offerings across categories.

For some, demand for private labels is still holding steady. Wholesale retailer Metro Cash & Carry has seen an uptick in its private label offerings for packaged foods such as biscuits, condiments and salted snacks even in the unlock phase.

“In the unlock phase i.e. between June to September 2020, in our own brands (private label), we saw sweet biscuits and confectionery category grow by over 250%; condiments and salted snacks category by 100%; breakfast cereals growing over 80%; pasta and noodles over 70%. Commodities such as flours and oils have continued its upswing growing over 65%,” a Metro Cash & Carry spokesperson said.

Affordability is a key driving factor for consumer off-takes when it comes to private labels, online retailer Grofers said. Currently, Grofers’ own brands constitute 40% of the business. Over the next one year, the company will invest $15 million in owned brands to expand the snacking, baking essentials, immunity products, and ready-to-eat categories.

Since these products are not backed by high marketing spends and directly supplied to the company – they cost less as compared to brands manufactured by large fast-moving consumer goods makers.

“Consumers are buying our ‘own brands’ (private labels) as it offers quality products at affordable prices. Since products are made in-house and sold on the app itself, there are no commissions for middlemen, therefore resulting in low product prices i.e. 30 to 40% cheaper to cater to price sensitive Indian consumers. Currently, Grofers own brands constitute 40% of the business, and we are expecting to grow this to 60% in these six months,” a company spokesperson said.

Online platforms witness the surge in private label brands
E-commerce platforms Grofers and BigBasket, too, have observed a shift in purchase behaviour towards their private labels. Grofers’ internal study shows that in categories such as edible oils, ketchups, pastas and soups, and honey and spreads, the penetration of private labels increased by 157%, 83%, 59%, and 41%, respectively, during the lockdown.Several factors have led to consumers buying smaller labels during the lockdown. Kamaldeep Singh, President, food and FMCG business, Big Bazaar says, “Private labels have benefitted because they could manage their supply chain and address the stock shortage.”

Online grocery stores stepped up efforts during the lockdown when top brands were struggling to reach kiranas and modern trade outlets. “Since we have more control over the supply chain of our private label products, we were quick to take action to minimise the impact of the disruptions caused due to the lockdown,” says a BigBasket spokesperson.

Consumers are known to be less discerning when it comes to essentials. This helps lesser-known brands.

Both Grofers and BigBasket are counting on their lower price-points to retain customers. “To build and maintain loyalty of new customers, we need to ensure that our private label products are of the best quality, are reasonably priced and available at all times,” says the BigBasket spokesperson.

Anchit Chauhan,
Director – Strategy,
Dentsu Webchutney

Private label v/s Brands
Brand loyalty, experts say, is not hard to come by for these companies.
Anchit Chauhan, Director – Strategy, Dentsu Webchutney says, “If consumers are pleasantly surprised by the quality and experience of the new product, they could get hooked to it. Also, familiarity with the brand increases as people consume it, thereby changing perceptions towards it.”

A substantial investment in promotions and visibility will be imperative for these brands to retain their toehold. “Anything which is not by choice will be difficult to sustain over the long run. There is a high chance that consumers will move back to their trusted brands post lockdown,” says Vishnu Vardhan, Consultant, Euromonitor International.

Vishnu Vardhan,
Euromonitor International.

Though private labels will find more shelf space in retail outlets, they will have to jostle for attention among the big brands. “Retailers will be cautious about having the right mix of private labels and big brands to avoid loss of sale due to unavailability of brands, which could result in losing the customer permanently,” Vardhan adds.

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