As the marketplace evolves on a day to day basis, retailers are searching for new opportunities to stand out from the competition and drive consumer loyalty. What we are seeing is the emergence of a vital differentiator in the form of online private label brands, which are now allowing retailers and e-commerce platforms to create brand exclusivity.
With a view to understanding this scenario a bit better, KPMG in India and Retailers Association of India, undertook a joint study to understand the growth and driving factors of the online private label space titled – The online private label growth paradigm. To identify the trends that are contributing to the growth of private labels in India, KPMG in India held discussions with various set of online and offline retailers with a pan India presence.
The study found that online private labels are expected to continue to be a driver for profitable growth for e-commerce marketplaces. Growth of private labels between 2019 and 2022 is expected to grow at 1.3-1.6x faster than e-commerce platforms. It will continue to generate 1.8-2.0x higher margins than external brands, the study adds.
Category focussed platforms were relatively early to launch online private labels and currently have 25-40 per cent of sales contribution, compared to approximately 5-10 per cent for multi-category platforms. Category focussed platforms recorded faster growth as compared to multi-category platforms largely driven by private labels growing at approximately 1.2-2.5X relative to the platforms growth from 2016-2019, the study says.
Online private labels allow platforms to attract new consumers, improve consumer stickiness and thereby, increase market share. Big e-commerce players, across product categories, attribute greater than 50 per cent of their private label sales to repeat purchases, according to the study.
Online private label purchases in categories such as apparel, grocery and cosmetics see repeat purchases exceeding about 60-65 per cent, indicating that having a strong private label strategy will be a good initiative.
Private label growth and their higher profitability translates to better valuations. Private labels offer supply chain efficiencies and greater product customisation abilities that later translate into higher margins -For instance, a leading grocery marketplace improved its category margins by launching premium labels in organic and superfood categories, the study found.
Commenting on the India findings, Harsha Razdan, Partner & Head, Consumer Markets and Internet Business, KPMG in India said, “With a gradual shift from unbranded to branded, online retailers are also launching their own private label brands, thus providing consumers a much wider choice of products and channels to choose from. Private labels have the potential to offer higher margins on account of supply chain efficiencies and better control over operations. Further, this could also lead to higher consumer stickiness, thus becoming a critical element of the overall business strategy. If one takes a long-term view, the journey of private labels gradually moving to brands will be shaping the future of retail.”