Retailers bet big on private labels to boost margins

The reason for this shift is perhaps because private labels are at least 30-40 percent cheaper than the FMCG brands in the same category.

Metro Cash & Carry India, which operates in the B2B space and caters to thousands of kirana stores, has a single-digit private label share at present but it expects to double private label share this year.

Specific categories like dry fruits and bakery products have seen exponential growth in the January-May period. The dry fruits category saw a 150 percent growth or 3X of category growth on a year-on-year basis. Sweet biscuits and cakes registered a 50 percent growth or 2X of category growth during the same period.

In the online space, both Big Basket and Grofers are seeing robust growth in the private labels space.

Big Basket has seen its private labels growing at 80 percent on-year, with categories like staples, honey, organic ghee, fruits and vegetables growing 80 to 100 percent.

The e-tailer expects to grow revenue from private labels business to 41 percent from 35 percent by the end of FY20. It is also working to increase private label stock keeping units (SKUs) to 3,000 from 1,500 by the end FY20.

Grofers has also seen its private labels business growing at 15-20 percent vs platform growth of 10-12 percent on a month-on-month basis. Commodities such as beverages and dry fruits have been growing 50 percent faster than brands in the same category.

On the revenue front, Grofers expects private labels to make up 50 percent from the current 35 percent of revenues by year-end. It also expects to have 1,200 stock keeping units by year-end, up from 800 SKUs at present.