Ecommerce behemoths like Amazon and Flipkart have started focussing on their private-label portfolios as the margins here are better due to supply chain efficiencies and better control over operations
In recent times, these players have been accused of promoting their private labels over third-party brands; so, some small brands have adopted the D2C model as an alternative source of distribution
According to a KPMG report, online private labels are estimated to grow 1.3 to 1.6 times faster than the traditional ecommerce platforms during 2019-22
The dynamics of the Indian retail market are evolving fast as consumers embrace new ways of shopping in tune with the ‘new normal’ in a pandemic-hit world. As digitisation has become the latest buzzword, offline trends are making inroads into the online world.“The pandemic increased overall ecommerce penetration in India, and this would have definitely aided the growth of private labels of marketplaces. I also believe the overall trust in online commerce has increased a lot. People are now more open to buying brands discovered through Instagram and Facebook,” says Rohit Krishna, general partner at WEH Ventures, a seed-stage fund focussed on the India market.“Ecommerce platforms have better control on sourcing, operations, supply chain and marketing of its private-label brands, which give them an edge over other (traditional) brands. They also capitalise on their customers’ propensity to experiment online as they are assured of easy returns and refunds,” says Shah of 3one4 Capital.“Marketplaces control the placement of products, and this is probably the most controversial edge that they might have over other third-party brands. Marketplaces have been accused of promoting their ‘own’ labels (which are, in most cases, cheaper) among ‘similar items to consider’ when a consumer is looking to buy a third-party brand,” says Krishna of WEH Ventures.
For many years now, offline retailers like the Future Group, Reliance Retail, K Raheja Corp-owned Shoppers Stop and the Aditya Birla Group have been betting on private labels (products contract-manufactured and sold by retailers) as these ensure higher profit margins and, therefore, healthy gross margins. But what used to be a lucrative business strategy for offline retail soon got replicated in the online world as a key arsenal to bolster growth. Over the past four-five years, the likes of Amazon, Flipkart, BigBasket and others are steadily launching their ‘own’ brands and scaling them up as these are a win-win for both consumers and retailers. They offer convenience, trust and better pricing for consumers and higher margins for retailers.