Large retail chains have subtle (and not so subtle) ways to position their own store brands against global and national biggies
Last week on this page we reported on how multi-brand electronics and appliance retailers were struggling to hold their market in the face of heavy discounting by online traders (Offline versus Online, When Bricks take on Clicks). We also suggested that the Indian government was thumbing the scales in their direction by encircling e-commerce business with a number of regulations to ensure they don’t swamp the traditional retailer avenues.
Our investigation into this undeclared war turned up an interesting sidebar into the ways large retail chains specializing in electronics and consumer white goods use whatever strength they have to improve their profitability. We can best summarise this by dusting an old saying: “If you can’t fight ’em, join ’em!” This is how it works.
Dozens of brands at display
Multibrand stores display dozens of brands of TVs, washing machines, refrigerators and music systems. The customer is free to walk around and do comparison shopping. Prices these days for a specific category, say 36-inch full HD smart TV, are mostly within a small price band, so intense is the competition between brands. But shoppers are often surprised to find that even as they face a dharam sankat: how to make a choice, they see one brand that seems to be cheaper than products of identical specification.
This varies from outlet to outlet. In an e-Zone store of the Future Group, products branded Koryo tend to be more attractively priced. If you are in a Reliance Digital store, the Reconnect brand appears to offer a better deal whether you are shopping for a Bluetooth speaker or an air conditioner. In a retail outlet of Vijay Sales, the Vise branded TV appears more attractive and in any category where a Croma branded product is available in a Croma store, it shouts ‘paisa vasool’!
Welcome to the world of private labels also known as own brands or store brands !
A matter of margins
All electronics and appliance multi-brand stores work on dealer margins when it comes to the big names as well as global and national labels they stock. But showroom space, ambience, cooling, trained staff and a lot of other things eat into this margin. What if the store chain could compete with its own label and take a share of profit as manufacturer, effectively cutting out the middle man?
Big groups like Reliance Retail, Croma, Future Group (e-Zone), Next Retail (Videocon) etc have the financial muscle to take on the role of OEMs, having fast moving goods like AC, TV, fridge, bulk manufactured for them by a contract manufacturer, in India or abroad and selling the same under their own label. And what they save by cutting out the re-seller, they are able to pass on to the end customer in some measure.
There are some categories of goods (like TV) where regardless of whose brand the product displays, the actual production happens in the same contract manufacturing plants, hence shrewd customer sometimes decide to forget about brand name and go for the most attractive price. Stores who control their shop floor display can be quite unsubtle in ‘pushing’ their own brands by strategic location vis-a-vis the big names.
Good times, bad times
Experts have seen a trend in the sales of store brands versus big brands: When times are good, and when customers have more money, they tend to go for established brands. When times are bad and money is scarce, the same customers will save every rupee and go for the cheaper store brand.
At the end of the day, every one wins: big brands at one time, store brands at another. Win some, lose some….that’s life in the consumer electronics retail business!
This story is written by Anand Parthasarathy. His rich experience, reporting ACE (Appliances and Consumer Electronics) stories encompasses working 15 years with The Hindu as its IT Consulting Editor. He is a qualified instrumentation systems engineer who has worked for 20 years as a scientist on numerous defence R&D projects, and as a project manager for surface-to-air missiles at DRDO.