Why Quick-commerce foray into private label makes a lot of sense ?
Retailers selling private labels have been around for decades now, Amazon started selling their private labels in the past two decades and now it's quick-commerce time to enter the game
I recently ordered water bottles from Amazon and came across the Solimo brand. As compared to other private label brands, Solimo was priced lower and delivery was the same day as compared to 2-3 days for other brands. I was tempted to try it out .
Diving a little bit deep, I got to know that Solimo is one of the most popular private-label brands for Amazon catering to the household category selling all things from sofa to soap. Amazon has over 100+ such private label brands and over 2,00,000+ SKUs being sold from their private label brands
As a marketplace, why would you want to have a private label in the first place?
Private label products have a higher margin as compared to the take rate for the marketplace
Retailers especially in the US have been doing private label products for a long period. Grocery retailers like Alby’s, Trader’s Joe, and Save-a-lot have private label products as high as >50% of their total products. While others like Costco, Walmart, and Target will have 15-30% of their sales coming from private-label
But what do you need to consider before launching a private label?
Excerpt from Dmart Q1FY24 Concall
For example, In the D-Marts Q1FY 24 call, when asked about the strategy to launch private-label products. CEO Neville Noronha pointed out two important factors -
Consumer acceptance of an unknown brand for trial and then for repeat usage
About the first point, retailers and marketplaces have an inherent advantage in figuring out the categories that they want to expand into. They have seller-level SKU-wise data across different categories that 3rd party sellers do not have, thus they can figure out the gaps where customer problems still need to be solved.
Offering consistency and quality at a price significantly discount to the main brand
The retailers and marketplaces mainly compete on price offering their private label products at 25-40% discounts compared to their peers. For example, Walmart’s Great Value as the name suggests offers household products at a much lower price point as compared to its competitors
Private label brands in India have been around for some time in -
Offline Retail - Dmart’s foray into FMCG private label, Reliance Retail through owned presence across all major categories and dominates some of them (For example in 2021, Own brands contributed >75% of Trends revenues and >60% of footwear revenues for Reliance Retail ). Vijay Sales in Electronics has its private label called Vise.
Online retail - Amazon has been the one to make its mark across products. While focused retailers like BigBasket (Grocery) and Purplle (Beauty) now have the majority of their sales coming from private labels (40-50%)
Quick-commerce - New area for private labels to exploit
Was listening to Aadit Palicha speak about their meat and seafood private label - Relish -
“Zepto’s meat and seafood private label brand—Relish—has become a ₹150 crore brand within four months of launch. It is growing 20-30 per month. We think in 12-15 months, it can become a ₹1,000 cr brand.”
Palicha said private labels will help the company in two important ways: it will add 3% to the operating earnings margin and it may also become a competitive advantage.
“If you execute it extremely well, the private label might become a moat because customers will come to your platform for your branded products (presumably because it’s good quality and well-priced),” he said.
These high growth rates witnessed by Zepto would beat most D2C brands. Thus it is one area to watch out for D2C brands building on quick-commerce.
I think the private label brand is beneficial to quick commerce because of two reasons
Improved gross margins - Private-label products would have gross margins ranging from 30-60%. This would provide much better economics compared to the current quick companies' current margins per order. This would accelerate their journey toward achieving company-level profitability.
Better customer retention - Better customer retention as that private label will not be available across platforms, this would increase customer stickiness to a particular app. Also, customers may prefer to order from Zepto instead of Licious as they can get all the ingredients in one place rather than using two apps. This may just turn out to be a game-changer in terms of the dynamics of the industry.
And which categories, are they looking to target?
Zepto currently operates in these categories and is adding more categories as well
Many of these categories are ripe for disruption
For example, it has already started targeting QSR restaurants or food-ordering platforms through Zepto Cafe.
In the US, Amazon initially started with cells as a private label. Thus, the field is wide open for the players to play and each of them may target different segments
How does it affect consumer brands ?
For consumer brands building the space, it becomes all the more important to create a differentiated picture in the consumer’s mind as price competitiveness might be a game better played by retailers and marketplaces as shown by global and domestic examples
Secondly, with private labels coming into play across all channels - Online or offline. You need to see the channel where your brands get the best visibility and bang for the buck. Channel selection becomes much more crucial
If you are building a consumer brand, you can reach out to me at ritik@wehventures.