Monday, March 24, 2008

Private Labels

Private label pose the biggest threats to branded FMCG businesses. The normal margin structure in a typical FMCG supply chain today is as follows. The margin for the carry and forwarder (C&F) is ranges from 1 - 4%. That of a stockist ranges from 4 - 9% and that of the retailer ranges from around 8 – 17%. Also as the channel of distribution has gained prominence in the consumer’s mind due to pervasiveness of their reach, the retailer increasingly calls the shots. In such an environment, consumers increasingly face the pinch of higher prices. Hence, the best way for the retailer to add value to the consumer would be to remove the price burden he bears. The solution – creation of private labels. This makes good economic sense too as is indicated by the following table

Just as an indicator one can observe, that private label business of Wal-Mart is USD 126 billion. This figure is greater than that of the total sales revenue of NestlĂ©’s which is considered as the largest FMCG manufacturer brand in terms of sales.

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