Reliance aims big blow on high-margin own-label brands

Mumbai,22/03: Reliance Retail has adopted a multi-prong strategy and operates chain of neighbourhood stores, supermarkets, specialty stores and online stores and has democratized access to a variety of products and services across diverse segments for Indian consumers.

Reliance aims big blow on high-margin own-label brands, says source.

Inside supermarkets of Mukesh Ambani’s Reliance Retail, little-known food and home cleaning brands take pride of place on shelves alongside global labels owned by giants Nestle, Unilever and Coca-Cola.

Products like Snac tac noodles and Yeah! colas are Reliance’s private label brands — and Indian’s richest man Ambani’s not-so-secret weapons as he sets his sights on dominating a grocery market that’s already worth a cool $608 billion and set to grow more than 20 per cent by 2024, according to Forrester Research.

These are not just a cheap and cheerful option for urban shoppers in Reliance’s own expanding store network. This is Ambani’s bet on pitching brands that are basic, yet still aspirational at kirana shops — which serve roughly 80 per cent of the retail market in world’s second-most populous nation.

Already India’s biggest retailer, even as a $3.4-billiondeal to buy no 2 player Future Retail awaits clearance, Reliance has “immense focus” on private labels, said an industry executive familiar with its strategy. That focus has already made some consumer goods firms in India uneasy, sources say.

Reliance plans to keep expanding and promoting its private labels — even in non-food segments — via its own supermarkets and kiranas, the executive said, declining to be identified, like most of the people Reuters interviewed for this story, because of a lack of authorisation to speak with media.

“It’s a worthwhile and high-margin (play),” the person said. “The company’s trying to offer brands of an equivalent quality at a lower rate … from a consumer standpoint, that works. It’s a fact, five years down the line, private labels will be a different landscape.”

Multi-billion-dollar business

Reliance Retail, part of Ambani’s Reliance Industries juggernaut, last year raised $6.4 billion by selling a 10 per cent stake to investors including Silver Lake Partners and KKR & Co Inc. The company is now bulking up its e-commerce operations and is increasingly partnering with kiranas to replenish their shelves via its own outlets and warehouses.

Consumer brands seeing their products already jostling for space with Reliance’s private label brands will have to deal with a company whose grocery supermarket muscle will nearly triple to 2,100 outlets if the Future Retail deal, which is facing a legal challenge at the Supreme Court, goes through.

Browsing shelves in Reliance stores, it’s hard to miss their private-label products, made in India mostly by small third-party manufacturers. “It is Reliance’s own brand. So we have to place these prominently,” said a store employee at a Mumbai supermarket.

Inside Reliance’s supermarkets, Nestle’s Maggi ‘2-Minute noodles’ sit next to Snac tac ‘Ready in 2 mins’ noodles, both in yellow-coloured packaging with an image of a red bowl full of noodles, with Snac tac costing roughly 18 per cent less. Bottles of Yeah! colas stood beside Coca-Cola and PepsiCo’s offerings, at around half the price.

Reliance declined to comment on its business strategies. Nestle India didn’t answer questions on Snac tac, but said it continues to “prioritise innovation” and was confident its consumers will choose brands that serve their needs.

India’s top consumer goods maker Hindustan Unilever (HUL) declined to comment, while Coca-Cola didn’t respond. PepsiCo India said it doesn’t comment on strategies of other companies.

Strategic response

One big Indian consumer firm has been conducting an on-ground survey to study Reliance’s Business Model, while a multinational has been forced to “craft a strategy” to find ways to safeguard its distribution model, said two executives who declined to be identified citing business sensitivity for their companies.

HUL is “keeping an eye” on Reliance’s private label push, said a person familiar with its thinking.

“Any game that Reliance gets into, you have to be careful,” said the source, referring to Reliance’s success in disrupting the telecoms industry with cut-price data plans for smartphones.

Alok Shah, a consumer analyst at India’s Ambit Capital who has visited stores to assess private labels, said rival consumer companies ought to be alert.

“The only option consumer companies have is to market more or to match the pricing of private labels… Reliance’s brands are going to be a much bigger threat,” he said.

Sales representatives of HUL, Nestle and ITC interviewed by Reuters at various Reliance supermarkets expressed concerns that similar packaging and lower prices on Reliance brands were luring some customers away. A spokesperson for ITC said, “All large retailers have their own brands that compete with established brands.”

On a recent weekend in Mumbai, shoppers like 16-year-old student Soni Gupta took advantage of a buy-one-get-one-free offer on Reliance noodles.

“It’s cheaper than Maggi … I quite like it,” Gupta said.