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In India, Reliance Retail's private labels revolution spooks global consumer goods makers

03/21/2021 | 10:47pm EDT
A worker arranges Pond's face wash from Hindustan Unilever next to Reliance's Get Real face wash on a shelf inside a Reliance supermarket in Mumbai

MUMBAI (Reuters) - Inside supermarkets of Reliance Retail, run by India's richest man, Mukesh Ambani, 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 billionaire 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% 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 'kiranas' - traditional mom-and-pop stores which serve roughly 80% of the retail market in world's second-most populous nation.

Already India's biggest retailer, even as a $3.4 billion deal 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% 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 India's 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," a store employee at a Mumbai supermarket said.

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% 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.

LIFESTYLE CHOICE

India is seen as offering huge potential. China's per capita consumption of consumer goods is still four times higher than India's, according to HUL, majority-owned by London-listed Unilever. This is despite India's rising disposable incomes.

Analysts say Ambani's plans echo private-labels pushes mastered by the world's biggest retailer, Walmart, and German supermarket chains Aldi and Lidl.

A key difference is that Western retailers have pitched own-label goods as a value proposition. In India, they act as both an affordable alternative and a lifestyle choice for those previously unused to buying packaged or branded products.

Industry executives and analysts say the push is worrying foreign and Indian consumer giants. Pressure has already risen, with online grocers like BigBasket and e-commerce giant Amazon expanding their private brands portfolio.

The person familiar with Reliance's strategy said the profit margin it offers to kiranas on products like its noodles could be as high as 20%, compared with the 10-12% offered on similar products by multinationals.

To be sure, it's not easy to displace popular, decades-old brands. HUL says nine out of 10 households in India use its brands, and Nestle India says Maggi noodles strengthened its leadership position in 2019.

A Jefferies research note said last week Reliance can leverage private labels to onboard more kiranas, but cautioned that "a success here would require a 360 degree approach" to compete against "entrenched" players.

STRATEGIC RESPONSE

Still, one big Indian consumer firm has been conducting on-ground surveys to study Reliance's 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 Indian consumer giant 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.

(Reporting by Abhirup Roy in Mumbai and Aditya Kalra in New Delhi; Additional reporting by Siddharth Cavale in Bengaluru; Editing by Kenneth Maxwell)

By Abhirup Roy and Aditya Kalra


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
COLAS -0.75% 131.5 Real-time Quote.7.29%
FORRESTER RESEARCH, INC. 0.93% 51.24 Delayed Quote.18.97%
FUTURE RETAIL LIMITED -2.09% 56.15 Delayed Quote.-28.65%
HINDUSTAN UNILEVER LIMITED 0.07% 2648.8 End-of-day quote.10.66%
KKR & CO. INC. -0.90% 66.21 Delayed Quote.65.00%
NESTLÉ INDIA LIMITED 0.01% 19320.15 End-of-day quote.5.04%
NESTLÉ S.A. 0.35% 114.82 Delayed Quote.9.74%
NOODLES & COMPANY -3.10% 12.81 Delayed Quote.63.54%
PEPSICO, INC. -0.28% 158.81 Delayed Quote.7.39%
RELIANCE INDUSTRIES LTD 0.20% 2700.4 Delayed Quote.36.02%
SILVER -0.99% 23.261 Delayed Quote.-12.45%
UNILEVER PLC -0.68% 3853.5 Delayed Quote.-11.66%
WALMART INC. 0.49% 140.55 Delayed Quote.-2.97%
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