HUL, P&G, Reckitt, Kellogg's raise margins up to 25%

 Modern retail has taken a lead in its fight against consumer product companies with consumer product companies including Hindustan Unilever and Procter & Gamble increasing retailers’ margins on the wake of tough competition from the latter’s private brands. 

“Since March this year, multinationals including Hindustan Unilever, Procter & Gamble, Reckitt Benckiser and Kellogg’s have been increasing margins by 10-25% in leading supermarkets like Big Bazaar and Reliance Retail to match up with low priced private brands offered by retailers,” a top industry official said on condition of anonymity. 

These multinationals have, however, increased margins only in categories such as diapers, ketchups, floor cleaners, soups, breakfast cereals and toothbrush, where retailers’ private labels have been most active in new launches and gaining market share. 

The friction between retailers and fast-moving consumer goods players over higher margins and better shelf space has been there for some time now and hit the headlines when Future Group , the country’s largest retailer, pulled Kellogg’s breakfast cereals off the shelves of around 150 Big Bazaars.  

“Private Brands, apart from allowing retailers to differentiate their merchandise which over a period of time creates consumer loyalty to the store, make more margins than national brands,” said Devendra Chawla, business head, private brand, at Future Group. “It also helps in growing consumption and expanding category size as India is under-branded and under-penetrated in many categories.” 

Future Group, in the last one year has launched three new brands across a dozen categories. With modern retailers contributing just 6-7% to the total sales of consumer goods companies, their overall margins aren’t getting impacted drastically. But in the last few years, consumer goods companies have been aggressively trying to channel most of their resources into nascent segments like deodorants, diapers and ready-to-eat products that they feel have huge potential.