The expectations for private label growth in Asia are high. In a new report, Rabobank estimates that by 2030 India and China, the main Asian food retail markets, will have closed in on the private label share currently seen in Europe (28%).
But such a rosy scenario may not be obvious at the moment, as today Asian food retailers may not need to or may not be able to fully commit to private label. But that may be about to change. Lessons from Eastern Europe show that private label growth is likely to accelerate when private label market share enters a 5 percent to 8 percent threshold bracket. Countries such as China and particularly India are nearing this threshold in modern food retail.
Rabobank analyst Sebastiaan Schreijen commented: “It took 50 to 60 years for private label to reach a market share of over 40% in the UK and Switzerland. Central and countries in Eastern Europe such as the Czech Republic and Hungary took only about 20 years to reach half that level. With the maturation of modern retail markets in India and China, all the criteria for private label growth will be met. The question is not whether private label in Asia will catch up with European levels, but when. Currently, we anticipate it will only take 15-20 years for countries such as India and China to catch up with the standard European private-label penetration rate of 28%.”
Rabobank views private label as essentially a push market. Food retailers put private-label products on the shelves first and foremost to support themselves in price negotiations with branded suppliers – not in response to active customer demand. Rabobank identifies four key criteria for private-label success. These are:
A focus on proft margins by food retailers.
Limited other ways for food retailers to exercise negotiation power with suppliers.
A degree of consumer acceptance of private label.
A competitive cost price of private label.
Even though China – with its well-advanced roll-out of modern food retail—seems to hold a better hand of cards, Rabobank expects private-label to gain the most in India in the coming years. Apart from the low penetration of modern retail in India, the impact of the other bottlenecks will be limited. Private-label growth is also expected to accelerate in the wake of anticipated market reforms in the country.
Rabobank Group is a Netherlands based, international financial services provider, with a predominant focus on food and agriculture markets. For more information about the company, log onto www.rabobank.com.
