Private label products are goods sold by retailers under their own brand names. Many brick-and-mortar retailers and ecommerce companies have private labels, which offer a fatter margin than selling third-party brands. Amazon, for instance, sells many products under the Amazon Basics brand.
Zepto cofounder Aadit Palicha told ET that the ultrafast delivery startup will likely start selling its
private labels by the second or third quarter of 2022. Swiggy is likely to launch private labels as soon as next month, a person in the know said.
The first batch of products for
Swiggy’s Instamart will likely be in the non-food category. These include cleaning equipment, toilet cleaners and dustbin bags, said the person.
Swiggy did not respond to ET’s queries until press time Sunday.
Palicha said Zepto will launch private labels across staples, general merchandise and cooking essentials.
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“When you’re doing private labels, you need to focus on categories that have a high degree of substitutability,” Palicha said. “These are categories in which customers have the least amount of brand loyalty. Atta, for example, isn’t a great category for private labels because people love (ITC’s) Aashirvaad.”
He said the company will operate its private label business in an asset-lite model where it ties up with hub partners. “We have partners for our hubs that sell inventory and we’ll be supporting them down the road with logistics if they would like to do private label,” he added.
The development comes amid intensifying competition in the quick-commerce space in India.
Zomato, which invested $100 million in BlinkIt (formerly Grofers) last year, on February 10 reiterated its focus on the quick-commerce segment by announcing it would invest an additional $400 million in the space in the next two years. ET reported on November 18 that Zomato was looking to bet $500 million on BlinkIt. Meanwhile, Swiggy has allocated $700 million to grow its Instamart offering, while Zepto raised a war chest of $160 million last year.
Why are private labels essential?
Quick commerce currently is a bleeding business and there is not much room for margins, which is the case all over the world. Internationally, quick delivery startup Gopuff also has plans underway to sell more than a dozen of its own private-label goods.
“A majority of the catalog that is housed by these quick-commerce stores are name-brand products (Coke, Pepsi, Tide, etc.) that have really low margins and a fixed market price,” said an investor in quick-commerce companies in the Middle East. “The quick commerce platform cannot really change the price of a bottle of Coke for example. So, they find certain categories where they can have their own private-label product offering and cut out all the middlemen and distributors that take a commission.”
Palicha said private labels will help the company in two important ways: it will add 3% to the operating earnings margin and it may also become a competitive advantage.
“If you execute it extremely well, the private label might become a moat because customers will come to your platform for your branded products (presumably because it’s good quality and well-priced),” he said.
Zepto and Swiggy are not the first quick-commerce players to launch private labels. Bengaluru-based Dunzo has been selling its private label brand, Dunzo Essentials, for almost a year. that the company stopped selling private labels which at one point constituted 50% of the company’s gross merchandise value.
Challenges
Multiple investors ET spoke to raised doubts about the industry’s decision to get into private labels given the nascency of the market and the possibility of private labels becoming an operationally intensive undertaking should the players decide to get into manufacturing themselves.
“I don’t think this would be a moat for them; because the catalogue percentage that they can fully white-label is low and, with high headquarters and tech costs along with potentially underutilised fleets, a lot of the
quick-commerce players are struggling to get to profitability,” said the investor cited earlier. He added that a food delivery player may have a better shot at making the unit economics work because of cross-utilising the drivers during food delivery lulls.
In the Middle East, Delivery Hero, the owner of online food ordering platform Talabat, launched quick commerce in March 2020.
The early heat around quick commerce in the US has also begun to simmer down. The Information, a Silicon Valley-based tech publication, reported in January that instant-delivery startup Jokr was in talks to sell its New York operations, which make up the bulk of its US business, after encountering heavy losses in the city amid heightened competition. Cloud kitchen startup Kitopi from the Middle East briefly experimented with quick-commerce delivery from its cloud kitchens but stopped soon after.
Quick commerce companies operate dark stores. These are neighbourhood distribution centres that facilitate quick delivery of products. Since these stores are small, it cannot hold on to a lot of stock-keeping units (SKU). Typically, dark stores operate with 1,000-2,500 SKUs per store. According to sources, BigBasket maintains 10,000 SKUs in its warehouses.
