India's top two sign co-branding deal for bakery products
According to a joint statement, Hindustan Unilever Ltd (HUL) will collaborate with Future Group to sell bakery products at the latter's chain of Big Bazaar large format retail stores in India.
Under the partnership, Big Bazaar will be the exclusive retailer for the bakery products, which will sport both HUL’s 'Modern' and Future Group's 'Freshly Baked' brands on their packs.
The launch would see the first batch of products being retailed in Big Bazaar stores in Mumbai, and then gradually rolled out to other Big Bazaar stores across the country, the statement said.
The deal between the two companies is said to be the first such deal in the country, where brands and retailers have traditionally kept off each other's turf. In this case, the deal is being considered more interesting as Future Group is the biggest customer for HUL's Modern brand of products.
According to Harminder Sahni, managing director of Wazir Advisors, a New Delhi-based consultancy firm, the deal is targeted at the two companies leveraging each other's strengths.
“Making quality bakery products for retail is a complex process, which requires a high level of R&D, market research, and of course investment. With this deal, Future Group can feed off's HUL expertise in making such products,” he said.
On the flip side, HUL would also get to leverage Future Group's nationwide store network, which is on top in India if you consider footfall, said Sahni.
Sahni explained that this is a way for the retailer and the brand to find a middle ground in a space where the first signs of slight conflict can be seen with private labels gradually coming to the fore.
“In the Indian retail market, which still has many smaller players, the retailer is always stronger than the brand because it has more clout with the consumer. So it makes sense for a brand to find a middle ground with retailers,” he said.
On the prospects for the deal, Sahni noted that it remained to be seen whether the deal could work at the operations level. He explained that such deals, with non-food products, have fallen through in the past starting at that level.
“What works for them is that they both are companies large enough to meet challenges of the financial, administrative, or technical kind. However, how it will play out when it comes to profit sharing and margins will be interesting,” he said.
Sahni pointed out that it is not as if Future Group will not stock bakery products from other brands, or HUL will stop making its own brand of bakery products, which could further confuse things when it comes to operation level issues.