The Opportunity of Private Labeling
By Peter Renton
I was having breakfast at a local restaurant the other day when I noticed on the table there was a bottle of hot sauce with the restaurant’s name on it. I was impressed because I knew this was no chain – it is just a small independent restaurant who was taking advantage of private labeling. It is one of a growing number of small restaurants that enhance their brand by putting their own name on products.
First, let’s be clear about what I mean by Private Labeling. According to Wikipedia, the online encyclopedia, private label products or services are typically those manufactured or provided by one company for offer under another company’s brand. So this covers everything from Wal-Mart brand products to the small restaurant putting their label on someone else’s hot sauce.
It is amazing the number of businesses now that are engaged in some form of private labeling. Restaurants, hotels, spas, hair salons, even car dealers are all putting their own brand on products such as hot sauce, lotions, shampoos, coffee, lip balm, bottled water and wine. Many corporations want to put their own logo on products that they giveaway to reinforce their brand. The corporate gift market is particularly busy around Christmas. There are also many small businesses that want to appear more professional by having their own brand of products to sell – coffee and bottled water are particularly popular here.
So as manufacturer how do you get started selling your product via private label? The easiest way is to just start selling to other local companies. If you sell coffee then start with the local cafés and donut shops – many companies are happy to support other local companies, particularly if they can get their own brand name on the products. Obviously, your existing customer base would also be a good place to start. You can offer to put their name and logo on the labels that go on your product.
Once you have a few private label customers you can then start a formal “Private Label Program” giving prospects examples of what other companies have done. One important point to note is to be sure to make it as easy as possible for your customers. You should offer to do all the work for them including the labeling, so they will just receive the finished product. You may end up having lower margins on your private label products, but you can make up for that with increased volume.
You don’t have to do it alone in your private label venture; there are plenty of resources out there to help you. There are two main publications that you can read:
Private Label Magazine – http://www.privatelabelmag.com
Private Label Buyer – http://www.privatelabelbuyer.com
There is also a national organization – the Private Label Manufacturers Association (http://www.plma.org) that puts on a big trade show every year just for the private label industry.
A simple search request for “private label” on Google brings up over 10,000,000 pages. Add your industry to that search and you will have a wealth of information more specific to your needs. For instance, the search “private label coffee” brings up over 13,000 pages. You should do this to see what your competitors are doing in your industry, which actually could give you many ideas.
The labels are a key component to your private label program. You should choose an experienced label printer preferably with digital label printing capabilities. This advantage of digital label printing is that you can offer small quantities to your private label customers and then “gang run” many jobs together to get a better price for your labels. There are typically no expensive plates or setup charges with digital printing, so you can easily have dozens of versions on the same print run. You can even add your own brand labels to these jobs, so your own per unit label costs will be reduced.
Reaching the Next Level
If you continue to do all the production work yourself there is obviously a limit to how large your private label business can be. If you want to reach the next level you will need to hire the services of what is known as a Contract Packager. Basically, these are companies that take your product and packaging and put it all together for you and then ship it to your customers. They can even mix your ingredients for you to create your end product. You need to be at a reasonably high volume for this to be worthwhile, but the beauty of outsourcing your production work is that it scales very easily – and it leaves you time to focus more on bringing in business.
The Contract Packaging Association (http://www.contractpackaging.org) is the trade group for contract packagers and their web site has a wealth of information. You can read about the criteria you should use when choosing a contract packager. They can even help you find a contract packager in your area with the capabilities that you need.
Once you have a relationship with a contract packaging company then you can really begin to scale your business. All the large supermarkets and drug retailers are increasing the number of products that they sell under their own label. Store brand products now account for 25% of sales at US supermarkets and 40% of sales at Wal-Mart. Now, I realize it is going to be difficult to get your labels in to Wal-Mart or any of the big national chains, but there are plenty of smaller regional supermarkets and drug store chains where you will have a better chance.
It may be just a dream to have your products as the store brand at a national chain, but if you don’t start out down the private label road you may never know the potential for your product. If you are completely focused on selling your products under your own brand at wholesale or in a retail store you could well be missing out on a huge growth opportunity. The private label trend shows no signs of slowing down – you could very well find that the sky is the limit.
Copyright 2006 Peter Renton
Peter Renton is the founder of Lightning Labels, Inc. the leaders in digital label printing and custom labels. He writes regularly about the label printing and packaging industry on his blog at http://blog.lightninglabels.com
Private Label Brand Use
For retailers, one of the most significant shifts in value-seeking behaviors is how customers changed
their approach to private label or store brands during the recession. Nearly two-thirds of consumers
(64%) indicated that they had always been comfortable buying private label or store brands. During
the recession, an additional 27%, representing 31 million households, said that they were comfortable
with these brands. More importantly, 14% plan to continue their private label behavior post-recession,
representing an additional bump up of 16 million households that plan to continue purchasing private
label brands in the future.