Private label products or services are typically those manufactured or provided by one company for offer under another company's brand. Private label goods and services are available in a wide range of industries from food to cosmetics to web hosting, etc. They are often positioned as lower cost alternatives to regional, national or international brands, although recently some private label brands have been positioned as "premium" brands to compete with existing "name" brands.
Richelieu Foods, for example, is a private label company producing frozen pizza, salad dressing, sauces, marinades, condiments and deli salads for other companies, including Hy-Vee, Aldi, Save-A-Lot, Sam's Club, Hannaford Brothers Co., BJ's Wholesale Club (Earth's Pride brand) and Shaw's Supermarkets (Culinary Circle brand). Another prominent example is the Cott Corporation, which manufactures private-label beverages for many supermarket chains. McBride plc is an example of a European based provider of private label household and personal care products.
Private Label Manufacturers Association
- Large national brand manufacturers that utilize their expertise and excess plant capacity to supply store brands.
- Small, quality manufacturers who specialize in particular product lines and concentrate on producing store brands almost exclusively. Often these companies are owned by corporations that also produce national brands.
- Major retailers and wholesalers that own their own manufacturing facilities and provide store brand products for themselves.
- Regional brand manufacturers that produce private label products for specific markets.
Private label as a marketing and business tool
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Retailers have extended the concept of private label to identify a brand with a store, a concept known as the store brand. This can be a far more profitable business than selling nationally advertised brands. A Food Marketing Institute study in the U.S. found that retailers earn a 35 percent gross margin on store-branded products compared to 25.9 percent on comparable nationally advertised brands.
Use of Private Label goes well beyond the store brands, though certainly this is the most frequent situation in which a customer will have contact with one.
Several corporations source a wide range of products from specialized manufacturers, which may or may not own their brand. The reasons for this practice are several. A company, having identified a business opportunity in a new product or groups of products, may assess that setting up their own production line or facility would require a substantial investment in equipment, human resources, patents and so forth. In many cases, a viable alternative is to source from a specialized company that has already made such investments and that has spare production capacity. If the two companies find that the market situation allows to avoid or minimize direct competition without stealing each other's market share (cannibalization), then both companies may find an agreement whereby the specialized manufacturer supplies the goods to the other. The methods to reduce 'cannibalization' are general marketing practices such as: dedicated distribution channels, different image and customer perception of the brands, pricing, separate regional presence etc.
The same basic concepts apply to the service industry (for example, customer services help-lines).
Private Label may be behind the decision of some companies to enter the market with products that are quite different, but somehow associable, to those that have made them famous (apparel companies launching perfumes; car companies launching watches and so on). Private Label may be an extremely profitable business for companies or corporations commanding an important share of the market with certain products that enjoy a high customer recognition.
As sophisticated technologies become widespread, and even subsidized, in emerging countries (generally with export-driven economies), sourcing of a wide range of products can be made at very low cost. These same products may have prices that allow for net margins to account up to several times the cost of the goods sold. Customers may be unaware of this business practice and be paying higher prices for products that differ little from others with less famous brands. On the other hand, some companies do provide additional guarantees to these products offering better quality, customer support, additional services.
Private label use by small companies
The use of private labeled products by small companies has grown. Small companies usually do not have any input in the recipes or packaging of the products they buy. They buy from a specialty food company that uses their recipes and simply label for the individual retail store. Small companies do this for the advertising benefits they receive. For example, if John's Farm Market sells jams or salsas with the John's Farm Market label, each time the consumer uses the product they are reminded of their visit to John's Farm Market. To buy more of that particular product they will have to return to John's Farm Market. John's Farm Market also benefits if someone gives that private labeled product away as a gift. This introduces another potential customer to the products carried at John's Farm Market. For this reason private labeling by small companies is a sought-after marketing plan.
Advantages of private label brands
Private label brands are those offered by retailers. There are various advantages for the retailers to go for private label brands. The advantages include
- Control over pricing of the product/service,
- Put forth own ideas on marketing plans,
- Create personalized image which in turn leads to higher customer loyalty,
- Higher control on production, marketing, distribution and profits,
- Give their own inputs, additional materials, logos, tag lines, etc.
- Customer's changing preference - drive towards private label products.
- These points provide an edge over the other brands. Private label brands are available in a broad range of varieties from food to cosmetics. These brands help create a personalized and unique brand for retailers. Retailers with pretty good private label brands will be able to create better sales opportunities for themselves. They can build value and recognition from the customers. Private brand products allow retailers to differentiate their products from competitors' products, and provide consumers with an alternative to other brands.
Quality and safety
Private label products are mostly not only sold in one country, but in many. For this it is essential that all products are of high quality and comply with all the relevant single or global market standards. Also, issues such as sustainability and environmental impact need to be taken into account. This can be done by performing certification and audits, inspections, hygiene monitoring, and testing of food, beverages, and packaging.
2007 pet food recalls
In 2007, there was a recall in the United States of more than 60 million cans of pet food sold under more than 100 brand names made by Menu Foods. The mass recall lifted the curtain on a common practice in consumer products that competing brands are often made by the same manufacturer. However, ingredients, designs and quality may differ substantially among the labels made under the same umbrella.
- "Richelieu experiences hiring boom, starts expansion". WCFcourier.com, RC Balaban, August 27, 2006.
- Lisa van der Pool (February 23, 2009). "There's new appetite for peddlers of cheap eats". Boston Business Journal.
- "Store Brands Drive Differentiation and Profit". storebrandsdecisions.com.
- Private Label Product Safety
- 101 Brand Names, 1 Manufacturer, Wall Street Journal, Vol CCXLIX, No. 108, May 9, 2007, p. B1
- Media related to Private labels at Wikimedia Commons