Private label products
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
or services are typically those manufactured or provided by one company for offer under another company's brand
The American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...
. Private label goods and services are available in a wide range of industries from food to cosmetics to web hosting. 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 is a private label food manufacturing company founded in 1862, headquartered in Randolph, Massachusetts, and owned by investment group Brynwood Partners of Greenwich, Connecticut....
, for example, is a private label company producing frozen pizza, salad dressing, sauces, marinades, condiments and deli salads for other companies, including Hy-Vee
Hy-Vee is an employee-owned chain of supermarkets located in the Midwestern United States. Over 100 of its supermarkets are located in Iowa, with additional stores in Illinois, Kansas, Minnesota, Missouri, Nebraska, South Dakota and now Madison, Wisconsin...
ALDI Einkauf GmbH & Co. oHG, doing business as ', short for "Albrecht Discount", is a discount supermarket chain based in Germany...
Save-a-Lot is a discount supermarket chain headquartered in Earth City, Missouri, near St. Louis, United States. The subsidiary of Supervalu comprises approximately 1,250 stores in the United States with over $4 billion in annual sales....
, Sam's Club
Sam's Club is a chain of membership-only retail warehouse clubs owned and operated by Wal-Mart Stores, Inc., founded in 1983 and named after Wal-Mart founder Sam Walton. , the Sam's Club chain serves more than 47 million U.S. members...
, Hannaford Brothers Co., BJ's Wholesale Club
BJ's Wholesale Club
BJ's Wholesale Club, Inc. , commonly referred to simply as BJ's, is a membership-only warehouse club chain operating on the United States East Coast, as well as in the state of Ohio...
(Earth's Pride brand) and Shaw's Supermarkets
Shaw's, along with companion store Star Market, are wholly owned subsidiaries of Eden Prairie, Minnesota-based SuperValu. Together, Shaw's and Star Market comprise the third-largest grocery chain headquartered in New England; behind Stop & Shop and Hannaford, although Shaw’s is the largest grocery...
(Culinary Circle brand).
Private Label Manufacturers AssociationThe Private Label Manufacturer's Association (PLMA) categorizes PL manufacturers into 4 main categories:
- 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 ToolRetailers 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 an extremely wide range of products from specialized manufacturers, which may or may not own their brand. The reasons for this business 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 may 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.
This applies, with basically the same basic concepts, 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.
Customers should know about this business practice and avoid paying high prices unless a real advantage on other products is clearly identifiable.
Private Label use by small companiesAnother use of private labeled products that has seen good growth is by small companies. Small companies usually do not have any input in the recipes or packaging of the products they buy. These small companies buy from a specialty food company that uses their recipes and simply label for the individual retail store. The reasons small companies look at branding products with their name is 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. If the private labeled products are really good they will have to return to John's Farm Market if they want more of that particular product. Another benefit John's Farm Market receives is 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. There are many specialty food companies that offer private label.
Advantages of Private label brandsPrivate 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.
2007 pet food recallsIn 2007, there was a recall in the United States of more than 60 million cans of pet food
Pet food is plant or animal material intended for consumption by pets. Typically sold in pet stores and supermarkets, it is usually specific to the type of animal, such as dog food or cat food...
sold under more than 100 brand names made by Menu Foods
Menu Foods Limited, based in Streetsville in Mississauga, Ontario, Canada, and was the largest maker of wet cat and dog food in North America, with its products sold under 95 brand names, which the company identifies as supermarkets, big box and pet product retailers and wholesalers...
. 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.