Would you rather have a high-penny profit on select items or build a long-term business strategy that brings loyal customers to your store? The answer may affect how you approach private label products.
Private label has a place on retailer shelves but should not be the primary strategy for any retailer who wants to grow sustainable sales. Customers shop brands first and usually turn to private label as a cost savings. Most consumers will gladly pay a premium for quality.
Private label items typically come from one of two places: branded manufacturers and private label suppliers. Some manufacturers produce a lesser version of their branded item to help offset operating costs. This enables them to qualify for volume discounts on raw materials, maximize their plant efficiency and keep shipping costs low. Branded manufacturers usually divert their "seconds" to their private label offering.
The problem with private label
Gary Hirschberg, former CE-Yo of Stonyfield and a strong proponent for Just Label It!, advocates total transparency on product labels. I agree. Gary asked the question, "What's to keep someone else from copying my product if I give them the recipe?" The answer is the passion and the quality ingredients that go into making brands like Stonyfield.
Private label suppliers typically produce a wide variety of products for many retailers across multiple categories. They typically don't have the same category expertise or commitment to quality as that of a branded manufacturer.
The natural channel was built on the backs of brands. They provide excitement in the category by encouraging consumers to shop their brands. Innovation comes from brands and branded manufacturers. They also support retailer marketing initiatives and many give back to their communities.
Branded items offer the promise of trust and consistent quality while private label typically varies greatly between retailers. Brands are customized or uniquely crafted to address specific customer needs and wants. They encourage consumers to "trade up" and are responsible for category growth.
Consumers will pay for brands
Price should never be the only factor when developing a business strategy. Consumers, especially natural consumers, are willing to pay a premium for quality products that fit all their needs.
Consumers want value for their money. If price was the only factor then no one would ever pay $4.99 for a dozen premium organic free-range eggs when they can buy a dozen private label eggs at a mainstream retailer for $1.67.
Private label should be viewed as a low cost alternative to branded items and never as a business building solution. Consider this: Walmart discontinued most national brands to expand their private label. They quickly learned that previously loyal customers stopped shopping in their stores. They started adding branded items back on the shelves to correct this. This was an expensive lesson for them and a failed experiment that should not be tested in the natural channel.
If you ignored price, which would you trust more: Stonyfield or Private Label Organic Yogurt? Stonyfield has a reputation for being produced by passionate people with a commitment to better products, the highest quality ingredients, the community, growing the natural products industry, organic farmers, fair business practices, transparent product labeling, etc. How much do you know about the private label manufacturer?
Do you think private label is beneficial or detrimental? Share in the comments.
Daniel Lohman is the owner of Category Management Solutions (CMS) which provides innovative strategic solutions for natural and organic CPG companies interested in gaining a significant competitive advantage.