Beginner's guide to private label: What are the benefits?

According to the Private Label Manufacturers Association, 25% of products sold in the United States are private label or store brands. In a 2019 survey conducted by the organization, two-thirds of respondents agreed that store brand products are just as good or better than name brand versions of the same product, and 40% said they always or frequently buy store brands. 

Retailers are cashing in on this growing acceptance. Take Costco, for example, whose line of Kirkland products makes up 25% of the company’s total sales (the same goes for Sam’s Club’s Member’s Mark private label); Trader Joe’s, with its legions of loyal fans who espouse their unique, affordable products via word of mouth and social channels; or Kroger's Simple Truth label, which is the bestselling natural and organic line in the country with more than $2 billion in sales. And then there's private-label behemoth Amazon: From June 2018 to June 2020, the company tripled its number of private-label offerings—according to a study by Coresight Research and DataWeave, it now offers nearly 23,000 products from 137 of its own brands.

For this two-part series, we spoke with three experts who’ve worked with some of the biggest names in the natural products industry to find out the advantages and challenges of having a private label. Here’s what we learned. 

Related:Beginner's guide to private label: What are the challenges?

Do it right

Private label benefits everyone involved: manufacturers optimize line times and operational efficiency, retailers save on trade spend and consumers pay less at the register. However, unlike the old days when price was the main concern, today’s private-label marketing strategies are more sophisticated. 

“If a retailer is going to develop a private label program, they need to be fully committed to its execution,” says Denis Ring, founder of OCHO Candy and former vice president of corporate brands for Whole Foods. “If it’s done tepidly or with a weak heart, the program will never achieve success.” 

Private label makes a statement 

In order to successfully execute a private label, it’s essential to know who you are as a brand, and what your selling proposition is. If your platform is offering the lowest price every day, driving that point home is key. Of course, price is not always the most important factor. As conscious consumerism grows, stores are becoming more strategic in how they present private labels, positioning them as premium products that reflect their brand values and social missions. 

At Thrive Market, for example, the focus is on supply chain transparency and raising the quality bar. 

“Our members expect all of our products to be of premium quality, but not premium price,” said Thrive Market’s chief merchandising officer Jeremiah C. McElwee. “We have exceptional quality standards across our whole catalog, so for us it’s not just that we have the lowest prices, it’s that every product is of superior quality compared to what consumers might find in comparably priced offerings.” 

That’s because with private label, the retailer typically controls the supply chain. In Thrive Market’s case, a fundamental part of their mission is working with communities and farmers all over the world to improve life in their local communities. “Private label gives us even more latitude to do that,” said McElwee. “We don’t have control of a third-party brand’s supply chain, but with private label, we can decide we are only going to work with famers using regenerative growing practices, for example.”

Innovation leads to consumer loyalty 

Private label offers a monumental opportunity for retailers to secure consumer loyalty. While margins may be lower on some private label products, typically the goal is to offer consumers an option that is both affordable and high quality. This establishes trust and makes customers more likely to spend money in other parts of the store.  

When Ring introduced the 365 Everyday Value line for Whole Foods in 1997, he was well aware of the brand’s cheeky nickname: “Whole Paycheck.” Under his direction, 365 introduced grew to thousands of affordable, high-quality SKUs and became a billion-dollar brand. 

“What we did for the benefit of investors and the brand was to offer a pricing alternative and create consumer loyalty,” he said.

Delivering across categories of products is a smart strategy, said Ring—just make sure to keep standards high.  The fastest way to destroy loyalty, he warned, is to “introduce new products in the line that are mediocre.”

In addition to highlighting brand values and creating consumer loyalty, private label allows retailers to have a little fun with their messaging. According to Kim Greenfeld, founder of natural/organic food-industry consulting firm Campo Verde Solutions, private label is like the fashion industry: every season, you should introduce new items. 

“Look at what Oreo did with flavors of cookies—Trader Joe’s has been doing that for 20 years,” she said. “The big guys must be really careful about how they launch a brand, but with a private label, your barrier to entry is just packaging.”

Greenfeld said private label is a chance for store brands to shine, set a tone and show a bit of personality. “The biggest advantage is being able to harness innovation that most national brands are sorely lacking,” she said. And while Greenfeld suggests introducing private label products which have broad appeal (“you want them to be flying off the shelves,” she said), it’s also okay to experiment. 

A perfect example, she says, is Kroger’s ever-growing line of colorful “unicorn” treats like ice cream, cookies and pudding cups. “They’re delicious, memorable and fun,” she said. 

Obviously, private label has many advantages, but there are challenges, too. Find out more about the possible downsides to this venture.