Understanding if Private Labeling Is Right for You.

How is everyone’s summer going?

Are we all ready for August and the pressures of closing out the second half of the year strong to smack us all in the face? I know I am!

Only a few short weeks (maybe days…hours) until the aisles fill with pumpkin spice LTO’s for all to enjoy.

This week’s issue is a shorter one, but I feel it is an important discussion for brands to have, but maybe not for the reasons they are thinking of.

This issue concerns private labeling and whether your brand should be open to it.

Private label lines now account for over 20% of retail sales, so it's an important conversation to have internally with your team on how you will approach private labeling if and when it comes up.

Most brands that I speak with about private labeling their product for a retailer are wrapping their head around whether or not the decision will degrade their brand or hurt their primary efforts to grow their brand in retail.

Although this is the main concern for most brands, it is a secondary issue.

When we were scaling Delighted By, we were dealing with two conversations when we met with buyers. They had interest in bringing on our brand and they wanted to know if we had private label options as well.

Ownership pushed back on private labeling, but I fought for us to embrace it. The reasons why they pushed back were valid, they thought it would distract us from growing the brand, and that we would cannibalize ourselves on the shelf. This means that if a consumer had the option of two chocolate hummus brands, they would choose the cheaper store brand versus our premium-priced item.

I retorted that we weren’t just trying to lift the brand, but the category and that the overall sales for dessert-inspired hummus’ would organically lift our branded sales as well.

My second point was that if the retailer is interested in private labeling our product, they aren’t going to just stop that conviction once we say no. They will go directly to a competitor or worse, go directly to our copacker at the time and circumvent any revenue we would have gained by brokering the private label deal.

Eventually, we leaned into private label and we forecasted to do $3M+ in revenue alone from Aldi that next year. It was a long process and we had to update our agreement with our copacker to protect ourselves.

If you own your manufacturing you are in a much better spot to approach these conversations. That's because the biggest pain point when it comes to private labeling for an emerging brand is that the retailer will eventually just go around you and go directly to your copacker.

You need to be forthright in your conversations with your copacker and ensure your agreements protect and cover you for any potential private label business you bring into the fold.

I would focus more time on ensuring you’re protected against this than worrying about the theoretical brand damage that you're worried about.

It’s important to remember:

1) As the category grows, so will your brand.

2) The retailer will not stop if you say no.

In the current CPG investment landscape, profitability is the Northstar metric.

Bringing on a new revenue stream early on through private labeling can be critical to the health of your business. Yes, your margins will be much lower, but you don’t have to worry about any of the trade spend to support that product line in stores.

It also establishes a relationship with the buyer where you're a manufacturing asset for them and not just another brand. Now in their meetings when seasonal flavors come up for potential adjacent product lines, they will come to you to see if you can assist.

One major private label pitfall is time. You have to be mindful of your bandwidth and your ability to execute what is essentially a separate business.

Yes, a potential new revenue stream is a positive, but it will take time away from your day-to-day when it comes to building your brand. I would only encourage brands with competent sales and operations hires to make this move. You will need to be organized to take advantage of this opportunity while still maintaining growth for your branded line.

I am a big fan of embracing private labeling early as a brand if you have a strong relationship with your copacker or if you own your manufacturing.

That’s it for this week. If you're a brand with private-label success or horror stories, I would love to hear them. Until next time!