Competing with the “brands,” while maintaining some distinction, is a conundrum that has challenged the private label industry since its inception.Having played on both sides of the field, I can advise that the only choice is to innovate and partner.
Innovation.The old business mantra which was “the reason for our success is we follow the brands” is still being practiced by many in private label.This practice of brand imitation carries the baggage of ensuing law suits from the branded players.The only way to break out of the existing cycle is to innovate your way out.This is not a simple proposition as the trade bears most of the responsibility for all private label producers chasing the branded designs.It doesn’t have to be so.If private labels want to break out of the reverse economic tie to the share cycle which currently quantifies their business potential, a different business model must be adopted by both the producers and the trade.
Partnering.As the mass merchandising channels grow their distribution share and consolidation of the supermarket and drugstore chains continue, these companies’ volumes are becoming large enough that they can now start providing the private label producers with sufficient economies of scale to truly deliver “destination” brands to their customers.
Due to the incessant downsizing of the major branded companies, there is enough experienced and knowledgeable talent available for recruitment to enact change.In the last decade or so, it has never been the case that private label did not know how to develop new product features. It was simply that they were not able to afford them.When the branded companies routinely make a two to three times greater margin, private label companies need to find means to afford larger product development and market research budgets to truly bring sustainable and cost effective innovation into their product lines for their key customers.
As doing this has always been a profitability balance by the private label producers, the trade will need to re-evaluate their profitability models and review the volume (share) versus profit equation in more absolute net terms.Further financial incentive is needed for private label to invest in technology and product development catering towards matching performance and not just precise appearance to the branded products.
By having the private label develop true “destination” brands through their own identification of consumer wants and needs, new forms of “branded” products will emerge for the largest distribution companies in the trade
This can only happen with true partnering of the trade outlets and the private label producers in a collaborative effort to grow each others’ bottom line and by private label developing their own product features.Through strategic alliances with all parts of the supply chain, survival and growth can be ensued.
Rick Jezzi is a chemical engineer with experience in the areas of tissue manufacturing, nonwoven, and personal care absorbent products while at Scott Paper, Kimberly Clark and Paragon Trade Brands where he was involved in technical development and the expansion into Asia and Latin America. Before retiring from Clopay Plastic Products Company as vice presient of R&D and general manager of South America and Asia Pacific, he managed technologies in Hygiene, Medical, Industrial and New Business Development, as well as managing global M&A and JV’s. He now consults in the areas of his expertise and can be reached at email@example.com.