What is Private Label?
A private label product is manufactured by a contract or third-party manufacturer and sold under a retailer’s brand name. As the retailer, you specify everything about the product – what goes in it, how it’s packaged, what the label looks like – and pay to have it produced and delivered to your store. This is in contrast to buying products from other companies with their brand names on them.
For example, Target sells a variety of branded snacks from companies like General Mills and Frito-Lay, but it also sell its own chips and crackers under the Archer Farms brand – Target’s private label brand.
Hair salons often create their own branded line of shampoos, conditioners, and styling products for their customers to buy and take home. Restaurants often decide to private label condiments or mixes that have become popular with customers. Maid services could private label a line of household cleaners and pet stores could private label a line of pet foods and grooming tools.
Private Label Categories
Almost every consumer product category has both branded and private label offerings, including:
- Personal care
- Paper products
- Household cleaners
- Condiments and salad dressings
- Dairy items
- Frozen foods
While private label products are in the minority, comprising 15% of U.S. supermarket sales, according to the Harvard Business Review, some private label categories are seeing strong growth, according to a Nielsen Report.
Retailers interested in filling their shelves with products featuring their brand name have good reason. Some of the biggest advantages of private label products include:
- Control over production - Third-party manufacturers work at the retailer’s direction, offering complete control over product ingredients and quality.
- Control over pricing - Thanks to control over the product, retailers can also determine product cost and profitable pricing.
- Adaptability - Smaller retailers have the ability to move quickly to get a private label product in production in response to rising market demand for a new feature, while larger companies might not be interested in a niche product.
- Control over branding - Private label products bear the brand name and packaging design created by the retailer.
- Control over profitability - Thanks to control over production costs and pricing, retailers therefore control the level of profitability its products provide.
The disadvantages of adding a private label line are few, as long as you have the financial resources to invest in developing such a product. The main disadvantages include:
- Manufacturer dependency - Since production of your product line is in the hands of a third-party manufacturer, it’s important to partner with well-established companies. Otherwise, you could miss out on opportunities if your manufacturer runs into problems.
- Difficulty building loyalty - Established household brands have the upper hand and can often be found in a variety of retail outlets. Your product will only be sold in your stores, limiting customer access to it. Of course, limited availability could also be an advantage, giving customers a reason to come back and buy from you.
Although private label products are typically sold at a lower price point than their name brand brethren, some private label brands are now being positioned as premium products, with the higher price tag to prove it.