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F&B pvt label entrepreneurs must understand competitors, heed feedback
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Saturday, 14 December, 2019, 13 : 00 PM [IST]
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Umesh Kamble and Rohan Halde
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A private-label product is a manufactured good that a retailer purchases from a supplier, with the intention of renaming, repackaging and selling it under the distributor’s own brand name.
Depending on the agreement between a manufacturer and a retailer, the manufacturer sometimes handles the packaging and labelling for the retailer for an additional charge. Otherwise, the retailer is responsible for the process of dressing up the product as its own.
Thus, it can be said that brands owned not by a manufacturer or producer, but by a retailer or supplier who gets its goods made by a contract manufacturer under its own label are called private label brands.
Manufacturers use either their own name, that of a middleman, or a combination of both when they are marketing their products.
Private labelling occurs when middlemen, usually large retailers or wholesalers, develop their own brands. Building a following from scratch through private-label products, especially in rough economic times, is challenging because smaller retailers do not have the marketing budget compared to their larger-sized competition.
Advantages of private labelling for retailers
The last 10 years have brought a huge increase in the number of retailers interested in developing private label brands.
Some of the more distinct advantages these business owners are now enjoying include:
- Personalised product selection for customers, which typically leads to more sales
- Better pricing and quality control
- Building brand loyalty, which keeps shoppers coming back for more
Increased profit margins
How private labels are conquering the Indian retail market
Market research agency Nielsen said, “If all private labels of Indian retailers are put under one roof, it would be the third-largest FMCG fast-moving consumer goods) supplier in modern trade, because the growth of private label brands is rising very fast.”
“It is possible for private labels to reach 50 per cent of the total organised retail in the next decade – assuming that organised retail can reach 30 per cent of the total retail by then, private labels could account for as much as 15 per cent of the total retail in India by 2025,” it added.
In India, the big brands, owned by the big retailers, such as Future Group and Reliance Retail, account for more than three-fourths of the food products sold in modern trade in the country, as consumers increasingly prefer lower-priced products to national brands.
“Private labels offer a good way of economising without compromising on the quality,” said Adrian Terron, executive director, Nielsen.
Tips for food entrepreneurs to grow with private label
Brands that specialise in creating private label food lines are winning, thanks to the strong demand for their low-cost production and branding abilities.
The following are some valuable tips for entrepreneurs wanting to start a food business that is different from cheaper private label foods.
Packaging and labelling
You only have one chance to make a first impression. The way your private label line is packaged and labelled can either make or break your brand, especially in the early months of your launch. Take special care to create a great package and label, and avoid making false claims on your packaging.
Listen to customer feedback
Fulfilling the needs of your customers is a sure-fire way to build brand loyalty. Shoppers notice when a company listens to their comments and makes the appropriate changes. What are your customers saying about your brand? How can you make your product better? Now go and make those changes.
Understand the competition
Retailers typically develop private label products for competitive reasons. To sell the concept effectively, you should know your target retailer’s competitors and how your product will increase their competitive edge. When you approach a company with a private label proposal, show them how and why their target customers need (and will ultimately love) your product. Try using surveys or interviews with potential customers to help reinforce your point.
Keep the quality high
Providing a high-quality private label product can mean that consumers will choose your product over the higher-priced name brand product. Keeping the quality high helps enhance your brand’s perceived superiority, provides the basis for informative and provocative advertising, increases your brand’s sustainable price premium over the competition and raises the costs to private label imitators who are constantly forced to play catch-up.
Develop a premium product line
It is time to start dreaming about the bigger picture for your business. We are living in a unique time where most shoppers are more price-conscious and make buying decisions accordingly. Launching a private label product line can open up doors for your company that you never dreamed were possible.
How can you protect your brand against unauthorised products
The answer is brand licencing. No matter how big or small your retailer is, brand licencing is always a possibility down the line. That is why it is beneficial to understand the basics of what it means and how you can obtain a brand licence.
There are two different candidates for licencing - the licencor, the entity licencing their brand, and then the licencee, the entity paying for the rights to a brand. As a small business owner, you probably do not have intellectual property that you can rent.
So we will assume you are a licensee: You make a great product; let us say you make fruit juice, and you want to dramatically increase sales. Your juice is highly nutritious, it is made with 100 per cent organic ingredients, and has great health benefits. But it seems a little generic. It does not have a brand.
So where would you start? You could go to Coca-Cola and look at all their different properties, or Pepsico or other food and beverage companies.
Whatever be the reason, that kind of licencing is a great way to get consumers into stores. The key, of course, is to find the right fit between the brand and your product. It has to make sense.
Smart licencees create an in-house licencing department. Or use consultants. Consultants know the business. Most were in-house on the manufacturing side; now they consult with licencees to acquire licences and help negotiate fees. Negotiating is critical. There is no set royalty rate; it really depends on the product and the popularity of the brand of the licencor. But in general terms, the fee is based on wholesale sales.
Aside from understanding the going rates, understanding and negotiating upfront guarantees is also critical. Often a brand will want a guarantee of $X. Even if you don't sell enough products to justify that fee, you still have to give them a cheque for that guarantee upfront.
What are some of the pitfalls on for the licensor?
The quality of the licensed product is obviously extremely important. If you have a great brand, but it gets displayed on a poorly-made product, that hurts your brand.
The same is true if too many products end up in the marketplace, do not sell through, and wind up in discount bins. That can also distress the brand.
A major brand that licences out some product categories must be very careful about not just managing inventory, but also managing where that inventory can be placed.
Smart licencors do not give up control over any function or area that can damage their brand.
So, whether you become a licencee or licencor is up to you, your brand, and your goals.
Moving forward with private labelling
Private labels have made tremendous inroads over the past decade. Better margins and economies of scale are driving India’s big retailers to stock shelves with their own labels.
The rich customer insights translate to a significant advantage for retailers’ private labels to create products that incorporate the minute but important details – what prices Indian shoppers are looking for, what value they seek in that price range and what trends they desire.
India is a very different market. In the Indian market, even if retailers come up with a quality product at lower rates, there is a probability that the product may not convert into sales, as the market is not homogenised.
Private labels are still competing with major brands and other private labels. With the changing dynamics of the Indian retail market, they have an opportunity over the retail brands.
(Kamble is founder and chief executive officer, and Halde is senior consultant, Farm to Fork solutions. They can be contacted at umeshretail@gmail.com.)
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