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Private label and licensing in food and beverage industry
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Saturday, 29 January, 2022, 08 : 00 AM [IST]
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Joshna Joseph
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A private label product is a product manufactured in a unit on a contract or by a third party manufacturer and sold under retailers brand name or through agreement. The retailer decides what kind of product, ingredients, packaging material and labelling to be used.
The retailer has to bear the conveyance as well as the manufacturing costs. This strategy is in contrast to buying products from other companies with those company’s brand names on them. Some examples of retailers who se private labels are Walmart, Costco, Aldi and Trader Joes, Private labelling industries are positioned as lower cost, high quality alternatives to regional, national or international brands.
Four types of store brand product manufacturers are usually present in the market which are as follows:
- Large national brand manufacturers that utilise excess capacity to supply store brands.
- Small manufacturers that specialise in particular product lines.
- Major retailers and wholesalers that provide store brand products for themselves.
- Regional manufacturers that produce private label products for specific markets.
The increase in the need for ready to eat food is further anticipated to enhance the private label food and beverage market growth. The increase in the acceptance of online food delivery has increased the opportunities for the growth of private labels.
Private label food and beverages market is quickly reaching its pre-Covid levels and a healthy growth rate is expected over the forecast period driven by the economic revival in most of the developing nations. However, unprecedented situations due to expected third and further waves are creating a gloomy outlook. This study endeavours to evaluate different scenarios of Covid impact on the future of the private label food and beverages market from 2001 to 2028.
Companies operating in private label food and beverages business are strategising moves to enhance their market share highlighting their USP statements, designing attractive product packaging, offering diverse product folio, and showcasing products on online platforms, being a few of the key winning strategies. Profiles of top companies serving the Private Label Food and Beverages value chain along with their strategies for the near, medium, and long term period proves that private labelling can be best for expanding business.
Lockdowns across the globe in 2020 and continuing restrictions in 2022 disrupted the supply chain posing challenges for manufactures in the private label food and beverages. Intense competition, pricing issues, and shifting consumer preferences will continue the downward pressure on vendors’ profit margins.
The fast pace recovery of developing economies leading to increased disposable income will support the Private Label Food and Beverages market demand between 2021 and 2028.
In practice, however, private label products mostly represent cheap, simple and repetitive. This perception was propelled across all industries by retailers launching their lower cost alternative store brands to complement the more recognised brands on their shelves and dominate the price-sensitive segment.
The Middle East exhibition programme called PRIME (private labelling and licensing in Middle East), helps to connect the retailers to their suitable product private label manufacturers. Such programs have boosted the private label market across the globe.
Food and beverage licensing can be loosely divided into two areas of activity – licensing in, whereby FMCG companies use licensing to create new products and secondly, licensing out, whereby brands license their own brand to third parties.
Nowadays FMCG brands are using licenses to create products in a more focussed and tactical way. The reach of licensing has gone beyond character licensing and now includes brand licensing. Another trend is that licensees in the children’s sector have responded to society’s concerns on health and diet. There are more thoughtful products and licensees developing ideas that are responding to market trends and consumer concerns on ingredients , pack sizes and packaging.
Brand owners recognise that licensing can add value to their brand, help them reach new market sectors and help them realise innovation that they aren’t able to achieve themselves. It also allows challenger brands in categories to compete with their rivals. That said, a brand used for licensing needs to have consumer awareness , retail acceptance and the ability to embrace licensing – for example having a willingness to develop a style guide and a method for approving products. Well-qualified and experienced manufacturers are turning to brand licensing as it allows them to deploy their product development skills in tandem with a powerful brand that will allow them to compete at retail.
Licensing will give brands new options for product development, brand communication and consumer connections. It is an opportunity for brands to innovate and be dynamic while remaining on brand.
Manufacturers who are struggling to get into retail with their own brands or who are eager to create a brand may look to ‘rent’ a brand through licensing to allow them to gain market entry and be competitive.
(The author is senior executive-QA and regulatory at Roha Dyechem Private Limited)
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