Organic Processing Vo1.5 #5

lot of innovations that will not fit the Brands have higher initial profit
brand, but may fit your retail partner’s margins, without a doubt, but what
private label brand perfectly. does the net look like after deducting
Lastly, having a partnership with a marketing, advertising and other pro-
strong retailer can offer a more secure motional costs like slotting fees? After
route of distribution when other doing some calculations, some brands
branded companies are m ay find that their take
h ome pay may not be
m uch higher for their
branded products than
what they would pocket
d oing private label,
which is primarily sold
o n a net/net basis.
When the processor takes into account
f ighting for market share. Manzana the incremental volume from private
Products, an apple processor, started label, it is often a star performer.
off with branded products, but since Another key step in the research
all of their competitors had their own phase is to have conversations with
brands, Manzana decided to focus on your sales force and brokers to ensure
private label as a competitive advan- that increasing SKU complexity can be
tage. Since then, they have steered managed by the operation. You will
through hard times that have seen all also want to attend some trade shows
eight competitors go out of business. and events such as the Private Label
“Our competitors were focusing on Manufacturer’s Association (PLMA)
their building their brands, doing the show, Natural Products Expo and All
necessary advertising, attempting to Things Organic.
get shelf space, etc. This placed them When courting partners, make sure
in competition with the store brands,” to look for retailers that have strong
said Suzi Kaido, co-owner of Manzana. merchandising strategies and are com-
“Today, many consumers choose the mitted to their private label programs.
store brand. When they find the store Generally, these retailers will have
brand quality is excellent, why pay good loyalty card research and promo-
more? Sometimes the margins aren’t tion programs, launch plans and in-
much with private label, but the vol- store execution programs to support a
ume can make up for that.” private label launch. Also, make sure
that managers and buyers embrace the
organic brand values and don’t dilute
the brand message or focus too much
on just short term goals.

“Our feeling is that private label will expand and further

legitimize the category”

—Matt Kiene, Homemade Baby

Understand your needs. It is often important to do some planning ahead to figure out raw material availability, production bottlenecks and storage needs. Also, when approaching retailers, know the net margin that you are willing to accept for your work and what the competitive retail would be for the private label item. For food, the price point is usually 5 to 10 percent lower. For non-food, it can be 15 to 20 percent lower. Retail margins vary

Private Label 101

So what does it take to be a successful private label manufacturer? Here’s some advice.

Do your homework. Organic manufacturers who are thinking about getting into private label first need to understand the commitment of partnering with retailers and study the bottom line impact of that volumetric growth. Golfer Chi Chi Rodriquez once quipped, “It ain’t what you make, it’s what you take home that counts.” In business terms, this means take a hard look at your net numbers.

widely across different channels. Generally, club stores work on a 13 to 17 percent net margin, whereas supermarkets should operate around 22 to 25 percent or higher (natural channels operate on 33 percent or greater) and require calendar promotions to encourage trial and drive sales.

Know what is expected of you (and get help if you need it). The details about what retailers expect vary. Most supermarket retailers have upfront costs for formulation testing and packaging development for their private labels. Some may prefer to provide their own packaging, but generally they are interested in a complete product quote. Retailers may expect to get a better price if they assume responsibility for the labels. Some retailers also ask to have the store name as well as the private label brand on the product, which can add complexity, requiring you to deal with several separate labels.

In addition, retailers have lacked forecasting skills and need assistance to find the right product and promotional mix to drive sales. To solve this issue, some of the larger manufacturers will have a separate sales team manage their private label accounts. Other manufacturers use a broker to work with the retailer and help work out bumps if their product is not selling and ensure that the retailer is representing their product well and promoting it in advertising. Broker fees are usually about 3 percent.

Once Again Nut Butter works with Daymon Worldwide as their broker. Daymon, like other major brokers, will actually station one of their own employees in the retailers’ corporate offices to work as a liaison between the retailers and the manufacturers they represent. Because of this relationship, Blatz of Once Again Nut Butter said she is able to focus 75 percent of her time on branded sales, even though about 50 percent of the overall sales come from private label.