Private Label – Meaning, History, Advantages, Creation and Examples

When retailers and wholesalers create their Own Brands it is called Private Label Brand. It is also called a reseller, store, house, or distributor brand. It is a product that is manufactured by a contract or third-party manufacturer and sold under a retailer’s brand name.

Private label brands enable retailers to manage everything right from pricing and packaging to marketing and display, all while stimulating brand recognition amongst consumers.

For example – Worlds largest private label brand “Great Value” is owned by Walmart.

DID YOU KNOW?

Americans in 2018 spent over $146 billion on private-label products with the average household spending nearly $1,200, according to Numerator. Roughly half of Sainsbury and Tesco(the largest food chains) in Britain sell in-store label goods. Germany and Spain also have a high percentage of private-label sales.

Private Label History

Before the upsurge of online marketplaces, retailers traditionally stocked their shelves by making deals with manufacturing giants like Procter & Gamble or Nestlé.

Those large consumer-goods conglomerates pushed out smaller brands, demanded premium shelf space, and business for other benefits as part of their deals with big retailers like Walmart. Subsequently, Walmart took the opportunity to use the data it collected in its stores to build its private-label brands.

Advantages of Private Label

1. High-profit margins

Retailers generally can earn a large profit margin as there are no middlemen in private labels. Additionally, retailers have authority over the pricing of products. The range of margins in private labels can be from 20% to 50% of the selling price.

2. Control

Private labels allow retailers to control product determinants such as pricing, size, package design, production and distribution. Retailers have the liberty to develop and execute innovative ideas to increase the market share above national brands.

3. Competitive Edge

The product mix proposed by various retailers is usually quite similar.In such cases, Private labels manage to be a unique offering. The retailer has a competitive advantage by extending unique private labels.

4. Creating Customer Loyalty

Private labels, to some extent, help in intensifying customer loyalty. Well placed and desirable private labels along with exclusive brands have the tendency to develop the retailer’s image and draw attention to the store.

5. Competitive Edge

Private labels can act as ‘category fillers’ to cater to Indian buyers across different price points.

6.Quick Offerings

Another reason retailers prefer to opt for private labels is to fill the gap in product offerings. This gap may be due to the non-availability of any specific product or category.

Challenges faced by Private Label retailers

  1. Competition from well-positioned international brands.
  2. Lack of retail rack space for holding other brands on board.
  3. Increased dependability due to outsourcing contract manufacturing.
  4. As private labels are sold at a relatively lower price, they tend to be perceived as being of low quality.

Examples of Amazon private labels

The brand Amazon worked on over 100 private-label brands from the years between 2009 to 2018. This booming rise has been supported by the resourceful data Amazon gathers from its marketplace. Amazon private labels from 2017 to 2018 witnessed a minuscule growth of 2% in dollar sales.

On the contrary, for Amazon, brands selling in the core consumer packaged goods (CPG) categories showed a steep growth coming close to a strong 81%.

Trader Joe’s

Grocery chain stores, ‘Trader Joe’s’ has demonstrated the power of private label since its commencement. The firm had over 503 stores all over the nation across 42 states and in Washington, D.C by November 2019. The retailer has no internet presence, and unlike any other grocery retailer, more than 80% of Trader Joe’s products are private label.

Sometimes having their private labels named in accordance with the ethnicity of the food in question, Trader Joe’s markets its products in a unique way that makes it easy for consumers to identify

“Trader Jose’s” (Mexican food), “Baker Josef’s” (flour and bagels), “Trader Giotto’s” (Italian food), “Trader Joe-San’s” (Japanese food), “Trader Ming’s” (Asian food), “JosephsBrau” (beer), and “Trader Jacques'” (French food and soaps)

Walmart

Walmart, Inc. offers private brands just like numerous big retail and grocery chain stores. These store brands are nothing but lower-priced alternatives to name brand products. ‘Sam’s Choice’ & ‘Great Value’ are Walmart’s leading private labels.

18 private labels of Walmart do more than $1 billion in sales. The largest private brand Great Value does more than $27 billion a year globally Did you know that 84% of Walmart customers purchase private label products. That means four out of five shoppers regularly bypass big-name brands to buy items with Walmart’s own stamp of ownership on them.

Sam’s Choice

A retail brand in the food and selected hard goods was introduced initially as Sam’s American Choice in 1991. Sam’s Choice is named after Sam Walton, founder of Walmart. It makes the premium tier of Walmart’s two-tiered core corporate grocery branding strategy.

Sam’s Choice is recognized as a premium retail brand and sells products at a price surprisingly low compared with other standard national brands. It generally either extends its competitive products in a current product category or items in categories where the market leader is an “icon” (for example, Coca-Cola in the soft drink category).

Great value

Walmart’s Great Value brand earns more than $27 billion annually. Products offered by the brand ‘Great Value’ are usually claimed to be equally good as national brand offerings, however, are generally retailed at a cheaper price because of lesser marketing and advertising expense.

As a house or store brand, the Great Value line doesn’t comprise of offerings provided by Walmart; instead, it is a labelling system for items produced and packaged by several small agricultural and food businesses

Walmart looking to private label for growth

According to Jack Pestello, senior vice president of food and consumables for Walmart’s U.S. operations, “the company has decided to get really serious about private brands.” Walmart also charged up its team that works on private labels, Pestello told the Democrat-Gazette, going from “a very small base” to more than 100 people.

“The majority of the team is solely responsible for going out and finding awesome products, finding suppliers who can make those awesome products for us, make sure we’re driving cost inefficiencies out of the supply chain,” while still creating a quality product and a consistent experience for customers, he said.”

Walmart is refreshing its private brands with trendy, premium products such as Unicorn Sparkle ice cream They launched Great Value Unicorn Sparkle ice cream in April 2019.

Walmart also launched a private label skincare line in 2019. Walmart elevated its beauty game with a private label skincare line, named as ‘Earth to Skin’, which was introduced in August 2019 and provided “a luxurious experience for under $10,”

Target

Target at this date as a rand has over 40 private labels and has been uniquely leveraging them compared to its competitors. In early 2019, the company launched its new grocery line ‘Good & Gather’, which aimed to provide more affordable healthy food items

The firm claimed that the launch had so far been very successful and now there are over 650 items available under this private brand. However, Target intends to launch a total of 2,000 by the end of 2020. “We expect Good & Gather will become our largest owned brand,” said Cornell.

Examples of Amazon private labels.

The brand Amazon worked on over 100 private-label brands from the years between 2009 to 2018. AmazonBasics, the company’s most well-placed and profitable brand, dominated growth with 39% of Amazon’s private-label CPG sales, but up-and-comers Presto and Solimo established themselves as key players, driving 47% of Amazon private-label CPG growth.