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Being the best Private Label operator

It is vital to focus on a few critical key areas to become a best in class operator

By Koen de Jong and Paul Stainton

The private label market can be characterised as a quasi monopsony. This is a market form in which a few very powerful buyers interface with many suppliers. It results in very fierce competition amongst suppliers, made even more intense due to an overcapacity in manufacturing in almost every category.

Without retailers, manufacturers of private label products simply cannot get their products in front of the consumer. For a manufacturer, a contract to supply a retailer may represent a significant proportion of its overal sales. For the retailer on the other end, one contract will represent only a small fraction of its overall business. This considerably increases the bargaining power of retailers.

In these difficult market conditions, the private label supplier must have a clear vision and strategy to ensure they are an efficient operator and a supplier of choice for their retail customers. It is vital to focus on a few critical key areas to become a best in class operator.

Below we highlight three of them.

Managing complexity in production

As individual retail customers have their own specifications for products to be supplied under private label, the manufacturer often has hundreds of different stock keeping units (SKUs) to deal with, creating huge complexity in the production factory.

Mistakes can often be made if a wrong ingredient or packaging component is used. With high-speed filling lines, the consequences can be quite dramatic. Furthermore, it is a challenge for a manufacturer to keep machine downtime to a minimum. Another consequence of this enormous variety in the product range is the need to hold relatively high stocks, tying up working capital, not only of finished products (in order to be able to react to orders promptly) but also of raw materials, packaging and auxiliary materials. To reduce the risk of packaging material or exclusive raw materials becoming obsolete, excellent stock-keeping procedures must be in place.

Efficient allocation of resources and driving out costs

Private label manufacturers work in a highly competitive market, often having to deal with relatively one-sided trading relationships. Therefore, it is of vital importance to a private label manufacturer to handle both labour and capital with extreme efficiency. Furthermore, there is the constant looming threat of losing the supply contract to a cheaper competitor. It is therefore essential to remain competitive by keeping a very keen eye on the costs base of the company as a whole. A branded manufacturer is often able to absorb forced price reductions or a rise in production costs as it generally has better margins. Alternatively, there is the possibility of reducing marketing and product development expenses.

This, however, is a luxury unknown to the private label manufacturer. As a rule, competition is fierce, and it is a constant battle for manufacturers to try and keep costs down as they simply do not get away with inefficiencies. It is characteristic for the private label industry to put a very lean structure in place and to continuously, and sometimes almost obsessively, attempt to cut costs. Cost culture, in both thought and action, has to be deeply ingrained in the company’s fabric.

In attempting to reduce costs, activity-based costing can provide managers with important insights into the factors that are of influence on the total costs within the company. Traditional costing systems often fail to accurately determine the actual costs of production and the costs of related services. Consequently, managers make decisions based on inaccurate data, especially where multiple products are involved as is the case in a private label organisation.

Instead of using broad arbitrary percentages to allocate costs, activity-based costing seeks to identify cause-and-effect relationships to objectively assign costs. Once costs of the activities have been identified, the cost of each activity is attributed to each product to the extent that the product uses the activity. In this way, areas of high overhead costs per unit can be identified and attention directed to finding ways to reduce the costs or to charge more for costly products. If multiple products share common costs that are not allocated to the correct products, there is a danger of one product subsidising another. Activity-based costing is of great value for product and customer portfolio analysis.

Competing on elements other than just price

The successful players in the European private label industry are capable of creating added value on top of the physical product. Although this is difficult to measure, it can be of significant importance in the consideration by the retailer to award a contract to a new supplier or to remain with the existing one. The ways in which to add value on top of the physical product in order to compete on other elements than price alone will be explained in one of the upcoming IPLC Newsletters.

Contact us should you would wish to learn more about how to become a best in class private label operator on info@iplc-europe.com.

In the next newsletter we will send out in November our colleague Malachy O’Connor will discuss ‘The Art of Negotiating Private Label contracts’.

This is the second newsletter in a series of 12 that we will publish in the coming months. The previous newsletter ‘How to become a private label supplier of choice’ was published on 14 September and can be found on our website. To read more

How to become a Private Label supplier of choice

Suppliers must help retailers with new private label initiatives that respond to topical issues

By Koen de Jong and Paul Stainton

Retailers seek to deal with technically efficient and innovative private label manufacturers. For the largest categories, retailers pass on the responsibility for quality control, procurement, storage and distribution to their key suppliers.

At the other end of the spectrum we see small, creative and agile suppliers playing an increasingly important role in driving innovation. Among them are manufacturers that respond to opportunities in niches at the higher end of the market such as free-from, vegetarian and eco-friendly categories. In premium and local provenance segments too, mostly small and medium sized companies fill the gap that larger private label suppliers are less able to fill.

Retailers expect their suppliers to quickly respond to market trends and the latest market data. Also, they are expected to have good account management skills and a coherent vision on the category. Suppliers must help retailers drive the market forward with new private label initiatives that respond to topical issues such as packaging and food waste reduction, sustainable sourcing, animal welfare, and carbon emission reductions.

Sense of urgency
Retail organisations are faced with the challenge of keeping shelves stocked with a wide to very wide range of items every day. Supply chain management, in order to guarantee a complete assortment on the shelves with no out-of-stocks, is an immense operation.

Therefore, it is no surprise that retailers are demanding and not interested in problems and complexity from the side of the manufacturer. The last thing they need are suppliers that are difficult to contact or with communication that is slow and inefficient. The extent to which a company is proactive and capable of preventing problems of any nature for the retailer is of major importance. This, and how the supplier manages to overcome difficulties promptly and effectively, determines the trust the retailer has in the supplier. A relationship with few issues and high supply and service levels will lead to a satisfactory and long-term working relationship.

The speed at which a manufacturer can communicate externally with counterparts at the retail-end strongly depends upon the degree of internal communication within its own organisation. That is why all departments within the organisation of a private label manufacturer must have a highly developed sense of urgency.

In order to quickly respond to new market opportunities, retailers increasingly insist on a proactive approach from private label suppliers. They should be capable of innovating actively and successfully, as this enables them to quickly match the introductions of manufacturer brands. Their aim is to keep the time-to-market of private label introductions as short as possible. Today private labels have evolved from following the brands’ lead to showing them the way. Retailers have become active innovators, breaking rules and experimenting with private label to drive category growth.

Account managers of the private label manufacturer should maintain a close relation with the retailers. They should be able to pick up signals at an early stage as this will feed the innovation process. By reacting alertly and proactively, a private label manufacturer can secure a competitive advantage. In addition, raw material and packaging suppliers often turn out to be valuable sources of information. Organising brainstorming and joint product development sessions with the retailer’s category teams have in many cases given the initial impetus to successful product developments.

In one of our upcoming newsletters we shall also address the key competences of a successful Private Label manufacturer and how to compete on other elements than price.

If you wish to find out how your company rates in being a Private Label supplier of choice you could consider the IPLC Quick Scan. To read more click here.

If you have any comments or additions to this post, we would love to hear from you on

Private Label – The Perfect Time for Sales Growth

Private Label is growing in most European countries right now, as the cost of living crisis deepens, with inflation rising rapidly and consumers looking to manage their ever-tightening budgets. It has never been so important to ensure that your business is optimised for strong Private Label sales.

With consultants working across 9 different European countries, IPLC is here to help you grow your business and become even more successful.

From w/c September 12, IPLC will start with a series of informative newsletters. Each will focus on a specific theme, relevant to all players in the Private Label supply chain.

The topics that will be discussed are:

1. How to be the Private Label Supplier of Choice
2. Being the best Private Label operator
3. The Art of Negotiation for Private Label contracts
4. Supercharge your business for your next trade show
5. The ultimate preparation for your customer meetings
6. It’s not just price that will win you more business
7. Is your Private Label strategy still fit for purpose?
8. Driving Private Label growth
9. The right structure to ensure success in Private Label
10. Supplying both brands and Private Label can work!
11. The huge opportunity for the Supply Industry within Private Label

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