Building Successful Private Label Programs
Whether used to fill inventory gaps or offered as a complete line, private-label products can be a strategic — and profitable — part of a jan/san distribution business. Roughly 25 percent of products sold in the United States are private labeled, according to retail consultant John Stanley Associates.
Private labeling has a long history and a mixed reputation. Some end users believe distributors simply slap their logo on a mass-produced chemical, and give little thought to quality. They see private labels as cheap and inferior generics. Sometimes, they’re right; however, most distributors’ private labels are quality, effective products.
Distributors work closely with manufacturers to modify existing products or develop new ones. Often, the only thing separating one product from another is the name on the label.
“Your name is associated with these products. If the product is good quality, every time they look at the bottle and it works well, they are going to say that company is quality,” says Robert Cronyn, president of Empire Cleaning in Los Angeles. Empire private labels about half of its inventory. It may be harder to get these products into a customer’s facility, but once they’re in, competitors find it difficult to replace them.
Having your own brand differentiates your distributorship from the competitors. No one else has the same brand, which helps stave off price wars with competitors over identical products.
“If you sell a brand name, there’s always an issue with someone doing it for less money,” Cronyn says. “You go through the pitch and spec in the product and five minutes later, the next person pops in and can do it for a nickel less. You don’t have to compete with that on the private label. You spec that in and the next guy won’t have that exact product.”
Mike Bradley, vice president of sales for Capital Sanitary Supply, in Des Moines, Iowa, puts it succinctly. “Only we carry our brand,” he says. Bradley’s company brands about 40 products (out of a 3,000-item inventory), mostly in the specialized area of floor care.
Capital learned that creating its own brand to address specific customer needs builds loyalty. After all, a happy customer is a repeat customer.
“We take our product in and teach them how to make their job come out right. We build loyalty not only to the product, but also the company that helped them,” Bradley says. “Once you have the private-label product in a customer’s hands and they like it and have success with it, they always ask for it again. That helps the distributor. Rather than just any floor soap, they want our brand of floor soap.”
Many customers develop a preference for one distributor. When a private-label product wins a customer, the distributor might win a customer for all its products and increase its profitability.
“When you are carrying five names, you aren’t building value in the name, but in the product,” says Brian Stark, general manager of American Industrial Supply (AIS) in North Ridge, Calif. Stark’s company sells only AIS-branded products. “There is value in a name and there is loyalty to the name. The customer recognizes that value and trust. We are in this for the repeat business, not one-time sales.”
Best of Both Worlds
A private-label product may be as good as or better than its brand name counterparts, but don’t expect customers to know that, or even believe it. Distributors often have to work hard to dispel the “generic” myth; it can be a struggle to get a customer to buy in to the private-label concept.
“I know that there are private-label chemicals being sold out there that they just blend up in their warehouse,” says Brian Garver, sales and marketing manager for The Powell Co., in Lima, Ohio. “Others have good quality control. But when a hospital is dealing with something as critical as their disinfectant, they can’t hang their hat on a generic.”
Right or wrong, many people put a lot of stock in a brand name and distributors need to offer what customers will buy. That can lead to a difficult choice — national brands offer instant customer recognition while private labels offer fatter margins.
San-A-Care in Milwaukee is a national-brand company; it private labels just six products. Private labeling was the only way the company could purchase such price-sensitive items as bowl cleaners and strippers at a reasonable price.
“I like the customer recognition of a national brand,” says Ron Mirenda, San-A-Care’s president. “But the national brand does not provide you with the margin that a private label gives you, so it’s give and take,” he says.
For the best of both worlds, many distributors offer a 50-50 mix. The Powell Co. is heavy on national brands, particularly Spartan and 3M, but also offers a private-label product, Pro-Link.
About 60 distributors carry Pro-Link’s brand, but, while it is not exclusive to Powell, no other distributor in the region carries the line.
“The margins aren’t as substantial as when we had our own private label, Poco, but the margins are fair and are higher than what we get from our national lines,” Garver says. “Plus, we are getting a ton of support from Pro-Link.”
Like many other buying/marketing organizations, Pro-Link trains its distributor reps and also consults on inventory and warehousing management and profitability. The group approach to private labeling also leverages buying power.
The shelves at Empire Cleaning have as many Empire-brand products as they do Clorox or 3M. The even split is a purposeful decision. Cronyn says there are two completely different sets of benefits for each type of product line.
“When we need the benefits of the national-brand product, we sell that,” he says. “When we need the benefits of the Empire label products, we market those.”
Private labels are beneficial for competitive bidding where it boils down to price, Cronyn says. A distributor can bid lower with private-label products and your competitors can’t compare the same product at a lower price.
National brands offer what Cronyn calls “the halo effect.” Name recognition opens doors and builds trust. Customers figure if Empire is carrying a quality brand, then Empire must be a quality company.
“Once we open an account on a national brand and they get to know our service, we can go back in and tell them about our product that’s better and half the price,” Cronyn says.
The Right Partner
Creating a strong private-label program takes time. It is imperative that products with your name on them work well. After all, “If it doesn’t work they won’t call the manufacturer, they will call you,” Stark says.
Take time to get bids from several manufacturers, including any with whom you have a longstanding relationship. Interview them to learn about their product development process. Do they create custom formulations or only duplicate existing products? Be sure to communicate your expectations for each product’s appearance and performance. Also, be sure to ask about turnaround times and training.
“Test all the products,” Cronyn says. “Are they durable? How well do they clean? Do they smell and look good? Your customers are ultimately going to make this evaluation on the product every day. Once you determine what performs well, then work on price with them.”
Distributors may find that they need multiple manufacturers to fulfill their needs. One house may be particularly good with floor cleaners while another is better with soaps. Most importantly, they should be sure they are comfortable with the manufacturer or manufacturers they choose.
“If you don’t have a good relationship with a manufacturer, there are a lot of things that can go wrong. You are at the mercy of the manufacturers for getting the private-label product,” Stark says. “That’s the one drawback with private labels: if the product doesn’t work, they aren’t going to remember the product, they are going to remember the name on the product, and it’s hard to get back in the door after that.”
|Do-It-Yourself Private Labeling
One potential problem with creating a private label is that reorders can take longer than expected.
Becky Mollenkamp is a Des Moines, Iowa-based freelance writer, and a frequent contributor to SM.
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