How To Jumpstart A Private Label Program
Often used to plug inventory gaps and win customer bids, private label products can be a profitable part of a jan/san distribution business. And with distributors always looking to get a leg up on their competition, private label products may be the answer — especially with product exclusivity playing a key role in protecting profit margins.
“By promoting their own respective brand, distributors create exclusivity,” says Linda Silverman, vice president of sales and marketing for Maintex Inc., City of Industry, Calif. “There will be no other distributor in the market that can be priced below their brand because they do not have access to it. That is how margins are protected.”
Although private label products have had a stigma of being cheap because they are sold at a lower price point, distributors say today’s private label offerings are comparable to and even exceed national brand quality. With the economy still suffering from the recent recession, customers are basing their product purchases on price. Having a private label brand to fall back on has helped distributors meet their customers’ stringent budgets, while also helping maintain their own bottom line.
“Private label products offer bigger margins, there’s no question about it,” says Daniel Josephs, general manager of Rahway, N.J.-based Spruce Industries Inc., whose company has seen its private label sales increase 8 percent over the last couple of years. “We can save money for our customers and at the same time make a bigger margin ourselves.”
But not all distributors sell private label products. Distributors who do, however, say there is no better time than now to jump on board.
“This is the time to promote your private label brand,” says Silverman. “If you have not done so, there are numerous opportunities and benefits for the distributor.”
Any distributor can create a strong private label program. But finding out if one can be profitable boils down to testing the waters with current customers. Without enough customer interest in a private label brand to offset the high costs of starting a new line, distributors should not move forward. Most distributors, however, are finding that customers are only interested in purchasing the lowest priced products. Thus, distributors’ private label lines have proved to be hot selling items across the country over the last couple of years and are expected to continue for years to come.
The first step a distributor should take in deciding which private label manufacturer is an ideal fit is to get bids from several manufacturers. During this stage, distributors should interview manufacturers to learn their product development process and communicate exactly what they are looking for in a private label product. This includes asking if a certain manufacturer creates custom formulations or if they only duplicate existing products. Custom formulations create exclusivity, but also take longer to create and require higher minimum order requirements for production, while existing products only require a new label with the distributor’s private label name on it.
“For people starting out, the number one thing for people to watch out for is minimums,” says Josephs. “A lot of manufacturers are going to require certain minimums to have your chemicals private labeled. So if they don’t necessarily have the business yet or they don’t know if they’re going to sell it, they might get stuck with a lot of inventory that’s got their name on it, that they can’t return, can’t send back, and that will be very costly.”
When developing a private label program, it’s important that distributors also communicate their expectations for each product.
“Make sure the products are tested to meet expectations of performance,” says Silverman. “Determine lead times and availability as well as customer support. Custom formulas are available but generally require higher minimums for production requirements.”
Distributors should also test the products for durability, if they look good, and that they actually work. It is imperative that products that bear a distributor’s name on them work well.
“While sending out bids and getting pricing and evaluating quality and evaluating capabilities is all good, I think when it comes to a private label company, it’s all about trust and loyalty,” says Josephs. “You want to be able to know who’s making your chemicals, and that you can depend on them. Because it’s your name on it. If I sell a product that has my name on it and doesn’t work, that’s my name that doesn’t sound good. That’s a problem. So you want to make sure you have trust in what your vendors are doing.”
The other key is to find a manufacturer that is willing to design the labels and literature for the product lines, says Fritz Gast, executive vice president of P.B. Gast & Sons, Grand Rapids, Mich. Design can be expensive, especially since the majority of distributors do not have dedicated personnel on staff to create labels or literature. Most private label manufacturers will give distributors design options to choose from.