now account for one of every five items sold every day in U.S. markets. They represent a nearly $50 billion segment of the retailing business that is achieving new levels of growth each year.
For American consumers, private label brands are brands like any other. A nationwide study found that 75% of consumers defined store brands, and ascribed to them the same degree of positive product qualities and characteristics (such as guarantee of satisfaction, packaging, value, taste and performance) that they attribute to bigger, national brands - brands which generally have the benefit of backup by big marketing and PR dollars. Moreover, more than 90% of all consumers polled were familiar with private label brands, and 83% said that they purchase these private label products on a regular basis.
Throughout the U.S., retailers and distributors use private label brands to increase business as well as to win customer loyalty. Whether a private label brand carries its own retail name or is part of a wholesalerís private label program, it gives retailers a way to differentiate themselves from their competition.
Is Private Labeling Right for Me?
Advantages and Disadvantages
As the premium tea industry continues to grow, the way it can be introduced into the market place also is growing. Whether you are considering opening a tea shop, a mail-order tea company or anything in between, your goal will be to get your product to the consumer. This is where the choice of private labeling your tea can become a viable option.
There are many reasons you may decide that it is best to private label your own products, as opposed to selling products branded by another company. One reason is that you now have the power of your own brand working for you, building your unique brand identity. When consumers buy a product for the unique attributes that you have branded, they are much less likely to switch to purchasing from a competitor. The consumer now likes your product, your brand. Unless the competition is actually selling your brand (which can often happen as you expand your sales and begin wholesaling to other vendors), the consumer will continue to purchase from you. And when consumers do start purchasing your brand from another retailer that is great news, because you now have expanded distribution channels.
Another reason for private labeling is quality control. When private labeling, you decide what goes into your product, as opposed to when you are selling someone elseís brand and product. You decide what goes on the label. You decide what claims should be made. You can also decide to expand your own product line. When selling another brand, you donít have as much control over quality as when you do your own.
Now, getting right to the bottom line, a fourth major reason to private label your own products is profit margins. When buying another companyís product line, you are paying more for product. Depending on quantities, relationships with your supplier, and other factors, you may save as much as 25-50% or more when private labeling. Additionally, many high-quality privately labeled products can actually fetch higher retail prices than the brand names on the market.
Private labeling can also offer a way to bring your product to market if you are missing a component of some sort. For example, if you are the supplier of the tea but, because you are a small business, you do not have the resources (facilities, machinery) to pack your tea, then outsourcing the packing to a private labeler can get your product to market.
There are many private label companies that specialize in all facets of tea and can provide a wealth of expertise, particularly for a start-up tea company. Letís assume you have simply an idea of a line of teas you want to embody your brand. Some companies can help by providing the combined resources of professional tea tasters and experts on world tea markets. Some emphasize automated blending and hygiene. Most can name, design, produce and ship your product to you or your customers. Working together, you can also explore marketing concepts, allowing you to capitalize on current trends without having to wait until you are in a position to start your own research and development.
|Coffee Bean & Tea Leaf's line of |
whole leaf tea bags.
Additionally, concerns for set-up, artwork, timelines and the finished product rest on the shoulders of your private labeler. Most companies will have the resources to design dramatic and attractive packaging for you.
Some private label companies can even offer national training to you or your sales staff as well as geographic product analysis. These are very important benefits as your product distribution grows. If you are working with a well established company that is not only a private labeler of tea but also carries their own proprietary brand, then you can benefit from their specialization in tea. Of course, after a certain point you may then become a direct competitor with your private labeler. At such a time, you should develop a smooth conversion plan with your private labeler, building up your production resources to take your product to market independently.
In using a private label, you will have several advantages over national brands. While national brands have recognition in their favor, your product can also become well branded and recognized through effective distribution networks. You will have total control over quality whereas national brands can, by necessity, buy lower quality products due to high volume requirements. Further, private labeled products allow for more individualized creativity in creating your visual identity; in an attempt to catch the customerís eye, national brands tend to fall into repetitive design patterns.
One of the biggest disadvantages in using a private labeler is that your priorities wonít always line up. This can easily happen when you are sharing the process with the supplier. If the private labeler is packing tea for their own brand, they must meet their deadlines and prior commitments which sometimes necessitates your private labeled product taking a back seat. This has the potential to become a very big problem for your new or existing brand, especially if you are in the middle of a time-sensitive promotion.
Lead times can be a very important factor in the choice of what private labeler to use; sometimes lead times are not substantiated. Be sure to verify whether the lead times youíre given for product delivery are factual.
A service akin to private labeling is contract packaging. Why select a contract packager and what factors do you need to consider?
When choosing a contract packager, you are developing a business partnership. The packager must be able to complete your project at a competitive cost that is aligned with your time schedule, and provide quality assurance. The packager may also be able to help you with production facilities, equipment, physical facilities and personnel training, all of which provide challenges for start-up businesses.
|David DeCandia and Sanje Widyaratne, CEO of Walter's Bay Co. in India.
Depending on the nature of your product, here are some important issues to consider when choosing a contract packager:
Location: You may have to travel frequently for a hands-on approach to your product progress. You also need to consider the cost of shipping from your contract packager to you or your distributor.
Experience: Be sure to consider areas where the company may not be familiar with your product type. Tea is a specialized product and cannot be processed by just anybody. The contract packager should have experience with tea and may very well be in competition with you.
Integrity: You can never get enough! Investigate into the levels of quality control the prospective supplier may have. What certifications do they hold and how can they help you?
References: These can help with identifying the process you decide to take with the packager.
Flexibility: Personally, I think this is one of the most important concerns since you may need to make changes as you go through the process of deciding how to market and distribute you product.
Whatever direction you decide to take with private labeling and contract packaging, your main goal should always be to bring consistent, high quality products to market. You can never fail if this is your core competency. For more resources and advice on these topics, consult with the Tea Association of America, Specialty Coffee Association of America, and attend conferences such as Take Me 2 Tea Expo.
David DeCandia is tea buyer for the Coffee Bean & Tea Leaf chain. Please note: DeCandia conducted a workshop on the subject of this article at the Take Me 2 Tea Expo, March 21-23 in Las Vegas.