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Private Label in the Year 2000

By Timothy J. Castle

Private label is not what it used to be - it is both bigger and smaller, growing and contracting, depending on who you talk to and when.

Wholesale roasters, in the past, have tended to focus on a few key activities, such as whole bean sales to coffeehouses and specialty shops. Others focused on whole bean sales to grocery stores (still a very all-consuming task) while another roasters might specialize in foodservice or office coffee service (OCS). The key now is to remain nimble and flexible, to count on losing a certain amount of business and to plan on growing, often on unforeseen paths.

The definition of private label, as well as the nature of the category, is changing. What used to be considered a traditional foodservice account may now require that all the coffee be packed with their trademark, both for use at the location and for takeout sales. Others may request the brand of the roaster be used, but within such narrow packaging and merchandising parameters that the arrangement essentially ends up looking like a private label deal, only the label in this case is the roaster’s.

Most roasters report that their private label activities are increasing. One roaster attributed this to the advent of Starbucks. “With Starbucks either buying up the competition or driving it out of business and then leasing the locations themselves, whole bean wholesalers face a tough time of it and start looking for other avenues for growth and stability. Even if a roaster has strong whole bean accounts, that market is sufficiently mature that sales growth has to come from other channels and private label is often the first and most logical source for that growth.”

Often, a roaster has been so successful with its own brand that in order to grow private label becomes a virtual necessity. “We had a customer in a large city that had done very well selling Distant Lands’ coffee,” reports Mark McAlpin, of Distant Lands Coffee Roaster in Tyler, Texas. “We had another potential client come to us from the same general area, so we insisted that they sell our coffee under another brand name in order not to undercut our other customer.” In general, McAlpin reports that private labeling is a natural response to the very successful trademarking efforts of Starbucks and others. “That’s what people are responding to and competing with now. We encourage our customers to create their own brand identity for the coffees we sell them. As we have focused on very high-end coffees people don’t come to us if they want something less expensive than our own line of coffees, they want something unique and distinctive. Private label is part of that unique experience.”

Several roasters also report, however, that account turnover is also on the rise. This is explained by the larger number of roasters who have just entered a new phase of expansion and are looking for new business to fund a new roaster, new packaging equipment or a larger plant. Further, the bigger, regional and national roasters, once powerful players in the private label landscape, are being acquired by bigger and bigger companies with little interest in private label - they see it, at best, as a distraction from the core business (whatever that happens to be at the time). Consequently, many smaller but growing roasters are finding themselves with many private label opportunities. Many of these are just someone else’s client looking around for a better deal, and with a declining NY”C” many private label clients expect their costs to drop in lock step with the market. But there are also a lot of new opportunities. For instance, Mike Mountanos, president of Mountanos Bros. Coffee Co., reports that his coffee will soon be in a chain of cafés that will, in turn, be located within a chain or upscale housewares stores. “Originally, in talking to the café operators,” Mountanos recalled, “this looked like a private label deal. But then they saw our logo and wanted to do something around our trademark. It looks like we just sold them coffee but the structure of the deal, the level of customization, makes me think it is closer to private label but with our trademark as an additional benefit.”

Mountanos considers his company to be a medium sized regional roaster with 45 employees. “We’re trying to get our fifth roaster up and running right now, some people might consider that big but I try to keep it in perspective and keep in mind how much more we could grow. I don’t like to take business away from other roasters but pursue business that is really new, like the opportunity that came up with the chain of cafés in the home design stores.”

In fact, Mountanos noted, a good portion of his private label business is now done for other roasters who have either run out of capacity within their own plants or who do not have the necessary packaging equipment. “Yet, with every increase in private label we also try to expand on our own branding efforts, encouraging customers to use our preprinted cups, for instance, sometimes, as I’ve mentioned, the two efforts can work together where we end up with our trademark in a situation that would have traditionally been private label.”

This may be because of the omnipresence of the Starbucks brand and private label clients wanting to reach out for every advantage possible. They may not go to a roaster with the idea that they want to use another brand but their own, but if they like what they see, they may change their minds.

Mountanos also noted that private label tea is also growing. “We’ve been trying to avoid it but we’re doing more, and at the same time we’re introducing a new brand of Lindsay’s Tea. Our private label can be done in 30 gram packages, canisters, tea bags and packaged for iced tea. We also sell a lot of one kilogram bags and we also pack into canisters. Tea in total amounts to about 5 - 10% of our total sales.”

Not everyone wants to be a private labeler, however, a notable retail roaster in the Bay Area asked a million pound per year private label client to find other accommodations. “We just felt that it was not where our focus should be,” a member of this roaster’s management team reported, “it distracted us from producing the best possible product for our stores, and that was unacceptable.”

Which is fine with wholesale roasters like Mike Mountanos who reports that although about 50% of his dollar sales come from private label, “That half of our sales represents a lot more pounds. For us it is a very competitive business and the expectations of the client in this segment are that our fees should be very, very low. But that kind of business, if it is stable and consistent, can be very good over time.”

Other roasters also report that private label business has gotten tougher over the past few years. “The private label account that I am most involved with is McDonald’s,” reports Leonor Gaviña-Valls vice president of F. Gaviña & Sons, Inc., “and they are very involved with what we do for them. They want samples every six weeks and they specify the kinds of coffee we can and cannot use. They also specific the percentages that can go in the blends. But this is not unique,” she continued, “everyone has gotten that way. All of our private label customers and even some of our regular customers want to know how much we’re paying for film, filters, cartons, and green coffee. They want to know, and feel they have a right to know exactly what our costs and percentages are.”

This kind of intrusive specificity on the part of buyers, the drive toward increased transparency, may indeed point to the way economic decisions will increasingly be made in the future. Even if part of the cost breakdown includes an amount allotted for the use of a well recognized and highly regarded trademark, that too will be a quantified line item with the degree of recognition being quantifiable and the premium for the trademarks goodwill being justified to the penny.

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