Competing Against National Brands

During hard economic times, the popularity of generic grocery items — products packaged and distributed by a grocery chain itself — increases. These products tend to be cheaper for the consumer since they do not carry the cost of huge marketing

dollars and fancy promotional packaging. The same holds true with private-label products for distributors and their customers in the jan/san industry.

In today’s recessionary environment, distributors tend to migrate away from selling national brands, says Fritz Gast, president of P.B. Gast & Sons, Grand Rapids, Mich. Reason being is that distributors can make a better margin on selling their own private-label products than what they would by selling national brand name products.

Gast, who operates a private-label house, says his company has achieved as much brand-name recognition in its marketplace as most of the popular name brands. It doesn’t hurt that the company has been promoting its own brand name since 1894.

“There are a lot of people that will get a private label with the idea that they will develop that as their bargain brand,” says Gast. “Our philosophy has always been that it’s our lead line, our quality line and there is no reason to denigrate that line because we think it is every bit as good as the national brand label.”

A private-label product is a manufactured good that a distributor purchases from a supplier, with the intention of renaming, repackaging and selling it under the distributor’s own brand name.

Depending on the agreement between a manufacturer and a distributor, the manufacturer sometimes handles the packaging and labeling for the distributor for an additional charge. Otherwise, the distributor is responsible for the process of dressing up the product as its own.

“The problem with private labels, is you have to choose a path as a distributor. The path you have to choose is whether you want your private label to be high quality, middle road or cheap,” says Fred Kfoury Jr., president of Central Paper Products Co., Inc., Manchester, N.H. “In other words, it is very difficult, unless you are a very large company or part of a marketing group that does a committed-buyer program, to establish a multi-level brand identity.”

However, some distributors can use private-label products to compete with the national brands by setting competitive price points. They can also use private-label products to build customer loyalty. Building a following from scratch through private-label products, especially in rough economic times, is challenging because smaller distributors do not have the marketing budget compared to their larger-sized competition.

Private-label Upside

Private-label products can be beneficial for distributors because they are able to establish a one-on-one relationship with their clients, honing in on their needs and creating products that fit those needs.

Private-label distributors can also be more nimble and react quicker to their clients or their niche market needs when they arise because they have control over the building of that product.

“Once people get started on a brand and they like it, they tend to have brand loyalty whether it is private label or not private label,” Gast says. “It affords us better margins in general. So if we need to get very competitive in a given situation, we feel that we have the flexibility to do that.”

In addition to setting a competitive price point and building customer loyalty, another way private-label distributors can set themselves apart is to emphasize quality. Distributors can utilize their resources to offer private-label products that eliminate waste, cut labor, manage inventory and are environmentally friendly.

“The economy and the mindset of the buyer is telling them to use more specialty products,” says Tom Epstein, president of Continental Research Corp., St. Louis. “Clients are buying value-priced soap and scrubbing a little harder. But for the hard-to-resolve issues they face, they want the best products. Private-label can outpace a brand name when marketed and packaged properly almost every time.”

Continental Research Corp. is 43 years old and carries private-label chemicals as well as a complete line of industrial supplies. It is a value-added proposition along with the ability to customize products for its clients that makes private-labels an attractive option for the company, says Epstein.

“Continental goes with value-added always because it tells them we are a large company that puts a full court press into product quality and development of new specialty products,” he says. “Private-label, just like brand names are not one size fits all. Some are value priced while some are value-added.”

Although some private-label products can be value priced, certain private-labels are not advantageous in today’s recessionary environment, however. These products include high-ticket items such as expensive floor equipment and any product or program that requires an upfront investment, says George Abiaad, president of Royal Corp., Santa Fe Springs, Calif.

“Most companies and their mangements do not have the patience to see things through over time, especially during this economic down swing,” says Abiaad. “They are looking for instantaneous cost reductions.”

Traveling Down The Private-label Road

There are various other reasons why distributors go the private-label route. Historically, larger distributors offered private-label products more as a defensive move rather than a lower cost alternative, according to Abiaad.

During the past 20 years of private labeling, Abiaad’s company has slowly developed an extensive collection of private-label offerings to cover several qualities and pricing criteria in its own brand that competes alongside all the major national brands. Many of Royal Corp.’s products are manufactured to its specifications by the branded companies.

“We strongly felt early on that it is rare to have one particular brand that can fulfill the end user need effectively. Our goal was developing in a collaborative manner, specific solutions that exactly hit the mark,” Abiaad says. “This approach can become a nightmare if you attempt to be everything to everyone. But if you have market focus then you can construct specific programs that solve the exact needs in an effective and economic manner.”

One challenge for private-label distributors is their inability to compete in research and development on the same level as a large cleaning product corporation. Another challenge for private-label distributors is the need to purchase and or secure products and packaging in large volumes which can tie up money.

Private-label distributors also have to be concerned and pay particular attention to the lines of distribution in their production process.

“You have to make sure that it is coming in and that it is coming in on the right containers and the product that is coming in is consistent. If it is a less than ideal product, you are stuck with it,” Kfoury says. “Try fighting in court in China. Private label can be a complicated process if you care about what your company is doing.”

Proceed With Caution

Although private-label products may appear to be a boon to business, in this time of uncertainty private-label distributors should be cautious, as they can be caught up indirectly in the recession, even if business is doing well. For example, if a manufacturer goes out of business, then a distributor is forced to find a new manufacturer who can produce a product of the same exact quality.

A comprehensive marketing strategy is recommended for a distributor who is considering private labeling its own products. Royal Corp. has its own in-house graphic designer with a masters degree in fine arts in graphic design. This professional has spearheaded an effort to develop elaborate branding for the company’s private-label lines.

“Most importantly it has allowed us the freedom to create our own customized illustrative tools to market our brand and create training aids to specific customer needs,” Abiaad says. “This approach has advanced our branding cause tremendously.”

Packaging and marketing at P.B. Gast is the result of a collaborative effort between the company and its private-label manufacturer.

“We used to buy a lot of literature from them but now they send me a PDF file and I will just run it through our color laser printer and run off the literature when I need it,” Gast says. “You have to have a good cooperative partnership with your private label guys. We have helped them by bringing them a need in the marketplace and they have made the product for us.”

In the end, private-label products can be a potential boon for distributors if they so choose to go down this path. They can also offer a relief that many companies — distributors and end users alike — are looking for in this current economic climate.

Brendan O’Brien is a freelance writer based in Greenfield, Wis.