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Private Labels
Tom Leveen
07/02/2002 Facts and Figures for 2002 so far
Retailers should be pleased to learn that launching a store brand is not likely to deplete their resources, although a failed attempt might give their bottom line a temporary dip. While the specifics of starting a private label line vary from retailer to retailer, most of the overall factors to consider are the same for all owners. The physical size or net worth of a retail store is not the deciding factor in owning a private label, as both small and large stores can have their own brand. A private line, however, may increase the appearance of size or influence to customers, which can be important for grabbing their attention. Displaying a store brand distinguishes the small retailer. "One [advantage] is having your own identity," said Rick Money, president and chief executive officer of Tempe, Ariz.-based Sarken Nutrition Corp., a manufacturer who offers a private labeling program. "You'll be advertised alongside national brands," added Ken Choat, director of scientific affairs at Somerset, N.J.-based Reliance Private Label Supplements. Such placement equals company strength in the eyes of the customer. Is It Worth It? A Gallup poll cited by the Private Label Manufacturers Association (PLMA) indicated 33 percent of 1,510 primary household shoppers purchased store brands in drug stores. Additionally, 36 percent of the respondents said at least 20 percent of their monthly grocery spending was spent on store brands. PLMA also stated that "store brands now account for one of every five items sold every day in U.S. supermarkets, drug chains and mass merchandisers. They represent a nearly $50 billion segment of the retailing business that is achieving new levels of growth every year." The biggest step in tapping into this $50 billion industry is an honest assessment of whether the retailer can move the product off the shelf. Pull-through is the only way to get a return on the investment. Some retailers might buy 1,000 units of a private label product, but spend more than a year trying to get the product off the shelf, which may not be enough pull-through to warrant the foray into private label. Retailers need to be focused on their goal in order for their private label experience to be positive financially. Luckily, many manufacturers are determined to help retailers along the way, even if it means asking tough questions. "The first strong recommendation I would make to them is to make sure they are committed to their private label," Choat said. "Make sure that private label is exactly what they want, because it does require more commitment to training on a particular product, on particular formulations. It means they are putting their name out there in a way they may not have done before. They are putting a bit of their reputation on the line, so they need to make very sure this is definitely what they want to do. Once they've made that decision, I would say just look around at the success private label has had throughout many different kinds of industries. Look at the local supermarket and know that private labeling has been a very successful part of the profit making for supermarkets and other kinds of retail markets." Most manufacturers agree the No. 1 reason to have a private label product is exposure. "Every single day, you will be able to put your name in front of that customer," Choat said. "Whether it sits on your shelf or their counter-top, you will have, essentially, a free form of advertising available to your customer every day." Also, customers are often impressed that the "mom and pop" retailer is large enough to have its own brand. Another way to stand out from the rest of the crowd--even from other retailers--is by custom-formulating a unique supplement. If retailers want to truly set themselves apart from the pack, customized products are one of the best tools to use. Apart from the marketing reasons, custom formulations allow retailers to blend their favorite ingredients into an exceptional product. "Many of our customers are pharmacists, and they are able to design their own formulas," Money said. Advertising a store brand and formulating a custom blend lead to one thing: the bottom line. Fortunately, the news on that front is good. "Most brands in private label offer at least a 50 percent margin," Choat said. "Margins for national brands quite often have been trimmed down to as low as 40 or even 35 percent." Choat brings the end consumer into the picture when discussing the possible success of a dietary supplement private label product. "If you can move [consumers] to that private label product, it's a product they will not be able to buy anywhere else," he said. "You can galvanize their loyalty and keep their business for a very long period of time. It's a competitive advantage to have a private label versus a national brand. It will bring that customer back time and time again." A retailer in any line of business could hardly ask for anything more. Finding a Manufacturer As with any major purchase, retailers should comparison shop before hiring a manufacturer. There are several factors would-be store-brand retailers should review. First, does the manufacturer have its own facility? Subcontracting "adds additional costs to a product," Money said. Additionally, the company should have been around for some time and have experience with private labeling. Customer service to the retailer, Money added, should also be outstanding. Next, how are materials sourced and tested? Choat said that quality should take priority. "You will want to know for sure that when those products are made, the best materials are going into them," he said. "Make sure the process of making the products is a thoughtful, meticulous process that protects the retailer against adulteration, cross-contamination and other kinds of quality issues." Finally, what is the turnaround and response time? Typical industry turnaround for a first-time customer varies greatly. Some have turnarounds of a week or less, but most retailers can expect a two-week minimum wait before their newly minted private label is shipped. "Typically, turnaround times between placing an order and receiving a product can be two or three weeks," Choat said. "That's an operational barrier for some." Money added manufacturers who either have the raw materials on hand or on-site label-printing facilities--or both--will have significantly reduced turnaround times. In choosing a manufacturer, spend some one-on-one time with potential partners. "The best thing to do is ask intelligent questions," Choat suggested. "If at all possible, pay a visit to the manufacturer." Most manufacturers will be happy to take a potential client around the shop floor. Retailers should be sure to ask about this in their initial contact with a manufacturer. Whether to personally design a label or have a label professionally drafted is up to the retailer, and manufacturers are equipped for either choice, often employing their own design team to create a label to the retailer's specifications. The label process is a simple, although multi-step, process. "If we work up a label design that incorporates existing artwork--for example, if they have a store logo--then we ask them to send it in whatever best form they have," Money said. "We take that artwork and incorporate it into our label design, and typically we print a sample label and send it back to them for approval." Most retailers already have artwork--signs, letterhead, etc.--label-ready. There are always exceptions, of course: What if the retailer's label is simply unattractive, uninviting or otherwise not very well-designed? Fortunately, many manufacturers will try not to let that happen to their customers. "We would address that if we felt it didn't have real appeal," Money said. For retailers using a supplement manufacturer without on-site design and printing facilities, there are a few things to keep in mind when shopping for a label manufacturer. "[Look for] a company who can work with you to achieve the artwork and finished product you desire," said Susan Herbert-Haynes, a salesperson at Muncie, Ind.-based Premier Label Co. Inc. Other things to look for: "Skilled staff, personal service, the latest technology, high quality, on-time delivery and competitive prices," she said. While shopping for a manufacturer, all retailers will be keeping a watchful eye on their checkbook. What's the going rate to get a private label product on the shelf? The bottom line here seems to be: it all depends. The ingredients in a product greatly affect price. A specialty ingredient such as green lipped mussel extract retails at a higher cost than gingko biloba, for example. Opting for more unique or even trendy ingredients could raise the price of the store brand to an economically disadvantageous level. "The thing to look at is not what the product cost is, but what it costs to do the private label as opposed to buying the product from us with our label," Money said. Possibly the single largest barrier to retailers is the minimum purchase requirements. This will be true of any manufacturer, although the minimum purchase--like so many aspects of private labeling--varies greatly. Minimums range from 1,000 bottles to a few hundred bottles, to a stated capsule/tablet minimum. "If they don't feel they can sell 250 units over a reasonable period of time, it's probably not economical for them," Money noted. Choat agreed that minimums can prove an operational downside. "Some retailers might be discouraged in terms of the minimums that are sometimes required by some private label manufacturers," he said. "Typically, they can order single amounts of any given SKU of a national brand from a distributor, but sometimes many private label manufacturers require much higher minimums per SKU, per product." Minimums for custom formulations raise the price even more. "For custom formulations, in order for us to develop something that is customized specifically for a retailer, there's a certain minimum that is required in terms of number of capsules or tablets," Choat said. The manufacturing line requires a minimum run. "In order to send it through the manufacturing process, we cannot have less than, say, 100,000 tablets or capsules." Labeling is another area where price variance depends on a number of factors. The cost of labels depends on the size, quantity ordered, number of colors printed, type of material used and coating. "Each label is custom quoted according to the customer's requirements," said Herbert-Haynes. Complexity of design can raise the price of a label, while an on-site design team and on-site printing can lower it. Some manufacturers will, for little or no additional charge, apply labels provided by the client. Legalities and Marketing Whatever the cost, retailers must be certain the label design meets Food and Drug Administration (FDA) requirements, or they could find their brand-new privately labeled formulation being yanked right off the shelf. "They do spot checks, they walk into retailers and look at labels," Money said. "Not only do they look at the label itself, but they want to make sure that what you say on that label is what's in that product, so they will do testing on the product as well." To meet label claims, it is necessary to know the regulations governing them as well. "FDA regulations govern the nature of the claims that can be made," said Marc Ullman, partner at New York's Ullman, Shapiro & Ullman. "Sometimes claims can be a challenge. There are precise technical regulations relating to things like net quantity of content, statement of identity and layout of supplement facts boxes." Retailers should consider working with legal counsel on labeling, particularly when it comes to claims. Lawyers and consultants typically do not write the claims themselves, but rather help shape the claims and determine their legality. Once the product is finished and arrives at the retail store, marketing becomes the next big priority. How to advertise the label itself, and will the manufacturer lend another hand in doing so? Some manufacturers offer promotional assistance in the form of posters, shelf talkers and bag stuffers. Others help retailers design advertisements for the local magazines and papers. And some manufacturers can provide the human touch by arranging for in-house consumer seminars. There is a lot to consider before contacting a manufacturer, and even more to consider once a manufacturer has been hired. Overall, like any promotional campaign, it takes money to make money. It also takes dedication to the product and keen salesmanship. Mom-and-pops stand to achieve great success from private label, not only on the monetary front but also in raising awareness of the store. "The average size retailer has found it advantageous," Money said.
Contract ManufacturersRetailers looking to enter the private label market will encounter a range of contract manufacturers offering business opportunities. Health Supplement Retailer and its sister publication, Natural Products Industry INSIDER, bring you this select list of contract manufacturers that offer private labeling for retailers.
A & Z Pharmaceutical
Abunda Life Laboratories
ADH Health Products
Alternative Pharmaceuticals Inc.
Apotheca Naturale Inc.
Arizona Nutritional Supplements
Aspen Group Inc., The
Ayush Herbs Inc.
Beehive Botanicals Inc.
Bio-Nutrient Products
BioZone Laboratories
Capsugel
Edge Laboratories
Energique Inc.
FoodScience of Vermont
Gourmet Nutrition F.B. Inc.
Ion Labs
Natural Alternatives International
Natural Nutrition Center
NHK Laboratories
Northridge Laboratories
Novus Optimum Inc.
Nutra Labs Research Inc.
Nx Generation
PKI Nutrition
Sarken Nutrition Inc.
ShoMe Natural Products
Starwest Botanicals
TSN Labs Inc.
UAS Laboratories
USA Laboratories
Vesta Pharmaceuticals
Vitamer Laboratories
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Launching a private label--or "store brand"--line of dietary supplement products is a decision to be made thoughtfully by retailers. There are myriad decisions to be made and manufacturers to choose from, and as many "pros" as there are "cons" to consider before making the private label commitment. 
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