Standing Apart with Private Label Products

Private label or store brand products are a touchstone in the dietary supplement industry. These products can be an outstanding means to differentiate and strengthen their business, establishing repeat sales with customers. Developing a private label line gives retailers an opportunity to establish trust and repeat sales with customers and to distinguish their business from the competition.

The Private Label Manufacturers Association (PLMA) noted store brands now account for one of every five items sold in U.S. supermarkets, drug chains and mass merchandisers, representing $50 billion of current business at retail. The association further noted consumers’ purchases of store brands vs. national brands yielded $15.8 billion in savings to the consumer pocketbook.

“Private label sales have increased dramatically in the past few years,” said Erin Silva, technical marketing manager, Vitamer Labs. “Retailers understand products with their name on them are the best way to advertise right in the consumers own home.”

That branding goes beyond just building consumer awareness, according to Russ Webb and Marcus Bess from Nuvite Labs. “Displaying your store brand distinguishes you from the competition and allows you to further establish your own identity,” they said. “Also, your private label supplement line is something that your customers will not be able to buy anywhere else. This creates a competitive advantage; it will bring your customers back to your store time and time again.”

In an increasingly competitive marketplace, such exclusivity is important. Phil Vigeant from Reliance Private Label Supplements noted the number of discount Internet sites, consol idat ion of nat ional brand companies and merging of retail chains has made it critical for independent businesses to find points of differentiation. “Private label offers a simple, effective and proven business strategy to ensure customers come back to them for their supplement purchases,” he said. “Also, private label sales can be considered ‘captured market share’ and add tangible value to the business.”

Private label market share also comes with a tidy profit margin. “Many times a private labeled product has a larger profit margin than a product purchased at wholesale, which creates more revenue per bottle sold versus products purchased at wholesale,” noted Kelly Jones, operations manager, Trace Minerals Research. “That said, however, stores need to have money to invest in private labeled products of their own. It’s also not recommended to invest in a private labeled product if you aren’t willing to market it heavily in the store; it needs to be center stage.”

Peter Sokoloski, private label manager, NOW Foods, agreed commitment is key to success: “Private label isn’t appropriate if the retailer isn’t going to focus his attention on it. If you treat it as an afterthought or don’t make it a business priority, then it will suffer the same way as any other neglected product line; and you really don’t want anything with your name on it to fail.”

Consumers are willing to try out private label items, if you bring them to thei r at tent ion. A national study conducted by The Gallup Organization found 90 percent of consumers are familiar with store brands, and 83 percent purchase those products on a regular basis. Similar results were posted in a 2006 study from The Hartman Group, “Private Labels from a Consumer Perspective,” which found only 14 percent of consumers had not purchased any type of private label products in the past three months.

“Branding is no longer the sole domain of national consumer packaged goods manufacturers; retailers have taken a page out of the manufacturing play book and called it their own,” said Laurie Demeritt, president and chief operating officer (COO) of The Hartman Group. In its report, Hartman noted one-third of consumers believe private labels are “identical” to national name brands and almost half (49 percent) see them as “close” but not yet on par with name brands.

Even with the expanding market, there are still many misconceptions about private label or store brand items. Silva noted many retailers believe it is complicated to start a line, or that only large stores can merchandise properly. Instead, companies like Vitamer that are focused private label organizations often have “turn key” systems in place to help start a line, including label development, product selection, promotion ideas and training assistance. “At conventions, we hear retailers say they are not ready yet and will bring it in when they are larger, or when they plan to open a second store,” she said. “However, from the day you open, don’t you want to be selling your own name to your customers?”

Another common barrier of entry is cost. “We believe any company can have their own brand or private label and thereby cut out the middle man/distributor making a larger profit on those items,” said Dennis Fioravanti, CEO, Essential Wholesale. He added there is more of a “just in time” option available for retailers with lower minimums in some cases.

This is not to say that time isn’t a critical component. "It can literally take months to design and test a nutritional powder beverage, as multiple components go into their design, including formulation, packaging, labeling, flavoring, test batches and lead time relating to actual production," said Damon Armani, sales manager, Progressive Labs. “With the release of the federal GMPs, there will be an ever increasing cost due to procedural changes that will narrow down the product lines a manufacturer can effectively handle.”

This is particularly important to consider when looking at custom formulations, rather than just stock items. “Retailers are often surprised by the minimums and work needed for custom formulas,” Sokoloski said. “They are often unaware of what goes on behind the scenes in order to bring any supplement to market; this isn’t the kind of thing that can be made a bottle at a time. Stock formulations are the bread and butter for all manufacturers, and adjusting these or coming up with custom formulas takes more than most retailers are willing to do.”

Another important issue to address is the quality of private label products. Gone are the days of second-rate items bearing those generic black and white labels. “One of the biggest misconceptions of private labelers is that they can’t manufacture the same quality as a name brand,” said Larry Thompson, vice president/director of operations, Progressive Labs. “This is far from the truth. In most cases, the products are identical to the comparable name brand, they just have a different label. In fact, most of the products that we sell are better than the closest comparable national brand.”

Webb and Bess noted quality may be even more critical in the private label sector. “A retailer is putting their reputation on the line when they decide to carry a private line,” they noted. “The retailers need to know that the bottle they put their name on is a quality product.”

That focus on quality has taken on new relevance in recent months, given the release of the federal GMPs for dietary supplements and the high profile concerns about the safety and efficacy of ingredients, particularly of imported ingredients. Many private label manufacturers have been preparing for the release of the GMPs for years and stake their reputation on the quality control procedures they bring to the table.

“All dietary supplement manufacturers must follow the GMP rules,” Silva said. “Dietary supplement GMP requirements include complete raw material sampling and identification, analysis and release to predetermined specifications. Ingredient samples are retained for reference. Certain raw materials require microbiological analysis, including salmonella testing, total plate counts, fungal determinations and so forth. Finished products are subject to analysis based on samples obtained on the line and generally include the requirements of disintegration and friability (a measure of physical strength to withstand packaging and shipment), along with an analysis of the claimed ingredients in the product.”

Several companies, including GMP Laboratories, Vitamer Labs, Trace Minerals Research, Nuvite, Reliance and NOW, are already third-party GMP certified through organizations such as NSF International or the Natural Products Association (NPA). In addition, many companies are registered with FDA as a pharmaceutical manufacturer, meeting the more stringent GMP requirements for drug manufacturing.

Jason Provenzano, executive vice president, Nutricap Labs, said it is a critical job of a manufacturer to oversee quality of all ingredients. “We source and test each batch, not only for the customer, but for ourselves as well,” he said. “There are many materials that look the same or similar, and we need to be sure that we have received the ingredients that we paid for.”

There are several steps companies are taking to ensure high quality, including supplier vetting, document review and full testing. Thompson added, “We keep up to date on recent news, events and technologies to identify issues before they become problems and to improve our testing protocols to address emerging issues.”

Another trend is greater use of branded ingredients, specialty compounds with a basis of scientific research and, often, intellectual property behind them. Reliance, for example, is utilizing more than 50 branded ingredients in stand-alone products and throughout the company’s formulas. Vigeant noted: “The added value of the marketing dollars being spent by suppliers increases awareness of the ingredient to consumers—we use trademarks and logos on the labels to capitalize on recognition wherever possible—and the science and, optimally, clinical research that support the product’s efficacy results in satisfied, loyal customers for the retailer.”

“Branded ingredients are usually highly vested by the supplier and are supported by clinical research,” said Suhail Ishaq, vice president, GMP Laboratories. “Branded ingredient suppliers also advertise their brands to increase consumer awareness, which would translate to retail sales.”

Thompson added marketing support throughout the supply chain can translate into greater sales at retail. “A consumer is likely to have seen an advertisement or even just a logo for the branded ingredient, so when they see the use of that ingredient in our product, they are much more likely to remember that marketing and make a purchase based on the perceived image,” he said.

Retailers seeking to enter the world of private label don’t have to go at it alone. In fact, most companies work closely with retail partners to develop new product s , enhance existing formulations or determine the ideal delivery form for a new product.

For example, Nutricap has a full staff of R&D chemists who can assist with product formulation to ensure maximum absorption and bioavailability, while Trace Mineral Research’s R&D team develops highly efficacious formulas that retailers can immediately brand.

And Vigeant added, “Our formulation team works with biochemists, nutritionists and doctors to find optimal raw material sources and cutting edge technology to ensure our products are as safe and effective as possible.”

One of the most important parts of the partnership with a private label manufacturer, however, is building a team relationship. “We listen to and respond to valuable feedback we receive from our retailers and their store shoppers on ingredient, delivery form and product demand,” Silva said.

“Input comes from sales reps, store shoppers, store staff or the retailer’s corporate personnel. We aim to meet our customer’s demand when science and the market offer sound reason(s) for marketing a certain product.”

Sokoloski noted NOW has a full program in place to build the strongest possible relationship with its customers. “We have always used feedback from retailers and consumers in order to produce quality supplements,” he said. “We meet with retailers at trade shows, our annual Open House and in-store visits. We al so provide nutritional services via our Product Info group, both on the Web and by telephone; consumers and stores use this regularly and allow us to keep our eyes focused on the changing needs of the industry and marketplace.”

By staying in touch with the market trends, a private label partner can help a retailer make the best choices for a product line, no matter what the square footage or overall sales of the store. “Retailers don’t necessarily have to be huge,” Provenzano said. “They just need to have a product idea and know how they plan on marketing it. They can leave the entire design of the new product to our discretion and expert team.

In fact , most private label manufacturers emphasized size is not the daunting challenge it may have been in the past. “There is still, sometimes, the mistaken belief that a retailer needs to be ‘large’ and buy in high quantities to undertake private label,” Vigeant said. “But some of our highest volume customers reside in small (under 2,000 square foot), single location businesses. Although we can also efficiently service and support large chains, the issue really is the retailer’s commitment to proactively and effectively differentiate themselves and promote their own growth.”

Sokoloski told a similar story. “Our smallest volume customer spends an average of $200 a month, and he has been successful at private label for years,” he said. “The size of the business isn’t what’s critical; the focus that the retailer needs to put into their brand (and their name) is what’s important.”

Webb and Bess noted Nuvite was established by a larger, full-service custom manufacturer t o address the needs of the retail market. “We are able to offer the same quality and consistency found in contract manufacturing without extended lead times or high minimums,” they said. “In fact, Nuvite offers one bottle minimums with free label design and no start-up fees. This allows us to cater to a broad spectrum of customer s . A single independent retail location can offer the same quality product as national chains such as Whole Foods Market.”

Ultimately, private label offers retailers the opportunity to bring a unique experience to their customers, working in partnership to achieve sales growth. Silva concluded: “We want to help the s tore grow their brand through marketing, merchandising and training their store personnel so they can sell the features and benefits of most appropriate products for each consumer.”

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