Why Private Label Might Be A Great Business Decision

Packaging Design and Private Label

Today’s food marketplace is exceptionally busy. The average full grocery store has nearly 40,000 SKUs i.e. products that it offers to consumers. Many food brands are starting to sell through online channels like Amazon or their own online store, sometimes bypassing traditional retail channels altogether. As a result, consumers have more choices than ever about what food they buy and where they buy it. But, it is becoming more difficult and expensive for new food brands to build meaningful relationships with them as the marketplace becomes more saturated.

This market saturation has led every actor in the food business ecosystem to try to capture as much of the value of the consumer relationship as possible, and this includes the marketplace where most consumers get their food: the grocery store. Grocery stores often know what products are trending up or down before the food brands’ management and already have developed deep relationships with their consumers.

This has led grocery stores to introduce their own branded products alongside others that they bring in on their shelves, often referred to as “private label” products. For example, Whole Foods’s private label brand is the 365® Every Value brand and is present in a number of categories in Whole Foods. Private label products are often priced competitively and reflect the grocery store’s detailed knowledge of their target consumer. While private label products’ market share has held steady at about 18% in recent years, private label brands are now growing faster than traditional manufactured food brands.

Matt D’Amour talks on our podcast about how Tribe 9, while it has a strong portfolio of its own brands, leverages its in-house manufacturing capability to co-pack for other businesses, whether for other food brands or for grocery stores that want to produce private label products. One of the most important business model reasons for a manufacturing company like Tribe 9 to pursue producing private label products for stores is to maximize capacity utilization of their factory. Factories make money when they are full and lose money when they are not, and most of the time it takes too long for the sales of one brand to fill up the whole factory. In addition, Tribe 9’s production of other businesses’ products allows them to respond to today’s marketplace to reach the consumer in a variety of ways without having to do the work of brand building all of the time.

Relationships with customers are key to food business growth and survival and building a brand is a great way to build a relationship. However, if food companies have manufacturing capabilities, making private label products can be a valuable part of their business model as they build their customer relationships, maximize production efficiency and diversify revenue streams.


And now, our roundup of the best food and beverage finance news, events and resources from around the web…

Food and Beverage Business Models

Business Model Insights

  • Big CPG and mass retail supported each other, but now they’re caught in the same spiral (New Hope Media) – “The no/low growth environment experienced by large-cap food and beverage companies is well-documented. Conventional grocery retail faces considerable challenges as well, particularly from rising online sales. The symbiotic duopoly that for so long governed consumer choice at shelf has fractured. Decades of mutual back-scratching effectively built a competitive moat, but that moat has been breached. Private label is no longer just about cheap but can also be a comprehensive quality and value equation. And it is not just about interesting new private label offerings (Thrive, Brandless, Lucky’s—and watch out for Amazon) but often about private label-driven store banners like Trader Joe’s.”
  • Big Food’s Information Gap (Food Dive)
  • A CEO’s cheat sheet for managing a board of directors (New Hope Media)

Raising Capital

Raising Capital

Grocery Store Shopping

CPG/National Brands

Grocery Store Produce Section

Market Trends

 Regenerative Agriculture

Farming and AgTech

  • Organic dairy, like conventional, facing tough times (MOSES) – “With another year of depressed farmgate milk prices looming on the horizon, and several dozen dairy farmers having their worlds turned upside down when told they no longer had a buyer for their milk, many dairy farmers have felt their burning desire for change turn into a raging fire. While organic dairy farmers typically enjoy a much higher pay price compared to their conventional counterparts, they, too, have seen their pay prices being whittled down over the past 18 to 24 months. While pay prices are vastly different even with downward pressure on markets, organic and conventional are basically headed down the same road. Retail sales of organic milk dropped more than 2.5% in the last year while sales of plant-based milk options rose nearly 3%, leaving the organic dairy sector trying to manage oversupply.”
  • A Guide to Farm Succession Planning (Compeer Financial)
  • How 4 brands push the regenerative envelope (New Hope Media)

Mergers and Acquisitions

Deals/M&A

Events

Industry Events

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