5 things to consider in the ‘Private Label Product Development Process’

1.      Ingredients: Use of top quality raw materials should be among your top priorities when developing a new Private Label product. Raw materials (ingredients) should come from validated and approved suppliers. In other words, you need to have the below information:

·        Raw materials meet some quality standards

·        Raw materials are traceable

·        Raw material supplier applies control measures to avoid cross-contamination and reduce such risks,

·        Raw material supplier has disaster recovery procedures

·        Raw material supplier performs regular internal trainings

·        Raw material supplier provides sufficient documentation on his procedures and is able to provide the necessary  certifications  about the materials he supplies

·        Origin of raw materials i.e. some suppliers may get raw materials from other suppliers and may only apply some (or no) processing on them. 

Let us use beer as an example. A top quality beer should only be made of water, barley malt and hops. The cost of all ingredients together make up no more than 4% of final retail product price. In other words, it does not worth altering quality of raw materials in order to reduce final product cost, as such a decision will have adverse effects on product quality and therefore on sales. If for example your supplier advise you to reduce the quantity of barley malt needed for production of beer and replace it with corn that is cheaper, it is unlike that final product quality will be as expected. In addition, the cost reduction due to this change, that is no more than 1% on final retail product price, is unlike to bring you the extra money you expect to make from selling the beer.

2.      Labelling legislation: Each country applies its own labelling legislations. It is the responsibility of importer/distributor to comply with any labelling legislations in his/her country i.e. the country to distribute the product. Importers/distributors usually try to move this responsibility to suppliers but at the end of the day if anything goes wrong, cost and fines will be directed to the importer/distributor and not the supplier, and therefore caution should be taken to avoid this happening. Nevertheless, it is the responsibility of supplier to provide all documentation and certifications needed to help importers/distributors devise an accurate and correct label.

In case of beer, it is the duty of supplier (brewery) to provide all necessary documents, chemical analyses and certifications requested by the importer/distributor. Such documentation includes:

·        Production process flowchart

·        Proof of bottling plant address

·        Proof of supplier’s corporate name and address

·        Licence to operate as a manufacturing facility (in case of beer as a brewery and bottling plant)

·        Certificate of ingredients showing the percentage of each ingredient in final product

·        Chemical analyses showing any traceable minerals or other chemical elements requested by the importer/distributor

·        Analysis certificate

3.      SKU size and container type: An extensive market research and sales analysis will help you spot the SKU that will stand out of competition and serve as a best seller. Knowing that your market requires a 25cl glass bottle but your chosen supplier can only provide a 33cl aluminium can means that you will enter a completely different market than the one you want to target. You also need to consider logistics and warehousing costs as well as any risks associated with route to market.

4.      Label and Logo Artwork: When it comes to private label products, usually importers and distributors (as buyers) are not that keen to invest time and money in label and logo designs. This is either because the company is too small and cannot afford to employ a dedicated marketer nor because the person involved in private label product development specialises on other parts of this business except of marketing. Especially, when product positioning is set for the ‘economy category’ importers/distributors only show interest on total costing ignoring the appearance of product unless they have a special interest on something.

Time is another reason buyers do not pay attention to label artwork. If for example they want to have the product in their warehouse at a certain time like before Christmas or before the beginning of summer season, then they may squeeze all procedures in order to catch their deadlines. However, this may be detrimental, as a designer based outside the actual market will prepare a logo and a label without having input from that market. If the importer/distributor does not step up to express a strong opinion about the artwork then most probably final label design and logo will not adapt well in the marketplace for which is designed for.   

5.      Raw material and Packaging material storage and stock control: Last but equally important is raw material and packaging material availability. Private label products require very good planning and accurate forecasts so shortages of product in the marketplace and overstocking are both avoided. A special financial agreement between the importer/distributor (buyer) and the supplier is required to allow supplier replenish raw materials and packaging materials when needed without having to execute bank transactions every time; Bank transactions require some time and cause frustration to both parties. This financial arrangement is necessary because the supplier in order to place orders to its material suppliers he/she will need:

a.      to pay in advance for them and

b.      will require some type of commitment from the importer/distributor that the quantities ordered will be used in a reasonable time so the manufacturing plant is not executed to risks.

Another suggestion to avoid shortages and overstocking of raw materials and packaging materials is to the greatest extent possible allow the suppler to use the same materials used for the production of its other products. This scenario frees supplier from the need of placing special orders to its raw materials and packaging materials suppliers. The supplier orders such materials on a regular basis, applies stock control procedures to void own shortages and gets better prices for them, due to increased quantities, so it is unlikely to be unable to serve you. A practical example of that is to choose a transparent shrink film for your multipack instead of a printed shrink film if the manufacturing plant is already using it. In this case, you will save on some hidden costs like the cliché preparation cost that is about EUR1800 (for a printed film in six colours). You will also lower final product cost because transparent film is cheaper than the printed one and you will also avoid shortages of this material considering that the printed film supplier may apply a lead time of 8-10 weeks plus delivery time for delivery to the manufacturing facilities of your supplier.