Private Labeling & Getting Into Retail

“So they’re relatively the same thing. I mean, retailers will have different strategies, but ‘private label’ encompasses everything that that retailer owns. Think about Kroger, for example. Kroger has their Kroger brand, they have private selection, and there are a bunch of different sub brands within there. Private label incorporates all of it. ‘White label’ is used less frequently since it’s a callback to the eighties where it was really cheap.”

“Take Trader Joe’s for example. 90 to 95% of the stuff that's in Trader Joe's is private label. It's their own branded product that they've developed.”

“It’s all about knowing your category well in terms of who the large players are and how you can differentiate from them. Look at a category manager’s two main goals: increasing top line revenue and increasing profitability. You need to ask yourself, ‘How do I drive top line revenue for that category?’”

“For a new brand coming in, the goal is figuring out how your brand can differentiate from what already exists in the category and how you can prove to that category manager that it's going to grow the category as a whole?”

“If you know the retailer and you know where their initiatives are, you can kind of play the pitch towards that. So, if I go into their store and they have yellow tags everywhere and they're talking about low prices, I don't want to come in and pitch them my most expensive item because at the end of the day, that doesn’t align with what the category managers are being told to find.”

“So, most private label—I’d say 95% of it—is co-packed. I’ve probably partnered with thousands of different co-packers over my career and there are some big things you should look at.”

“I think what's important when evaluating co-packers is the length of time that they've been in business. I wouldn't partner with a co-packer that's a startup. You also need to understand who their existing customer bases are—who they are currently selling to.”

“If the co-packer you’re looking at also co-packs for Kroger and the Trader Joe's, you know they probably pass the bar since these retailers have pretty stringent QR processes. That’s an initial, quick assessment.”

“Additionally, I'd want to make sure I'm working with someone who understands my volumes and is able to grow with me. A lot of the really good co-packers will have multiple lines and they'll be able to start you on a line that makes, say, 250 cases. But, in the future, they have the ability to move you to a 50,000 case line. They can grow with you.”

“I've seen successful brands that started off co-packing and developed into bigger brands. These brands really partnered with their co-packer—they figured out a way for the co-packer to get equity in the business.”

“From a retailer's perspective, when they're having someone partner with them to do private label, they need to meet their company’s expectations. Take Kroger for example—customers don't necessarily know that this random manufacturer produced that item for Kroger, right? They're just seeing “Kroger.” Kroger wants to make sure that everything is buttoned up and that there are no consistency issues because a lack of consistency reflects badly on their brand.”

“Nowadays, retailers have moved to a standard called SQF which includes a standard supplier audit once or twice a year, depending on the category. SQF is the gold standard. When major retailers like Kroger look at suppliers, they often have to be SQF-certified at the bare minimum.”

“A retailer is going to have their standard terms. You should know that going in. And some of those will be free fills and slotting fees or allowances.”

“The good thing is that for most of the innovative good retailers—like Wegmans, for instance—it doesn't cost anything to get on the shelf of the store. They're not going to require you to do a free fill. They're going to want you to give them the best price and let them sell it to the customer versus trying to get a free fill and charge you with allowances and deductions and bill backs and stuff like that.”

“I think you should always try to push back. I wouldn't put so much weight in it that you lose the deal because most likely the retailer is going to have their standard terms and the only reason why they would deviate from those would be something like diversity metrics—for example, removing slotting fees for women-owned businesses.”

“So, I don't think it's the worst thing to try to push back, but I wouldn't push back so hard that you end up losing the deal.”

“The standard is 2/10 net 30. Most retailers that I’ve worked with will do that. Now, they’ll extend that 30 times, but I think being upfront with your category buyer is going to drive a lot of this.”

“Most category managers are sympathetic to new startup brands. Their goal is to grow the category and grow its top line revenue and profitability. Within that, a lot of it has to do with finding new, innovative, and exciting things that can lead the category. Talking it through with them, especially after you have them bought in, is crucial.”

“You can tell them, ‘Hey, this is a fairly large PO for us. Given your standard terms, is there another way that we can look at this?’ Now, with this, there’s a delicate balance. You don't want them to think, ‘Okay, this is a financially insolvent company that's about to go out of business.’ But at the same time, they do understand that you are a startup.”