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From empty shelves to delayed deliveries, experts predict — according to a February article in the New York Times — that supply chain chaos is unlikely to end any time soon. Companies worldwide are feeling the resulting pressure, with Statista reporting that nine out of 10 retail businesses experienced a negative supply-related economic impact. Forced to wait months for scarce supplies, brands (including retailers) face shortages and delayed product launches that hurt business and allow others to come in and steal market share.
While supply chain uncertainty may keep us waiting months or years for custom products, shifting to a private-label strategy can offer greater control, efficiency and profits.
Loosening the chains
You might not think you know a private-label brand, but they’re more pervasive than you realize. The term, as defined by BigCommerce, refers to a technique in which a retailer has a product “…produced by a third-party but sells under its own brand name. The retailer controls everything about the product or products. That includes the specs… how it’s packaged, and everything else besides.”
Retailers offer a wide range of private-label goods — from socks and sauces to skincare — displaying them alongside premium products, but at lower costs and with greater profit margins. In supermarkets, where private brands make up 15% of sales, there might even be on offer both generic and premium “store brand” products, and always at better prices than nationally-recognized brands. By contracting out to third-party manufacturers, retailers produce their own high-demand goods without having to invest in facilities, designers, quality assurance or a specialized supply chain.
Related: Value Creation Via Private Labelling In Consumer Retail and E-commerce
Enter our current supply chain issues.
A supplements brand came to us wanting to develop a new item: a shampoo. This company needed to offer its customers an alternative to existing products that were full of sulfates and parabens, while also featuring a high pH for additional effectiveness. They had big ideas, including a sexy bottle and specific ingredients. I estimated three months to build the custom mold (considering how hard it is to get a mold builder) and four months for shipping, but one of their ingredients, I informed them, was unavailable until May 2023.
They were doing a ton of business in supplements and had hundreds of thousands of customers waiting for this shampoo. They were convinced it was going to be a hit, and the longer they waited, the more their market share went to competitors.
So, I made a suggestion: take a private-label strategy. We modified a stock private-label formula by adding ingredients that we could get, and bottled it in a stock bottle decorated with pretty labeling to fit the brand. Within a month, the company released its gussied-up private-label shampoo, and it turned out to be as big a hit as they expected.
Related: 5 Myths and Facts About Private Label Products
Why private-label benefits outweigh customized strategies
In custom product development, we’ve had customers wait six to eight months to get a first sample because the supply chain held up one ingredient. Eight months just for a sample, and this didn’t include the approval process or any revisions we might need to make. By the time we placed an order, it could take another eight months — so a year and a half just to go to market. Maybe the Estée Lauders or Johnson & Johnsons of the world can get away with that, but not small emerging brands.
At the first sign of supply chain issues, our company chose to stock up. By making sure we always have over $1 million in raw materials and over $1 million in stock packaging, a customer can come to us with a product idea and we can suggest a private-label-similar formulation with some customized available “hero” ingredients and have the product to market in four to six weeks.
This is perfect for a brand or retailer that’s willing to go with off-the-shelf ingredients and packaging and — instead of being forced to meet 25,000-unit minimums — can order a couple of thousand units. If the product is a hit and they sell out of those first 2,000 pieces, they can get more in another month. If it hits again and again, that would be the time to order custom packaging while they continue selling. When that packaging arrives, they can label it, “New and Improved!” Meanwhile, they can finance growth through sales until the custom packaging arrives, and they get another cash injection from the new and improved version.
With this private-label strategy, you get to find out if both product and marketing strategy are correct before spending the entire budget on huge minimums for custom products and packaging.
Of course, you need a marketing strategy to launch successfully, or you could lose money, but losing a little is considerably better than blowing an entire year’s budget on a product or marketing strategy that didn’t work. Not only will there be far less time and money wasted, but even a failed private-label strategy gets data back faster, so you can adjust as needed, then relaunch. Waiting a year and a half to reassess leaves the door open for someone else to introduce the same product and take your market, when you could have launched 10 private-label products in the same amount of time, with at least one bound to hit and win.
Related: When Should You Switch to Private Labeling?
Small but fierce competition offers a lesson
Big companies can afford to move slowly for custom products, but why would they when a private-label strategy is faster, more efficient and profitable, and gets them ahead of supply chain issues? Small companies are already seeing success by doing do, stealing more of the market share from the big names, who could learn from their indie competitors. Their only options then become either buying up these smaller companies and eliminating the competition or saving many millions of dollars by learning and implementing this strategy themselves.
I used to do a lot of business with a big company that would place an order around May or June for the following March. Consumers loved the products but frequently complained that they were sold out. If a product was a hit, it would have taken nine months to get another 200,000 because everything always had to be custom, but with the right private-label vendor, big companies can run 25,000 units with one or two custom ingredients added to a stock product/packaging formula to fit into their signature line. Especially when introducing a new product, this is the new way to do things.
In the past, bigger companies might have enjoyed a certain prestige for their strong brand name alone, but with supply chain issues upending up old paradigms and technology opening the door to new ones, small companies are coming out stronger. To the indie enterprises that are seeing success with a private-label strategy, my advice is to keep it up — get your products to market fast and improve them down the line. For the big boys still stuck in customization, it’s time to start paying attention.
