As per the statistics available from Nielson, private brands sold about 17 per cent of the total retail sales during the struggling economy during the year 2013. That is one percent above the same figure of the year 2009.
Food marketing institute has conducted a research and found out that most of the retailers usually enjoy 35% gross margin because of any private label products. The same profit is 25.9% when they sell product of any national level brand.
Therefore, according to private label specialist retailers have got the opportunity to earn higher profit margin as compared to selling any product of national brand. Therefore, if you are interested to increase your bottom line then prefer to sell any private label product.
Typical example is about any food product like candy or any kind of snack food sale. Though both private label or national label product go through same manufacturing process. Even the consumers prefer to buy private label product rather than buying any national brand of product. Let us therefore look at both private and national label manufacturing in the following paragraph.
Both private and national label manufacturing are similar in the following ways:
- Since the product will be sold to same consumer and hence their manufacturing process is same.
- Both outsource various other services for manufacturing their product.
- Both sells their product to any individual or any business company
However, if you look at the facilities of any private label companies then you will find the following:
- Capacity enhancement
Any small company may not have adequate space in their manufacturing facilities and hence if they are interested to increase the capacity of their manufacturing then they have limitations.
In case, the company needs to make any new snack item or candy product, then the company may not have the right equipment to produce them. They may also not have enough funds to buy any capital equipment to augment their facility. Therefore, they cannot easily switch to any new product. In order to start any new product, they cannot afford to close their present manufacturing line.
- Ingredients for the product
Because of their limitation of capacity, they cannot buy large quantity of ingredient to get price advantage. Even if they decide to hire any third party for that then too, they cannot buy large quantity of ingredient to reduce the cost.
Therefore, you will get only very limited range of product and their profitability will remain within that. Whereas any national label company have more range of product.