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Private labels. They’re staples at most supermarkets and big-box stores. In fact, you’ve probably bought dozens of different private label products in the past few months. Statistically, about 70% of US shoppers bought at least a few private label items on a given shopping trip.
But are private-label items similar in quality to name brand products?
The Growth of the Private Label Industry
The term “private label” describes any product made by one company but sold under a different company’s name.
The US has seen strong growth in the private label industry, but this pales compared to the boom that the industry has seen in other countries, such as Germany and Scandinavian countries. For example, one Germany grocery store devotes 90% of its shelf space to store brand products.
In the mid-1900s, brand names reigned supreme. Store brands were looked down upon, viewed as sub-par options for both necessities and luxuries. Consumers opted for brand names like Tide, Band-Aid, Kleenex, and Lipton rather than take their chances on cheaper alternatives.
But the recession in 2008 and 2009 and its aftermath changed all of that. Suddenly, consumers relearned the lessons that their grandparents had imbibed during the Depression era. People become more price-sensitive and less brand-loyal, looking for ways to stretch each dollar to afford life’s necessities and luxuries.
Today, millennials are earning 20% less than previous generations and are turning to cost-cutting solutions like private label products to make ends meet. Price has become one of the top factors influencing consumer choices, especially when they trust that they won’t have to compromise on product quality. But even those that do buy generic items may feel justified in splurging on brand name products sometimes — but they may not have the knowledge to make that call.
Separate. But Equal?
To the consumer, the advantages of buyer private label are obvious. After all, most private-labeled products retail at a lower cost than their name-brand counterparts, even before promotional pricing. That’s tempting to those on a low budget, and even to those with more financial flexibility. In fact, in 2017, private-labeled food products grew about three times as quickly as brand name food products.
But can these generic products compete in quality with “real” brands? Or are you trading good quality for low prices?
The answer is… it depends.
Category #1: Hidden Big Brands
Most surprisingly, some private label brands are actually produced by the big brands themselves. For example, Kirkland batteries at Costco are actually manufactured by Duracell, and both Peter Pan and Great Value peanut butter are manufactured by ConAgra. Paying more for the brand name is basically throwing your money into a vat of peanut butter.
Category #2: Identical Products
Other private label products may be produced by different companies than their brand name rivals, but they are identical in all important ways. How can you tell? Any product that is strictly regulated — such as gasoline, baby formula, sunscreen, or medications — may only be sold if they meet quality standards. In other words, gasoline companies can brag endlessly about unique additives in their gas — but at the end of the day, all gasoline brands sold in the US meet the same standards.
Category #3: Simple Products
If you’re looking to buy a container of salt, you might automatically opt for Morton’s — the most well-known salt brand in the nation.
But stop and think for a second. Salt is a mineral. Iodide (added to salt as per government regulation) is also a mineral. There is nothing else in the container — no exclusive blends, no unique ingredients, no proprietary taste enhancers. Just salt and iodide. So why pay more for the container with a brand name slapped on the side? This is the case for most simple products, such as…
- Staple cooking ingredients, such as sugar, flour, baking powder, and salt
- Frozen fruits and veggies
- Canned fruits, veggies, or beans
- Bottled water
- Disposable paper and plastic products, such as plates, cups, or napkins (two notable exceptions are toilet paper and paper towels, which are usually much higher quality when you buy brand names)
- Basic cleaning products
Category #4: Other Products
When it comes to other products, it’s hard to know whether generic or name brand is the way to go. Some generic products are indisputably much lower quality:
- Major Electronics. Although the components of all televisions or computers are basically the same, name brands tend to have better warranties, customer service, and long-term durability than off-brand options.
- Some Paper Goods. Generic toilet paper and paper towels are notoriously low quality, often so flimsy that they’re barely usable. Luckily, you can usually find some good deals on brand name paper goods if you look out for them.
- Paint. Name brand paints usually last longer, require fewer coats, and just look nicer than generics.
- Chargers. While some generic chargers can work well, it’s important to check that the power rating isn’t too high (which can damage your phone) or too low (which means that it will take forever to fully charge).
- Ice Cream and Chocolate. A generic ice brand may suffice for a kid’s birthday party, but when you’re looking to truly indulge, a name brand will usually trump them for flavor. The same applies to chocolate; the highest quality chocolate is made by connoisseurs who have spent years perfecting their products.
- Coffee. Sure, generic coffee will give you a caffeine high. But don’t expect it to taste like Starbucks.
So at the end of the day, how can you tell whether a specific brand name item is worth the extra cost? Test it out — like these people did. The results may surprise you.
Private Labels and B2B Services
So as a consumer, it’s interesting to learn about how the private label industry affects the foods you buy every day. But as a business owner, can you leverage this information to give your own company an edge?
Actually, the B2B version of private labeling is called white labeling. This means rebranding a product or service so that it appears to belong to another company. While the concept isn’t new, it has never been easier or more seamless than it is in today’s world of cloud-based business.
In practice, white labeling looks like a software business selling another company’s software under their own brand. Alternatively, a telecom business can use a no-name overseas company for their customer service branch, white labeling the service with their own brand.
Let’s look at a few real-life examples of this. When you check into a hospital, you expect to be able to order food service during your stay. But the hospital itself specializes in healing, not in cooking and handling meal orders. In many hospitals, they solve this problem by white labeling a foodservice company, such as Sodexo, to take care of this aspect of the hospital. In most prisons, Aramark provides a similar white-labeled service, providing food service to the incarcerated.
Many banks use white-labeled services as well, outsourcing the processing of checks or credit cards to larger banks that already have these capabilities. For example, Bancorp Bank and BBVA Compass (both large banking operations) process the bank accounts and debit cards of Simple (a much smaller, online banking operation). While the credit cards and checks are customized with the name of the smaller bank, the actual processing operations are handled — behind the scenes — by the larger banks.
White Labels and Your Business
As a business owner, the concept of white labeling is one that you should consider leveraging for your own business. White labeling can free up your business to focus on what it does best.
Can you white label your own product or service? You could package and sell it to a larger company with a greater customer base, thereby increasing your own selling power.
Even more importantly, are there services you can provide to your customers through white labeling, rather than through hiring and managing staff? You would need to find smaller companies that offer these services, and then white label under your own company’s name.
What would your company gain from tapping into white labeling, rather than developing your own product or service from scratch?
- It saves money. Reinventing the wheel is expensive — and usually more costly than white labeling an existing, excellent solution.
- It saves time. Your customers will not want to wait for your company’s R&D to create a custom solution to their problems. They want the best solution, now. Which leads to the next benefit of while labeling…
- It optimizes labor. In business, one of the most important guidelines to success it to do what you do best. A corollary to this rule is paying others to do what they do best, rather than always trying to do it yourself. White labeling does just this: it uses someone else’s talents so you can focus on your own company’s core competencies.
The private label industry is worth $128 billion, and the white label industry is growing as well. So think about how you can take advantage of this unique concept. What services can you offer to another company’s customers that could be white labeled? What services are your customers clamoring for that could be offered through a white label arrangement? No matter what the issue, consider white label options before developing your own solutions. By taking advantage of white labeling, you can provide your company with the time and space to focus on what you do best.