Private label products have established themselves across the world and are now competing directly with major brands. How did this come about and why are private labels so popular? And how are the shifting roles of private labels and brands changing the pet industry?
Private label products, also known as phantom brands, are those manufactured or provided by one company and sold under another company’s brand. Private label goods and services are available in a wide range of industries: from food to cosmetics to web hosting.
Own brand, own production?
In the pet industry, we generally differentiate between so-called private label products (retailer’s own branded products) and products manufactured by or for brand owners, who market under their own brand. In fact, many of the well known and successful pet food brands are produced by third party manufacturers. The reasons for brand owners to outsource production are many, but can often be put down to a lack of production capacity or the lack of a certain technology to make a specific product.
Increasingly though, the most important reason to outsource production appears to be that it allows the brand owner to fully focus on sales and marketing. Production is entrusted to one or more specialist manufacturers, similar to the way in which logistics or warehousing are often outsourced.
One example here is Blue Buffalo. The company only recently set up its own plant and has bought in products from manufacturers. In that time, they built the brand into one of the biggest and fastest growing pet food brands in the US.
The power of private labels
For a long time already, it has been common practice for retailers to sell products under their own name. Companies such as Marks & Spencer have always sold private label clothing, as have H&M and Primark. Besides its strong private label for clothing, Marks & Spencer also has a powerful private label in foods and pioneered the growth of chilled ready meals in the UK.
What makes private labels attractive for retailers? The exponential increase in the number of retailers has brought with it a fierce competition. The ability to stand out from the crowd has become ever more important. One way to do so, is by offering exclusivity: with a private label.
Private labels have also been used to take a stand against powerful brand owners and to increase profits. Supermarkets often attract customers through offering leading brands at highly competitive prices.
Margins on such brands are, therefore, often low. Establishing a private label enables supermarkets to generate a higher profit margin.
Private labels and pet food
Within the pet food industry private labels have also evolved. Private labels were initially developed to compete with branded pet food in the low-price sector sold by supermarket chains and mass channels.
Over time, private labels expanded into the mid-priced range and now the premium range has become their focus.
In the specialist pet retail channel, private labels have grown in sync with the growth of these chains. Pet retailers that have been successful in doing so, have the skills and ability to offer innovative products and create the volumes to make a private label viable.
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