| Private Affairs: The Potential of Private Label © VR | |||||
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By Gina Geslewitz
"We've seen a big push toward private labels because it gives stores more control over what they present. They don't have to worry that it will be sold in the mass market," noted Candy Scott, CEO of Highland Laboratories, Mt. Angel, OR. "Retailers have a feeling they've lost control," she said. "There have been a lot of buy-outs of companies and a lot of changing of national brands that retailers hadn't anticipated. Retailers don't feel a strong connection to the company or representatives of the companies that have been bought out. They don't have a lot of say in what is happening to national brands. Private labels allow retailers to be more involved in the products they are selling." Adds Bob Norman, national sales manager of Vitamer Labs, Lake Forest, CA, "Private labels offer retailers more leverage for competing with the mass market. It's better than anything for setting stores apart from the competition. And it works better in tough times. Private label is a niche that has bucked the (downward economic) trend in the past 18 months." Retail consultant Danny Wells said that private labels give retailers an opportunity to compete with the mass market and discount brands. "The private label acts a a billboard for retailers. Every time a customer picks up a bottle, she sees the name of the store and knows she has to go back for her next purchase." "The downside is that there's no national advertising to support the products. The retailer has to do more in-store to promote his brands," he advised. Selling a private label line successfully requires far more than just pricing it low and placing a nice variety on your shelf. Vitamin Retailer spoke with several companies that specialize in providing private label supplements to the natural products industry as well as with retailers who carry a substantial selection of private label products to uncover their sales secrets. Retail Revelations "I've been in business 22 years," said Elizabeth Dicks, owner of the nine-store Healthway Natural Food chain with units located in WV, VA and one in Bowie, MD. "I've never met anybody who said it wasn't hard to sell. It is a struggle to get it (private label) off the ground. It has to be sold. It's not an instant success." Dicks said that before using a private labeler she investigates the company and checks out its reputation. "You have to offer it for quality, not price. Otherwise it won't last," she advised. She uses several different private label manufacturers. "Sometimes it's hard to find a supplier for a specific product." "I inform my customers that I have very credible products in my store's private label that meets or exceeds the quality of anything else in my store. My goal has been to only put my name on something that is the best quality I can get." Susan Tarpinian, owner of Morning Glory Natural Foods in Brunswick and Bath, Maine, was in business for about 18 years before introducing a private label line three years ago. "We always thought you had to be a big store to do private labels. I never thought we could take it on," she recalled. Danny Wells noted that a store doesn't have to be large to sell private label. "From a retailer's standpoint it's a way for stores to brand themselves. It's hard for small- to medium-sized stores to do this. Private label gives them an image of being bigger than they are. A larger store uses private label more for improving margins and reducing costs, especially in competing more with mainstream type products." Tarpinian first started looking into private labeling when she opened her second store in Bath five years ago and subsequently spent several months checking out various suppliers. "We thought it was time. We were selling a lot of vitamins and our reputation was such that if we told a customer to buy a certain brand he would." She then spent another six months designing the new labels. "We finally settled on a beautiful purple and yellow label that stands out on our shelves." Paul Licata, president of Licata Enterprises, Huntington Beach, CA, said that for small stores, private label can provide a focal point to key into for sales. "It's the line that you recommend. It's the one you put your name on and it's an inexpensive advertising vehicle." Licata recommended that a small store start out with basics, such as 20 to 30 top-selling products before branching off into more specialized items.
Tarpinian acknowleged that the intital investment and minimum order from her supplier (Vitamer Labs) sounded like "a lot, but by the second month we were doing it and it wasn't a problem. You have to buy in sixes and 12s from our private label supplier whereas from national brand companies you can buy ones. You also have to keep a higher inventory," she said. "But on the other side, because we are buying in larger quantities, we rarely run out." Tarpinian said she is very satisfied with the performance overall of her private label line. "In the first year, we did fantastic. The second year we had a 110 percent increase over the first and in the third year we had a 21 percent increase over the second." The Herbarium in Chicopee, MA, is another small store that just ventured into private labeling recently after 25 years in business. Owner Kathy Duffy, who is an LPN as well as a clinical aromatherapist and herbalist, had formulated her own blends of teas and essential oils. After shopping around for years, Duffy finally settled on a supplier that met her exacting standards (Vitality Works). She now carries about 20 herbal extracts, all blends, such as ZZZ, Adreno Aid, and St. John's Tonic. "I visited places and spoke with vendors and I saw for myself how the products were prepared. I'm a freak about cleanliness. "If I'm going to put my name on a product and tell people it will help them I have to be fussy. It has to be safe, clean and it has to work." Duffy explained. "I have the same customers since I first opened the shop and I feel extremely responsible for them. I don't jump on the bandwagon whenever new things come out." Paul Emerson, co-owner of Pauline's Health Food Store in Freehold and Manalapan, NJ, said his stores have been offering private label products from Reliance Labs since it opened 15 years ago. But about five years ago the house brand really took off when the owners made a decision to promote the line more. "We used to have a black-and-white label. We designed a new colorful label, gave it a better presentation and cross-merchandised certain products with others. As a result, we got very good feedback," he said. "Sales went up 25 percent after we introduced color labels. Customers would say to us 'Oh, you have your own line now?' We definitely got more of a reaction." (See sidebar, "Designing Your Label.") In addition, Pauline's carries a large assortment of products — about 250 items in all and Emerson said they plan to expand into liquid extracts soon. Priced to Sell Licata of Licata Enterprise, noted that in a slow economy private label increases in importance for many reasons. "Often the private label supplement duplicates several national brand offerings at a much lower price with equal quality. Therefore, the retailer is able to reduce the number of different sku's of a product and reduce the number of bottles kept in inventory on the national brands. This is especially true of basic supplements such as vitamins C and E and minerals." Wells has noted that over the years he has been consulting, private label has gone from about 3 to 4 percent of total sales in supermarkets and natural food stores to about 15 percent. "And certain subcategories are even higher," he added. Still, this is far lower than the proportion of private label found in mass merchandise and drug store chains where private label can make up as much as half of all dietary supplement sales. (See sidebar, "Mass Performance.") Pricing Privately "Private label is critical-mass driven. You shouldn't consider private label unless the velocity is high enough. You have to purchase in quantity to get the price you need to be competitive," Wells advised. Wells recalled that his family used private label to match the bare-bones prices of drug stores. "You have to order larger amounts to get a decent discount," agreed Pat Toomey, owner of Toomey Natural Foods, Cincinnatti, OH, a health food retailer for 27 years. "It's not as easy as calling a national distributor where you can order twice a week. In private label you have to buy ahead and be conscious of inventory control. The only way to move products is through promotions." Toomey regularly buys 50 cases of vitamin E at a time and moves it by having a buy-one-get-one-free promotion. "We obviously have to give up a little margin to move them." Toomey Natural Foods has consolidated its private label selection over the past few years and is selling less than it used to. "We used to go for everything. Now we gave up on the secondary products, such as B1 and B6, that weren't turning as fast. The national brands are offering better deals." "Private label is very price driven," agreed Tim Hartley, supervisor of the natural living section of a Wild Oats store in Albuquerque, NM. "About 60 percent of our customers care about price. Whatever is on sale tends to do well." But private label doesn't have to be equated with the cheapest prices. "Our private label is not our cheapest line," stated Emerson, of Pauline's Health Food Store. "A lot of people think private label automatically means cheaper. That's not true. Our private label line is definitely not the cheapest line in our stores. "We don't offer it as a generic line, we promote it as our brand, as a quality brand," he emphasized. And, because many supplement manufacturers are using trademarked ingredients such as L-OptiZinc and ChromeMate, Emerson can point to these trademarks on his house brand and convince his customers that these products are just as good as the brand names. Scott of Highland Labs noted that retailers are being more selective as to what they carry. "Retailers are looking at the lines they have, trying to decide what these lines represent and narrowing the lines down to what they can handle and manage. Inventory is an issue." Still, she said, price is not the pivotal factor in private label sales and instead value and quality are what drives this market segment. "We used to see lowest price was where people went for private label, but we're not seeing that anymore," she said. "The retailer is putting his name on the label and wants quality. Retailers understand that if the private label supplier doesn't have an in-house lab there won't be anybody available to back-up their products if there's a problem."
While the reigning rule of thumb in private labeling has always been that commodity type items (such as vitamins C, E and multis) sell best in private label, the number and variety of items available from suppliers have increased and retailers can now choose from hundreds of products. "When a product becomes a commodity, pricing and convenience take over as the main determining factors in buying," explained Licata. "Specialty formulas still give the edge to national brands, although private label specialty formulas are picking up." Licata Enterprises offers 300 different products including vitamins, minerals, herbs, homeopathic formulas, liquids and specialty formulas. While vitamins account for the largest share of its sales, more and more clients are interested in custom formulas. "We have always offered customized formulas, but lately interest has grown," said Licata. "The number of customized formulas we are doing increased 20 percent over last year and it's driving us nuts. Everyone thinks they are a formulator." Reliance Private Label Supplements, based in Somerville, NJ, also is moving away from the strict commodity format. "One of our strengths is product selection," said Philip Vigeant, vice president of sales and marketing. "We offer 190 products, and 340 sku's. We offer a lot of products that aren't typically offered by private label companies, such as liquid herbal extracts. We also have a non-ephedra weight loss product, multis for men and women and we just introduced policosanol." Mitch Coven, founder and president of Vitality Works, Albuquerque, NM, a liquid herbal extract private labeler, encourages custom formulas. "We offer 250 single herbal extracts and can mix them any way a client wants. "We can customize a formula that is unique for each store. This makes the store owners feel like they own it. It's their brand. We want them to feel ownership." Coven said that Vitality Works can do as few as 12 bottles in any formulas and offers free customized labels as well. National Enzyme Co., Forsyth, MO, also offers a group of stock products, but can also develop and design formulas for specific customers. While most of its customers are manufacturers, the company also sells to retail outlets. It has 700 active enzyme formulas including digestive, systemic, anti-inflammatory and enzyme delivery systems. Gary Bennett, marketing manager, said that consumers are starting to understand the importance of enzymes and that he believes there will be more interest in them. "It's a workhorse designed to help break down food to help you get the benefits of the nutrients. All the food you eat is processed or cooked and you need enzymes to relieve the burden on the body. That's why our digestive blends are our most popular products." Scott explained that formulas or blends are more popular now because consumers don't want to take eight bottles home with them. "They want one bottle and they want to know what to take." Scott said that is the reason Highland Labs began offering combination formulas about five to six years ago. "We have an in-house print shop and are able to give retailers good literature and marketing pieces tailored to their label." Top Sellers She said that periodically Highland does a survey to see what its clients want in terms of formulas. She noted that the top item from the last survey was a Woman's Libido Formula (there is already a Man's Libido Formula) and a product for adrenal support. Bob Norman of Vitamer noted that among its top-10 products are multivitamin formulas, vitamin E softgels, and vitamin C along with a non-GMO soy protein. This year, CoQ10, ginkgo and evening primrose oil make its top-10 list. "The changes I see are a reflection of what's going on in the branded lines," said Norman. Vitamer offers unique formulations that are labeled with their structure and function. "We have eye formulas, men's formulas… it's an important direction we're going in. We want us to go from being a me-too company to being a me-first company. Private label doesn't have to be only what's already in the brands," he stated. For example, Vitamer recently offered a children's multivitamin gum called Vita Fun Gum in three flavors. "We've moved more into formulations," said Emerson. "We now carry a line of health-specific formulations. Our Glucose Support house brand is our number-one sugar control formula. Our Immune Support Formula also does well." Just like selling a national brand, it's important that the staff is fully supportive of the house brand. "One of the most critical components of having private label work is that you really have to believe in the quality—that there's no higher quality product in the store," said Norman. He said that to this end Vitamer requires that any store ordering their products has the staff undergo training at Vitamer's expense. "We insist on spending at least a couple hours with the staff in-store and going through why they are selling private label and why they chose Vitamer," he said. "I tell our accounts and prospects that it's about getting the staff behind it, putting it in a prominent place and showing that you are proud of your private label brand. If you do those things you'll always succeed." VR |
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