Private label distribution — the practice of marketing a manufacturer’s goods under a distributor’s own trade name — has long been a key offering from distributors, especially large firms with historic reputations as catalog houses. Grainger, Fastenal, Watsco, Global Industrial and Tenaquip are just a handful that utilize private label products as an element of providing customers with a one-stop shopping experience. Amazon Business, as well as master wholesalers like ORS Nasco and Berkshire eSupply, also leverage it.
Pioneered by grocery supermarkets, private label selling comprises a considerable portion of some distributors’ overall product portfolio. Grainger’s 2021 annual report said that private label products accounted for approximately 19% of its 2021 sales and 20% of 2020’s. At Fastenal, that figure was 13% for both 2021 and 2020.
Private label was the focus of MDM’s latest QuickTake Podcast, which featured a conversation with our CEO Tom Gale and Dorn Group President James Dorn. Dorn sees “a perfect storm” brewing in private label for distributors who are very progressive about taking market share during economic downcycles and the buying power that comes with supply chain conditions that are still far from ideal.
“You’re seeing a lot of momentum right now in making more investment into private label as a whole,” he told Gale. “The gross margin is just too attractive — you’re adding a minimum of 20-plus points to your gross margin.”
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On top of that, Dorn added, some distributors are pulling back today and trying to be conservative going into markets that might be slowing.
“These ones who are making aggressive investments — they’re doing in these areas as a way to steal market share and add market development,” Dorn continued. “So, I’m seeing it increase, and I think it’s a perfect time for it.”
Private label market share traditionally increases in a downturn. The inflation wave that distributors rode high on during 2021 and 2022 appears to have crested and slowing in recent months, while ongoing supply chain pressures likewise add some tailwinds to the private label equation. But as Gale and Dorn cover, brands are not going away.
The conversation reviews strategic options for large and small distributors to consider, as well as brand manufacturers. Gale and Dorn discuss the impact of private label on the B2B market today and the power of a brand; what the playbook is here for smaller, independent distributors; and whether private label is more of a value-add or a narcotic.
Listen to the full 10-minute QuickTake Podcast via the audio player above, and check our full library of all MDM Podcasts here.