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The private-label business in B2B distribution has been a roller-coaster ride. There have been some big highs, like Grainger’s Dayton brand, but unfortunately quite a number of wild rides to the bottom for the private-label attempts of many smaller B2B distributors. Success has varied by B2B distribution channel and product category. Even a few years ago, it was still unclear whether private-label programs were something that would generate an acceptable return for smaller distributors. But circumstances have changed, and I believe that there’s never been a better time than right now to start pursuing a program in private label.
Digital disruptors, Amazon chief among them, are using private label as a sales advantage. A recent article on CNN Business said, “Amazon may also be moving deeper into private labels to gain leverage over manufacturers that sell on its platform.” In just a few years, the Amazon Accelerator program has launched an estimated 125 private-label brands that are sold exclusively on its site. According to corporate and investment bank SunTrust Robinson Humphrey, the Accelerator program is on track to generate $25 billion in sales by 2022. Amazon can launch a brand like Wag (a direct competitor to Iams and other pet products) and take significant market share the day they launch. Aggressive private-label retail programs like this have made it easier to develop similar strategies with manufacturers in B2B also.
Private label is also a great way to grow your margins. One of my favorite quotes is from Marty Rossman of Global Industrial:“There are only so many rocks you can turn over to improve gross margin. Private label is one of them.” You can build a line and position comparable private-label products that are more profitable for your business. Price transparency has made maintaining margin more difficult and it’s only going to get worse, so you need programs that improve your margin levels. Private label is one of the best ways to do this, partly because these products provide some level of protection since they have unique parts numbers, making it more difficult for customers to price-shop.It may be too difficult and expensive for your company to build a national brand such as Grainger did with Dayton Motors, but you can develop house brands relatively easily and without huge expense. And getting a private-label product online and seen by prospective customers is much easier and more cost-effective in the digital age.
In addition, private label is probably going to soon be a major trend in B2B distribution, so you might as well get ready for it. Most of us have heard the expression “What happens in retail eventually moves to wholesale,” and I believe that’s true. Private label is exploding in B2C – Target now earns one-third of its total sales from its private-label lines. So if you’re on the sidelines or have a program that has stagnated, now is a good time to recommit yourself to private label.
Fortunately, many manufacturer partners are more open than ever to private-label partnerships. The digital disruption revolution is affecting them and they are worried about maintaining their sales volume. They are watching the same trends that you are, and many of them are seeing more and more sales going online to digital disruptors. Now is a good time to reach out to your partners with a two-track plan to support their national brands while growing house brands.
So, if you do decide to get back into the private-label space, where should you begin? I suggest you start with talking to other distributors and your manufacturer partners. Many of your suppliers have extensive experience with dual-track (private label and manufacturers’ brands) programs and can share their lessons with you.
And if you’re concerned about the rise of digital disruptors, one option you might consider is attending MDM’s forum on Amazon Business coming up in Denver in December. The entire event will be devoted to how best to respond to this extraordinary, unprecedented company. You can find all the details here.
As always, we’re interested in your feedback. You can post a comment below or reach me at firstname.lastname@example.org.