The Panel

Mitchell Coven, president of Vitality Works, an Albuquerque, NM-based private labeling manufacturer of high-quality medicinal supplements. The company offers expertise in direct sourcing of botanicals and produces caps, single herbs, formulas, children’s products, oils and specialty items.

Erin Kelley, MS, RD, technical marketing manager with Vitamer Labs (Irvine, CA), a manufacturer of quality private label supplements that strives “to give store brands the finest image possible with premium products, innovation, unparalleled support and professional service.”

Scott A. MacLennan, director of store brand programs with STR (Enfield, CT), a global consumer product testing and quality assurance company. STR develops robust testing programs for retailers to help them take their store brands to the highest quality level.

Jeff Weidauer, vice president, marketing and strategy, Vestcom (Little Rock, AR), which offers “go-to experts” for many of the nation’s most successful retailers. Major retailers across the country rely on the company’s shelf-edge solutions to connect with shoppers, build loyalty and increase basket size.

VR: What is the state of private label in the natural products industry? How is the economy affecting sales, especially in the past year?

Coven: The downturn in the economy has been a plus for the private label arena. For all categories and especially supplements, when national brands can be found competing on price at all chains as well as at heavily-discounting .coms, all natural food chains and independents are needing and wanting to differentiate and serve their customer base as uniquely as possible. Private label provides this service.

MacLennan: Current data shows increased growth over 2009 and continued category growth and sales growth through 2011 for nutritional supplements specifically. Consumers continue to shop aisle-to-aisle to seek out private label products that have good value and good quality. Retailers are continuing to grow their brands, catering to consumers’ ongoing recession mindset, and creating products that incent shoppers to switch to quality private label brands. This is what is driving unprecedented growth in this category.

Weidauer: It’s no secret that the economy has benefited private label sales, but what is less known is that private label was slowly increasing in sales before the downturn. Additionally, the after-effect of the recession has been somewhat different from previous recessions in that private label products have maintained a strong share instead of giving most back.

One of the reasons for the increase in private label sales is the improvement in overall product quality, as well as broader varieties, including more natural and organic private label products. As consumers look for more options in the natural and organic category, private label items are often seen as suitable alternatives to national brands and, in many cases, offer unique products.

Kelley: It is a great time to be in private label. Our business has been doing very well in the last few years, and it Continues to grow at a healthy pace, which we attribute to offering what consumers today demand—premium, organic and natural dietary supplements.Private label sales, in general, will stay strong after the recession is over, because so many shoppers have already converted. Over the last few years, retailers see the economic value of promoting their store brand, and the result is loyal store brand customers. It’s well known many consumers are switching from their favorite national brands to the store brand to save money. Our National Brand Comparison line lets the end user get the same formulation, size and look of a top-selling national brand’s product for a lower price. Small retailers should jump on board and offer their own store brand of supplements to differentiate themselves from the typical brands most larger retailers carry.

VR: Will market shares achieved during the recession lay the foundation for even more growth as the economy returns to normal? If so, how can small retailers take advantage of this opportunity?

Coven: The reason to bring in private label is not isolated to a down economy.
There is a compelling reason to bring in private label in all markets if the private label brand has superior quality, pricing and service compared to the national brands. If the retailer can give value pricing and gain higher margins with labels that advertise their name and have GMP certification for customer comfort, the question is not why you would do this, but why not? When the customer runs out of the product, they have to come back to that store or chain to get more versus a national brand that they can buy from the comfort of their home computer at lower prices than the store. Private label fosters store loyalty.

We completely manage the private label project and provide private label programs where we do the graphics and print the label, provide 400 supplement SKUs to choose from, only require a three minimum order per SKU and a $100 order minimum for free shipping.The smallest store can do that. We have incentives for volume buying as well.

MacLennan: Sales will continue after the recession passes because most retailers have done a great job of capturing the customer’s attention at the shelf and providing a good end-user experience. At the same time, the national brands have lowered their price points to come closer to that of the private label products, which makes it more difficult to sway customers away from the national brands. Smaller retailers, just like larger ones, need to ensure That their private label platform is sound with great quality products that have discernable improvements over the national brand.

Weidauer: The recovery has so far been very slow, and consumers, in general, are rethinking the way they spend every dollar. Part of that rethinking process has been a flight from brands and a focus on a simpler, lower-key lifestyle. Private brands, particularly those that offer high quality and unique flavors, are well positioned to take advantage of this new view from shoppers.The challenge for retailers is to think of their store brands as authentic brands, and treat them as such. Often it’s the retailer not taking its own brands seriously that leads to failure.

VR: What are the most important criteria for a smaller retailer to consider when choosing a private labeler?

Coven: That the minimums are reasonable per SKU and total order, and that the turnaround time to ship is within two days. Small stores need more partnership and expertise from the private label supplier to help grow the program from promotions to SKU selection.

MacLennan: The retailer needs to ensure up-front that the product and the vendor meet all established qualification requirements. Retailers must ensure that the item is fit for its intended use and that it conforms to all safety and performance criteria. A robust quality assurance testing and auditing program should be followed to ensure that all product and manufacturing standards are met.

Kelley: Retailers should be asking their manufacturers if they are thirdparty audited and certified for GMPs, and if they are in compliance with the new GMPs.

[Retailers] should be questioning the ingredients and potencies on the labels and confirming the structure/function statements are valid and not making unsubstantiated claims.

Retailers should be asking about all the information on the labels to confirm what it says is what it is, and understanding That an excellent product does not come cheaply! By committing to sell a quality product at a fair price first, the trend products will be easy to sell.

VR: What are the best ways for retailers to launch a private label line?

Coven: Retailers should get label mock-ups to see what the product will look like. The retailer should sit down with the private label rep and review what SKUs justify a private label set. It is very important from the start that the retailer understand that they must show their label at eye level and have a large enough set for that category to say this is the No. 1 go-to line for the category and we are proud of our line. There needs to be a paradigm shift in ownership from “we have great private label product from Vitality Works (or whoever their supplier is)” to “I have the best quality and pricing for these products anywhere and know the quality well enough to educate with enthusiasm why this is the No.1 go-to line.”

MacLennan: The quality process required to launch a private label line needs to be dynamic and robust.Potential new items should be evaluated first before acceptance to a retailer’s private label ranks. The evaluation should include: analytics, stability, preservative effectiveness, microbial properties and end-users attributes.

Consumer feedback is especially important because it provides insight into the product and changes that may be needed in order to align it with the customers’ suggestions. STR works with clients to help ensure that the end-user attributes are acceptable by using small member-trained panels and multi-member consumer studies. Going through this process will Reduce the cost of poor quality and customer dissatisfaction.

Weidauer: Know your market is the first and best advice. Don’t launch a private label product just because there is a national brand. Think about your brand and what it stands for, and how that appeals to your shoppers. Private label products should support your brand with your shoppers and reinforce the reasons they shop with you.

Kelley: The consumer wants to know that the store has confidence in their own brand, so we suggest bringing in as full a set as space allows—at least as much as you would for a full line national brand. If a retailer wants to carry the basics, they should set this line of basics in their own brand, and save inventory dollars and space for the unique items of national brands. We offer a “Top 50 Best Sellers” list to help retailers identify popular movers. We offer suggestions for variable pricing to help the store be competitive with other products in their store and region. Once you have selected the products, train your staff on the benefits of private label and the features of the individual products. Our successful stores have well-educated and confident staffs to best help the consumer find products that meet their individual needs.

VR: How does transparency play a role? Are manufacturers’ retailer/customers allowed “behind the curtain” with respect to operations?

Coven: We have no closed doors and tour our facility often. Private label manufacturers should freely share sourcing and quality control procedures for transparency.The more the retailer knows, the more they can get behind the brand.

MacLennan: In STR’s case, we assist our clients by being the decentralized and ethical other set of eyes. We visit retailer’s existing or potential private label manufacturers and ensure they are in compliance with the applicable regulations and the retailer’s ancillary policies.We perform an independent systemic review up and down stream from final production. We look at raw material qualifications, to annual product reviews to ensure the proper release of finished batches. We provide a detailed report with observations if discovered/recorded and review the Corrective and Preventive Actions (CAPA) plans for acceptance. In some cases, our clients will shadow our auditors on an audit or follow-up audit to ensure CAPAs are completed and closed out. Transparency is essential in building lasting relationships

Kelley: Customers want products clearly and accurately labeled. They demand products “free of” undesirable attributes and ingredients such as artificial ingredients, genetic modification and unnecessary ingredients.

VR: How do private label manufacturers help retailers compete with brand names as far as product development and innovation?

Coven: Many private label manufacturers can be slower to innovate and tend to follow market trends. Vitality Works frequently launches new products and launched 28 new items at Expo West that are a mix of value priced but GMP commodity items as well as novel, cutting-edge blends.

MacLennan: Private label vendors know that innovation is the key to success in today’s marketplace. They are working with retailers to develop products that go beyond the “me too” products that simply mirrored key attributes of the national brands. The innovate- or-die mentality is working so private label manufacturers and retailers are continuing to push the envelope in this way.

Kelley: I believe the innovation of private label products is growing strongly. As more retailers incorporate private label into their line, they provide feedback to the private label company on what their shoppers think of products.Private label companies listen to their customer (and customer’s customer) and tweak formulas accordingly.In addition, many companies, including Vitamer, take a proactive approach and conduct their own market research and data analysis to produce offerings to the retailer that have a track record of success. We also were one of the first companies to Certified Organic dietary supplements, since our manufacturing facility was granted organic certification by QAI years ago.

VR: Do private labelers assist small retailers with marketing private label lines? What type of marketing support is offered (i.e., web page, ads, brochures, etc.)? Do manufacturers provide customer service for handling product problems and returns?

Coven: Small retailers obviously have smaller budgets. We provide newsletters and brochures in the store’s name to launch and market their brand, and Vitality Works is not mentioned anywhere on the free collateral material.
Suppliers should help with co-op advertising, promotions, discounts and collateral material in the day-to-day service of the line.

MacLennan: STR works with retailers to review customer complaint trends and returns of private label items. We evaluate complaints to show trends for root cause and then work with the private label manufacturer to correct the deviations.In some cases, the complaints have prompted STR to go into the facility to determine the reason for the shortfall and ensure a CAPA is in place.

Kelley: Vitamer Labs provides technical and staff trainings for our retailers, and has a free 24/7-access video on our website (www.vitamer.com), which staff or prospective customers can view.Private label makes its mark by enhancing the brand awareness of a retail store. We advertise their name hundreds of times (with each bottle purchased).

Ingredient information on the labels—the consumer is much more educated and wants more detailed information now.

VR: What are the packaging trends in private label? How can retailers best package their products?

Coven: There are limits to packaging trends in private label as we need to manage such packaging and labels for distribution on a small scale.

MacLennan: Retailers are using innovative packaging and design more to differentiate their private label brands in the market. They are using different fonts, colors and die lines in addition to new packaging designs. Some retailers have even taken the lead on innovation when it comes to packaging. H-E-B, which has 300 stores across Texas and Mexico, became the innovator when they introduced tuna in a re-sealable flex foil pouch. Now, all the national brands offer their product in this innovative packaging. The key to successful innovative private label packaging is to be reactive to consumer needs.

Kelley: The appearance of the product is the first impression to the consumer, so it must be perfect. Our amber glass bottles with a full-body sleeve show quality from the start.

VR: What are the expectations in the manufacturer/retailer relationship? What should be the long-term goals? What are realistic expectations for retailers starting a private label line?

Coven: Long-term goals are to grow market share and expand the category in the store brand label. This will build equity for the store for the long term and the private label supplier should understand and support this. Private label launches can range from slow start and build to rock and rolling sales from the get-go. This is mostly due to the store support. We see similar store size SKU selections sell three to five times the volume if the store staff supports the line and promotes it. If the retailer does not have that ownership and promotional excitement in the line, it will not do well.

Weidauer: Retailers need to see themselves differently. Many retailers view their suppliers as “frienemies,” a necessary evil and a source of funding.
When it comes to designing private brands, a true partnership is needed to achieve success, and the retailer must be willing to invest in the program.

Long-term goals should include developing a store brand that has appeal beyond the low price. Price can always be matched or beaten and won’t provide a long-term differentiator for the brand.