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Is Your Private Label Sourcing Strategy Up To Date?

Retail Sourcing Strategy

This is the second in our three-part installment on improving Private Label Strategy.

When Loblaw’s acclaimed President’s Choice ‘The Decadent Chocolate Chip Cookie’ was created in the late 1980s, most large manufacturers wanted nothing to do with private label. This has changed. Thanks to a clearly defined brand vision, strategic sourcing, and forward-looking category management, Loblaws has become the golden standard of a well-executed private label strategy. Manufacturers have come to understand that they should participate in private label and reap the incremental revenue opportunities.

However, with the rise of social media and a more competitive private label landscape, today’s retail climate demands more from your sourcing than ever before.  Read on to see if you are giving your sourcing strategy sufficient attention and planning.

Manufacturers Must Meet Multiple Brand Strategies

Within a multi-tier private label sourcing strategy, different manufacturers are better suited to different product lines. It’s rare to find a manufacturer capable of producing products that meet multiple brand strategies, so merchants must choose their manufacturing partners carefully.

While cost, quality, and service remain important criteria, sourcing for multi-tier private labels brings in new requirements like a compatible merchant-manufacturer corporate culture, a shared brand vision, and internal management tools to track movement along the supply chain and across different suppliers. Is your private label sourcing strategy up to date?

Use Supplier Transparency to Increase Customers’ Loyalty

The digital age’s interconnectedness is making supply chains more transparent to customers, who can easily and quickly vocalize support for or denounce a brand in forums, social media platforms, and online reviews. However, when properly managed, supplier transparency can lead to greater customer loyalty. In a study conducted by Reputation Institute, 42% of the public’s perception of merchants is based on their social responsibility.

Today’s shoppers (especially Millennials) are looking beyond what they buy: they also want to know where it comes from. Starbuck’s Shared Planet label ensures customers that they are purchasing ethically sourced coffee. Food companies like Clif Bar & Co. advertise their environmentally friendly ingredients, and large retailers like Target feature their sustainable sourcing practices on their website.

Social Media Is Shortening Production Cycles

Customer adoption of tablet, mobile, and online shopping platforms forces merchants to innovate faster and better across all channels. Trends in one market move to another at the speed of light and merchants need to be quick to identify and take advantage of these trends.

Shorter product life cycles mean that merchants need to choose manufacturing partners with the ability to quickly ramp up should a product take off, and scale back should a product be a loser. Partners with better visibility to the entire supply chain are critical in order to minimize the loses from dumping losing products and to maximize the gains from winners.

Your Role In The Supply Chain

As the owner of the private label brand, where should you be involved in the supply chain?  Depending on the brand vision, this answer can and will change.  Typically, unique products will require merchants to be more involved whereas more generic products are easier to hand off to your supply chain partners and the manufacturer.

Lower tier brands are typically knockoffs that seek to reverse engineer and duplicate the national brands.  A low-cost, high-volume manufacturer will do the job for this tier.  However, products meeting more unique brand visions require a manufacturing partner that is innovative in all areas of their business. Your main task is to evaluate whether the supply chain partner has a compatible level of innovative thinking, production flexibility, and cost structure to support your business.

Choosing Manufacturers to Meet Your Growth Plan

Consider a simple example: you have worked with a manufacturer to develop techniques for a product launch and are now considering two new developments, a line extension and a new product. If your current manufacturer has capacity issues, it’s more strategic to use the existing manufacturer that has demonstrated expertise in developing new techniques for the new product. The line extension can be given to another manufacturer that can copy the techniques you have already developed. This strategy will allow the merchant to make best use of the expertise of their current partner and retain capacity.

It’s critical to understand the strengths and weaknesses of your manufacturing partners as you look to add new products or extend brands. Having a shared brand vision is the first step, but your partner must be prepared to meet production demand and work with you to communicate value-adding activities to customers.

To learn more about how we can help your retail business achieve success, visit our retail services page or contact us for further information.