May 15

Private Label Success

roasted coffee beans 1

Things have changed in the world of private label sales. Retailers used to stock private label products as a way to fill shelf space. Today, retailers look at private-label as an important piece of their brand image. Roasters traditionally would fall into one category: private label or branded manufacturing. Today roasters consider private label business an important part of their diversified sales offering.

Selling private label coffee is a complicated business. There is an enormous amount of economic and physical risk on both sides of the business. Private label brand managers have the responsibility to negotiate agreements, manage supply chains, develop retail merchandising programs, and ensure the financial health of the category. Coffee roasters sales managers have the complex responsibility of coordinating green coffee/materials buying, production schedules, product development, quality control, distribution and financial management. The core of the private label relationship is providing the services and support in a collaborative way to ensure mutual success.

There are 7 ways to insure business success for private label coffee. Simply providing a great tasting product and/or the lowest price bid is not enough in today’s competitive market. Conversely, awarding a contract and simply paying invoices on time will not guarantee the level of service to ensure your success.

Commitment – Private label business takes time and resources. Understanding each other’s objectives and pressure points is the start. All business functions, from the brand to the roaster, must be aligned and in agreement with the same goals. Both businesses must understand the needs of the other in order to work together to provide the services and get the support each needs to succeed. The financial commitments must be fully understood.

Transparency – The brand managers and the roasters must be willing to share information, because simply providing insight and the details of a business may not be a set policy. Sharing business details helps to build a stronger relationship and will help your counterpart make decisions that benefit the business.

Contingency – a shared business plan should be in place to address unforeseen disruptions. Knowing that each side of the business is prepared for any eventuality builds confidence in the private label relationship. Working together to develop and implement contingency plans will take the stress out of the unforeseen.

Specifications – Be clear regarding coffee product specifications, ownership, and who has the authority to change them. Establish written standards to be measured against, including product specifications, inventory levels, delivery times, and response time for issue and complaints.

Verification – Verify adherence to product specifications on a regularly scheduled basis through quality control tests by the roaster and the brand, including annual process control audits. Critical issues that affect consumer experiences such as changes in taste and aroma should be scheduled based on the product sales priority, production schedule, and level of quality or sales risk. Compliance is not a one-time event during the RFP submission. Establish a schedule to verify the details of the business together. Critical issues such as coffee quality and benchmarking versus standards must be validated on a regular basis by an independent laboratory to avoid bias created by business interests.

Problem solving – problems will come up; both businesses should expect to be surprised. What separates the good companies from the great companies is not the amount of problems or types of issues, but how each responds and how the problem is solved. Finding compromise, seeking mutually beneficial solutions, working together to find the win-win solution, or absorbing the loss for future gains is the best method for building and maintaining a positive private label relationship.

Relationship – treat your counterpart as a team member in your business. Together you will succeed or separated you will fail. Roasters should include the private label brand managers as part of their sales and marketing team; conversely, the private label brand should consider their coffee roasters as part of the company’s own supply chain. Only when both business place equal value to the relationship and equally support the business together, will both companies begin to build long term private label success.

Operationally speaking, private label is a great way to utilize available roasting and packaging capacity. Eliminating downtime in manufacturing and finding new business to keep staff members busy will help spread fixed costs across a larger quantity of product. The addition of private label business may be the catalyst for adding a second shift or providing the resources for equipment upgrades or expansion. Running only first shift Monday through Friday utilizes only a fraction of the available manufacturing resources for the week. Roasters must pay close attention to capacity and capabilities when making private label business proposals. Shorter production runs and regular changes in packaging material will reduce the productivity of the plant. Financial economy of scale can be realized for purchasing and throughput when existing green coffee inventories are able to be used rather than duplicating inventories.

Private label brands generally prefer the convenience of one-stop shopping. Bundling both branded and private label items together, along with accessories, etc. will increase the brand category managers efficiency and reduce logistics costs. Building an economy of scale with suppliers helps brands reduce costs by reducing redundancy. Private label brands must pay close attention to customer service issues, inventory levels and product quality to avoid over-supply through distribution. Private label brands are appealing to retailers and other stores because the lower costs of goods equate to higher profitability when merchandising costs are excluded.

Open communication builds confidence, confidence develops trust, trust creates loyalty. Privately label loyalty is critical to long-term business success.

Spencer Turer is vice president of Coffee Analysts in Burlington, Vermont. Spencer can be reached at [email protected]

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