The private label manufacturing industry has been impacted by many challenges and opportunities in recent years. Among the challenges are increasing competition from branded manufacturers, the rise of ecommerce, and the need to differentiate products in a crowded marketplace. In response to these challenges, private label manufacturers have sought to differentiate their products through innovation, customer service, and value-added services. Many private label manufacturers have also embraced ecommerce and social media to reach new customers and build brand awareness.
Private label brands are an overall good business strategy. Packaging, promotion, and marketing for these brands is often inexpensive. The products that fall into this category are often simple, core, essential products offered to the consumer at very reasonable prices that are typically lower than their name-brand national competitors. The stigma behind private label brands, also known as store brands, that may have existed when you were a child is long gone. Manufacturing quality is at an all-time high, and consumers’ preferences have evolved. While these products cost less, analysts show that they bring in 25% higher profit margins for retailers than those national brands.
An Industry Poised for Growth
The private label manufacturing industry is expected to grow at a compound annual growth rate of 4% through 2024, according to a report by Technavio. This growth is attributed to the rising demand for private-label products and the growing preference for these products among consumers.
To maintain and grow their market share, private label manufacturers must continually adapt to changing market conditions and consumer preferences. Manufacturers can capitalize on the growing consumer demand for private-label brands by offering differentiated products in terms of quality, innovation, and value. Continued inflation, however, also plays a significant role in the switch to private label brands. A recent report showed that grocery categories with the highest inflation saw the most private label penetration. Private label companies increased their volume share in high-inflation food sectors such as poultry, beef, and frozen items.
During the height of the pandemic, many consumers were left buying whatever brands they could find, introducing them to private label options across categories. Consumers continued to purchase private labels even as their favorite brands became available in stores, according to a report released last year by consulting firm McKinsey. They predicted that private-label brands would continue to see strong growth post-pandemic as price sensitivity increases because of the current inflation trends. Pricing is the primary reason driving more than 45% of buyers to choose private brands, followed by availability, quality, and flavor. Furthermore, more than 41% of buyers have recently purchased more private-label goods than before the pandemic.
All of this puts mounting pressure on the manufacturers providing these goods to deliver on increased demand.
Addressing Challenges and How Technology Plays a Factor
When speaking with our customers, five of the most common challenges shared with us that private label manufacturers must overcome to stay ahead of their competition include the following:
- Constantly innovating and improving products to stay ahead of the competition.
- Building strong relationships with their retailers to ensure their products are being promoted and sold effectively.
- Being efficient and cost-effective in their supply chain operations to remain competitive.
- Having a strong online presence to reach consumers and build brand awareness.
- Ensuring their products are of high quality and meet consumer expectations.
To overcome these challenges and meet growing demands, manufacturers are turning to various technology-centered solutions and are investing in supply chain risk management to protect them from future disruptions.
Advanced digital transformation technologies, like modern cloud-based ERP solutions and big data analytics, are being employed to optimize supply chains and process controls, and improve quality. They are also enabling private label manufacturers to grow and scale their businesses by automating processes, providing better insights into operations, identifying areas for improvement, and improving communication and collaboration with your suppliers, helping you to coordinate and make better decisions.
The adoption of ecommerce solutions is another area that is proving to be successful for private label manufacturers. By creating online storefronts, these manufacturers have the potential to reach a wider audience and promote their products to a global market. In addition, ecommerce provides a way for manufacturers to connect with their B2B customers and get feedback about their products. By offering customers a convenient way to purchase and receive products, private label manufacturers can build loyalty and repeat business.
What Does the Future Hold for Private Label Manufacturers?
The future for private label manufacturers is looking bright. With the ever-growing popularity of private-label products, manufacturers are expected to see an increase in demand. This trend is expected to continue as more consumers become aware of the quality of private-label products. The increase in demand will likely lead to more manufacturers entering the market, which will create more competition. However, with the right strategies in place, private label manufacturers can stay ahead of the competition and continue to grow.