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Business Insights From Conway MacKenzie
March 22, 2016

Challenges and Benefits of Private Label Supplier Consolidation

Written By Mike Musso

Private label supplier consolidation creates challenges for retailers. As competition decreases, pricing increases and manufacturers have more leverage. Plus, consolidation forces suppliers to evaluate their brand offerings and profitability — leading to products or entire categories being discontinued.

However, due to economies of scale and more efficient supply chains, pricing sometimes goes down after consolidation. Larger manufacturers often have more brand development, packaging and data resources, all of which are critical for a successful private label program. Retailers must be stellar category managers of their own brands so they are way ahead of the curve in data research and consumer trends.

As private label supplier consolidation continues, I believe better pricing and increased innovation will result. Private label as a percentage of the consumer packaged goods category has been stagnant since 2011. Big brands have taken action to compete and stall the progress that private label made early in the 2000s. Private label as a category now must figure out how to market like brands, including how to gain customer loyalty on attributes other than price. The increased scale could give private label the resources necessary to hit another growth spurt, especially if the economy takes a downward trend.