Before we get started: What does “Private Label” mean?
According to Investopedia, private label (or “private brand”) means that a retailer sells products under its own brand name. The manufacturing of the product is done by a contract manufacturer and not the retailer itself. This means, that the actual production line is not owned by the retailer, but an external producer is contracted to manufacture a single product or whole sets of products. Some of the examples are Walmart’s “Great Value” or Costco’s “Kirkland”, or Edeka’s “Gut und Günstig” in Germany. Usually, the products that fall under private labeling are only available at the retailer’s store.
How “Private Label” changed in the past years
While in the past, private labels were sometimes considered “no name brands”, which still might hold true for discounter store brands, many retailers discovered the power of leveraging their own branding through their own product line. Private Label has become a tool for retailers, to distinguish themselves from the competition, while offering products that their customers really want for a fair price. Additionally, many brands rely on “private labeling” even their core products. But this also makes sense. Brands are typically great in understanding the customer needs, story-telling, and market products to the perfect customer group. While manufacturers have their strengths in the efficient production of goods, taking care of regulatory aspects, quality assessment, and supply chain optimization. Very few brands customers love produce 100% of their products with their own machinery but outsource the production process to manufacturing experts.
Private Label as a chance to tap into the “Direct-To-Consumer” (D2C) model
For many retailers, the “D2C model” is becoming more and more attractive, since it allows them to strengthen their customer relationships and make use of a new distribution model, where both the value & supply chain is arranged more efficiently. Through “Private Label” it is easily possible to get acquainted with this form of product offering. It is understandable why many companies go towards private labels, and food delivery services are among numerous companies and services that have turned to private labels as well.
Europeans love private label products
Europe has an extremely high adoption rate of private label products. This can be seen in the fact that 30% of Europeans prefer private label brands, over big brands. Based on the share of consumer goods’ sales, the main markets for private label are:
- United Kingdom (51,5% share)
- The Netherlands (49% share)
- Germany (41% share)
- Belgium (41% share)
- Spain (40% share)
Source: Europanel; Gfk; Intage; Kantar Worldpanel (April 2020)
Gorillas enters the private label market and it might change everything
As announced in January 2022, the American quick-commerce giant Gopuff launched its own private label product line “Basically”, arguing the own product line will help Gopuff to increase its margins and consequently lead the way towards profitability. It was just a matter of time, till this strategic tool also was adapted by European quick-commerce players.
On June 7th, it was announced that Gorillas will launch private label brands in 4 countries: Germany, France, the Netherlands, and the UK. Their four private labels will consist of “Gorillas Daily”, “Gorillas Premium”, “Hot Damn”, and “start-up beer”.
Gorillas launching their own private label product lines is a courageous, yet reasonable move. Shifting from a pure “retail” to a hybrid mix of retail and “direct-to-consumer” model requires focus, but if done right, can be rewarding. And this will be most likely seen in the bottom line of the rapidly growing scale-up from Berlin, which needs to optimize every percentage of additional margin, due to the current market environment and the competitive surroundings. It will not last long, till we see other companies within the quick-commerce sector launching their own private label lines.
So what can we learn from Gorillas going into “Private Label”?
Wonnda has been analyzing the private label market intensely and works together with brands and private label manufacturers. The step taken by Gorillas, to go into private label, is logical for us and this is what other retailers – no matter if quick- or e-commerce – can learn from Gorillas:
Better customer relationships
Not gonna lie. The Wonnda team members are Gorillas users. But we are not the only fans: Gorillas already has expanded rapidly over the past years and already established a loyal customer base that they keep growing. As the customers base is growing, so is the field of opportunity. By offering their private label brands to the already loyal customer base, Gorillas can further intensify the trustworthy and loyal relationship that is established between the brand and consumers. People will be inclined to purchase their products, as they have already been using their services for a certain period of time, and naturally, they will not have the issue of questioning the products’ quality and standards. As mentioned previously, European customers are completely open to trying out private label products. This comes in handy when you can cross- and up-sell your own products to a user base that is already there.
Better prices for customers
According to their press release Gorillas will offer products of high standard and quality, but for a lower price, which in turn will make them extremely competitive against other brands and retailers. This is also the core of the private label (but also D2C) model. Since it’s possible to cut out middlemen, such as distributors, and don’t have any markup on a big brand’s marketing spend, retailers can achieve better margins and they are able to let their customers participate in those savings.
Naturally, customers will be geared towards trying out their products, especially if the prices are set in such a way that a customer will be getting a high-quality product for a lower price. This is especially true during times of high inflation and economic downturn.
The path to profitability
By launching private label brands under its belt, Gorillas is opening new revenue streams for its business, which can later be re-invested either into the main business, into other future projects, or – most importantly – push profitability. According to a report from Mercato Advisory Group (conducted in 2019) private label brands typically have a profit margin of 35% on average, while big brands allow only for a 26% margin or even less. Boosting the sales of private label products is therefore a smart move to fund the rapid growth of the Berlin-based scale-up.
Data-driven customer centricity
Conducting thousands of orders on a daily basis, Gorillas knows exactly which products their customers are fancying. Private labels are an amazing way of expanding a business, based on existing customer insights. If you are a retailer or e-commerce company, you might not have a Gorillas-like data set of orders, but you probably have some sort of information of which products are in high demand, what’s trending and where to get best margins. And there is nothing bad about it, but it is as customer-centric as you can get. Adding in-demand products to the own private label portfolio is a win-win for both the retailer and the customer. If it is even combined to make the product better in some way (quality, features, price), can lead to long-term success.
The problem with getting started and scaling your “Private label” product line
Since we’ve covered mainly the advantages of private label, let’s talk about the hard part: Sourcing and launching a product line under your own brand. Finding the right manufacturing partner is key for the success of your product launch initiatives. But the processes are mostly cumbersome and aligning both internal as well as external stakeholders is a pain for everyone involved. Even though, there are thousands of contract- & private label manufacturers in Europe, it’s hard to find the perfect match with manufacturers and other stakeholders involved needed to launch a brand.
Wonnda: The tool to launch private label products for retailers & e-commerce companies
Wonnda was built to take out the guesswork when it comes to sourcing and launching an own product line through private label. Here at Wonnda, we work with top European manufacturers for private label production and contract manufacturing. The first step in getting your business to market is probably the most crucial – finding the right production partner for your project. But even when a product line is launched, later on, you can expand your business portfolio with other product lines and products.
The great advantage of wonnda.com is that you can simply let our platform do the heavy lifting. On wonnda, you can find product ideas and the right manufacturers. With our collaborative sourcing tool, you’ll be able to launch your next best-seller, fully digitally. Sounds interesting? Then sign up on wonnda.com.