About Private Label
Private Label refers to a business model in which manufactures and suppliers engage in contract manufacturing services for retailers, brand owners, e-commerce traders, wholesalers, and other outlets.
Chinese consumers are gradually embracing the concept of private labels, and Chinese retailers are also aiming to develop their own paths to navigate the markets. In the future, private labels will bring unforeseen and unpredictable changes to the Chinese retail industry. This is a domain that still holds promise for expansion and exploration.
Why Join the Private Label Industry?
For suppliers or manufacturers, developing private labels with retailers or brand owners can help address overcapacity and secure stable sales channels. At the same time, retailers who receive direct market feedback from consumers can also feedback forecasts about the consumer market to suppliers or manufacturers, enabling early development of new products and thus providing a competitive advantage.
In addition, through cooperation with retailers, e-commerce traders, and brand owners with robust channel operations and brand development experience, manufacturers and suppliers can enhance their production and R&D capabilities, thereby becoming more competitive and achieving more enduring growth.
In fact, retailers, e-commerce traders, and brand owners are better positioned to develop private labels.
On one hand, they have access to a certain level of consumer traffic. Channels such as supermarkets, convenience stores and specialty stores rely on their community and geographical advantages to attract customers who trust them and are willing to buy from them; E-commerce businesses use a ‘wide-net marketing’ method, utilizing large-scale data filtering to accurately match online consumers with products. On the other hand, retailers, e-commerce traders, brand owners, and other channels are more able to discern consumer behaviour and sense market trends, enabling them to take the lead.
By developing private labels, retailers, e-commerce traders, and brand owners can procure directly from source manufacturers (OEM or ODM), thus cutting out intermediaries and lowering product development costs, leading to enhanced profit margins. In addition, by establishing their own private label matrix they can further increase consumer brand attachment by offering high-quality, reasonably priced products. Developing private labels also allows downstream channels to fill gaps in their product offerings, diversify their product lines, establish their own competitive edge, and ultimately elevate their brand commercially, giving them greater power in retailer–supplier relationships.
For consumers, the private label products of high-quality retailers, e-commerce brand owners, and other channels help them save time and are better aligned with their actual needs, offering a more diverse range of choices. Consumers may even benefit from purchasing higher quality products at lower prices.
The Private Label Market in China
According to NielsenIQ Fast-moving consumer goods (FMCG) retail sales data for Q2 2022, globally, private labels account for 19.4% of overall FMCG value sales, with an unquestionably positive trend in Europe, where Switzerland constitutes 52% of the market share, the UK 44%, and Spain 42%. In China, the current market share of private labels is only around 3%, which is significantly lower than Europe and the United States. However, this also indicates that growth prospects for private labels in China are still promising.
In recent years, as more and more retailers venture into private label and successfully establish their own brands, the Chinese market's response to private labels is becoming rapid and agile. The number of consumers who have purchased private label products is on the rise, particularly in the domains of clothing, food and beverages, electronics, and cosmetics. Having reached a certain breadth of consumers, private labels are seeing healthy development in China.
Considering the developed private label markets in Europe and the US, what can now be seen in China’s private label market is just the tip of the iceberg of what is possible, with the full potential yet to be realised and many more unknowns waiting to be discovered. In the current phase, consumer demands are becoming clearer, and quality and differentiation are now outweighing affordability as key factors in consumer choices. Consumers are also more concerned about product attributes related to health, nutrition, environmental sustainability and innovation. This shift signifies the market's evolving requirements for private label products.
In Europe and the US, private labels have entered a stable phase. In addition to the food, household essentials, and personal care product sectors, where they have already achieved substantial scale and market share, private label companies have also extended their reach to a wider range of products including automobiles, hardware, and chemicals. Yet, these areas are still untapped territories in China.
However, there is one aspect in which the Chinese market is similar to Europe: food and home essentials are unequivocally the leading sectors. Netease Yanxuan, Taobao Xinxuan, Dongfang Zhenxuan, JD.com's Jingzao and other private labels are mostly focusing on lifestyle branding, expanding their offerings from essentials like food and beverages, home goods, personal care and cleaning items. By progressing from functional products to products with emotional value, private labels are infused with genuine brand meaning that provokes the imagination and resonates with consumers. This is what Chinese retailers must strive for and what is necessary for the steady development of private labels.
Since 2021, Marca China has been committed to promoting Chinese private labels to facilitate the development of new products for retailers, e-commerce platforms, and brand owners, to empower manufacturers and suppliers, and to build a bridge for communication and cooperation between the two sides. Together we are working towards a bigger and brighter future!
