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Usually, a retailer purchases products from a manufacturer that they then sell. The manufacturer’s branding and packaging is clear and obvious on the productsBut sometimes, a retailer may sell private label products. These are custom products that use the retailer’s branding and packaging. An example of this is the Woolworths Select brand. This article takes a look at the way private labelling works and its advantages and disadvantages.

1. How Private Labelling Works

Traditionally, the journey from creation to sale of an item follows this process:

  1. a manufacturer makes a product;
  2. the manufacturer supplies this product to a retailer;
  3. the retailer sells this product to a consumer; and
  4. in some cases, the consumer may sell the product again, privately.

At the first stage, manufacturers would generally use their own branding and packaging. However, in the world of private labelling, retailers place their own branding on the products they have purchased from the manufacturer.

Retailers who engage in private labelling, like David Jones, generally have a vast customer base. The manufacturers they buy from usually:

  • create only a single product; and
  • do not have a broad customer reach.

These manufacturers allow their product to be sold under the private label as they understand that by offering their product under a well-known retailer’s name, it can reach more consumers.

Example: Amazon

Amazon is an example of an online retailer that sells its own range of exclusive private label products. Their private label ranges are successful because they have:

  • a private label version of many commonly-used items;
  • an established online marketplace to house and sell the products; and
  • a delivery system set up.

Some of Amazon’s private labels include the reading device, the Amazon Kindle, and ‘AmazonBasics’, which sells a range of basic tech and electronic products. 

2. Using Private Labelling

Private labelling may be a lucrative option for your business if you fit one of the following scenarios:

  • You are a small company who wants to expand your product base. Private labelling may be useful to you as it is expensive to come up with new recipes, parts, and packaging for a variety of products.
  • You are an individual looking to explore a new venture. Private labelling is a business option where, with adequate research, you can create your own shop from home.
  • Your business sells products that do well in the market, and have high brand recognition.

Advantages and Disadvantages

The table below sets out some key benefits and drawbacks of creating a private label for your own business.

Advantages Disadvantages
As retailer, you have control over the manufacture of the products, including the:

  • number of units made;
  • ingredients;
  • quality; and
  • pricing.
You will need to rely on a manufacturer to create products on your behalf. This means it is important to ensure that you work with a trustworthy manufacturer.
The products will bear your branding. This is an advertising advantage in itself.   Selling a private label product can mean that your business is the only one who can sell the product. This may result in your products not being sold at a diverse range of stores to a broad range of customers.
You can fill a gap in the market by creating a private label. Ask a manufacturer to create a certain product at a quantity and cost that is commercially viable.
Your private label products will provide consumers with an alternative to other brands.

 

3. Legal Obligations when Private Labelling

If you are an established business that is considering selling private label products, ensure that you do not breach the Australian Consumer Law by engaging in misleading or deceptive conduct.

It is important to know and understand your branding and advertising obligations. One risk could be confusing consumers about who manufactured a product, and therefore which party (i.e. manufacturer or retailer) holds warranty obligations.  

Key Takeaways

Private labelling occurs when a retailer sells products under their own name. If you are considering selling private label products, weigh up the advantages and disadvantages before making a decision. While it may be a profitable venture in some cases, it may not suit your commercial circumstances.

If you would like advice on whether or how to set up your own private label, get in touch with LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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