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Manufacturer transformation, expand OEM or do private brand?

In the transformation of manufacturers, should they continue to contract manufacturing for brands or do their own brands? From the perspective of value chain, retail industry is composed of manufacturers, brand owners, wholesalers and retailers. Each link has its own ability and profit model. Retailers’ private label brands, such as Wal-Mart Value, Hema Day and Costco Kirkland, are the most valuable because of consumer trust and platform capabilities.

If a manufacturer has its own brand, the brand is called a manufacturer’s brand. Coca-Cola, Procter & Gamble, and the Golden Arowana are among them. They were first brand owners and then manufacturers. The remaining manufacturers with production capacity are a bit lonely.

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Manufacturers’ customers are B-end brand owners or private brand retailers. Good manufacturers have strong control over the production link and can produce competitive and cost-effective products. Due to the lack of direct contact with C-end users, manufacturers’ understanding of consumers, marketing and channels is not as good as that of brand owners and retailers, and they rely more on B-end customers, which is often a parasitic relationship. If the number of customers is not large or there is no irreplaceable ability, the development and survival of manufacturers will be limited, so the market is not good for manufacturers.

For example, organic grain manufacturers that produce their own brands for retailers are easy to be replaced by competitors because their raw materials, quality control, equipment and technology capabilities are not scarce and there are many competitors. In addition, the financial pressure of the settlement cycle and the cost of the retailer’s price comparison with the counterparty are also passed on to the manufacturer, so the combination of competition, capital and evaluation is difficult to do, and some manufacturers cannot survive, because of the Red Sea market.

Sugar-free food makers that had erythritol in their hands a few years ago, and prepared dishes that are now in the forefront are doing just fine, and some are going public. Brands of unsweetened and prepared foods didn’t necessarily make money, but at the time the most valuable part of the value chain was the manufacturer, and consumer demand had not yet matured. This is essentially a blue ocean market, and these manufacturers all have core competencies that are irreplaceable, hard to imitate and of scarce value.

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Various factors have combined to promote the transformation of manufacturers. It is obvious that if B-side customers are few, easily replaced and non-emerging markets, it is not easy to continue the road of contract manufacturing, and it is increasingly difficult to develop new brand and retailer customers. If the raw grain of the above-mentioned organic OEM is purchased from various producing areas instead of its own origin, it will also limit its cooperation with customers, and generally its adaptability with customers will be weakened.

Is it feasible for manufacturers to do private label? Private brands cannot simply be defined as their own brands. Only retailers’ private brands can be worthy of the name, because they can sell directly to consumers, test and improve the product value of their own brands through continuous demand feedback, and integrate omni-channel to reach customers, which manufacturers do not have.

In order to sell, the manufacturer has to supply to the retailer. At this time, the manufacturer is the supplier and does not have the marketing and channel ability of the brand. In addition to cooperating with retailers, brand owners can also build their own omni-channel FMCG system. Currently, the main body of instant retail is retailers and brand owners.

It can be seen that it is not easy for manufacturers to do their own brands. If they supply retailers, their own brands are not competitive with the brands on the shelves, and the supplier model is also some impassable. Now the suppliers are still mainly agent brands, and there are brand owners behind them to support them. But despite the difficulties, manufacturers are unlikely to stop. Something needs to change.

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In the case of organic roughags, the manufacturer has a good production system. This is the most valuable part of the manufacturer. It is not easy to give up until last resort, so it is still necessary to expand the field of new customers.

The current consumer demand for health, health and green is increasing, organic food is a market, brands and channels are also many. From the perspective of consumption demand, it is also feasible to find users through accurate market analysis. In the customer and user dimension, the corresponding is OEM and private brand, that is to say, both can be done.

Customers and users are intersecting. OEM customers include retailers and brand owners, while the small ones are a variety of small brands. Large customers need to be developed and negotiated, which is not only difficult but also gradual. Small brands are hidden in many scattered channels, like the capillaries of deep distribution channels, which together constitute a lot of capacity. Capacity is one of the cornerstones of private brand competitiveness, especially important for manufacturers.

It is also very difficult to find customers a little bit. If we contact the market and users through the operation of our own brand, we may get more customers. This is a way to move up from the downstream, and the understanding of competitors is easy to obtain opportunities.

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In a word, it is a different logic to do end B and end C, which requires different operating systems to do support, but the primary and secondary priority should be distinguished. Perhaps many OEM customers are acquired in the process of operating private brands, and channel management can not only sell private brands to customers, but also have the opportunity to provide community group-buying products and construct omnichannel retail. Once the omnichannel system is mature, the manufacturer’s private brand will be valuable. In other words, private brand is not only the conversion pool of customers, but also the testing ground of transformation.

Finally, in terms of big trends, whether it’s a retailer moving to manufacturing retail, such as Hema, or a manufacturer or brand starting a retail store, such as Yuanchu Foods, they are finding demand and creating new value as they move up the value chain.

In essence, it is a two-way journey to both ends of BC. Only in this way can the differentiation ability be amplified, and private brand is the most important carrier. Manufacturers’ private-label brands, while benefiting less from retailers, also have opportunities in other channels, provided they have a full range of capabilities.