are seeking out their own brand of coffee and tea to add to their shelves, whether they are in foodservice or retail. Doughnut shops and candy stores, to mention a couple, are now selling their own coffee without ever touching a bean. To an increasing extent, tea is mirroring this trend.
Roasters and tea packers would, for the most part, rather sell their own brand than someone else’s. But if producing private label products will help fund the growth of their own brand, and keep the lights on as well, it’s a tough business to refuse. Some roasters and packers have even decided that private label is the business they’d most like to be in, and they’re focusing on it.
The private label sector exists because equipment and expertise are expensive. If you want to get into the coffee or tea business fast you’re going to hire someone else to produce your product, at least for a while. Often, even as a coffee or tea product takes off, the marketer will decide that it will always be in their interest to have someone else produce the product they’re selling.
In speaking with different players in the private label arena a sense of diversification and evolution emerges quickly. There’s lots of business out there for the would be private labeler, but it’s not the same business that was out there five years ago or that will be there toward the end of this decade. To see how the industry is coping with this fluidity, we spoke with several folks deeply involved in the private label industry. It’s not surprising that they all had a different perspective and a unique niche.
China Mist, based in Scottsdale, Arizona, started out as a premium ice tea company about 20 years ago that did their own branded products. Two years ago, they bought a hot tea company known as Leaves Pure Tea. “Along with that we started getting requests for private label, so it’s a part of the business we are actively addressing right now,” said China Mist chairman and c.e.o. Dan Schweiker. “We’re still fairly new at it and it’s very exciting and we’re learning a lot.”
“We’re getting requests from everywhere from grocery to foodservice,” Schweiker reported about his company’s business. “Foodservice is what we really know best; that’s our original business and we’re getting requests for both iced tea and hot tea products for private label food service and also hot tea for grocery. Since we’re experts at packaging, it’s very easy for us to take different blends…and turn out some very, very nice private label.”
Schweiker says that his company goes after the upscale sector of private label and warns that you have to be aware of the price parameters that the customer has set. “The price constraints drive the quality of the product that you can give them. So to me, private label is becoming a much better image product than it used to be. If you look back 10 or 20 years ago, private label, especially in stores was thought of as very cheap quality. Now if you look at what all the grocery stores are doing, they’re all trying to come out with upscale products.”
“I was just reading the numbers yesterday on what Wal-Mart is doing with private label,” he continued. “And in one year, they went from something like 200 hundred private label products to 1,500. When you are buying a private label product, you can get it for a certain amount less. Because with private label, there’s no marketing costs built into it. But there is still some concerns that private label is not as good as brand. And I know a lot of the brand manufacturers, like us, will not put our regular product into somebody else’s package. There has to be a point of differentiation.”
Schweiker predicts that private label is going to become a significant part of the U.S. market and recalled that in the U.K., it’s already about two thirds of the market. “Over here it’s like maybe 10% of the market,” he said. “I see a very fast track as far as growth goes. There are a lot of opportunities for the stores or the distributor to be able to have their own brand that no one else has. And they can use it as a point of differentiation to their competitors.”
Don Lusareta, president of Dominic Coffee based in Missouri started off by imparting his definition of private label. “In my opinion, private labeling is when you go into a retailer and sell someone your coffee. You’re putting their name, their information on the bag. It doesn’t say Dominic Coffee and then mentions their name on there somewhere, it’s really an exclusive to their shop.”
Lusareta said they have a designer in-house at Dominic’s that will create a label or use information the retailer gives them to design a label for a retailer. His company uses private labeling in a lot of different ways. “We’re in the process of bringing gourmet coffee into the corporate offices. So we use private labeling to actually promote and sell our product. We’ll put the office manger’s name on the labels and then we’ll private label for their clients. They can actually give the coffee as gifts.”
When it comes to specialty shops, Lusareta said that their main focus is creating a product for the retailer so that when a customer goes in and buys the retailer’s coffee, they come back to them. “To me, that’s really the only way to protect their business and help them grow,” he said. “I believe if a roaster really has their customer in mind, the only way to help promote their customer’s business is to private label and have only their information on their bags.” Dominic’s suggests that their customer (no matter what coffee they buy) come up with their own names for the coffee. This way it doesn’t matter if Dominic’s is selling to everyone in town. Dominic’s theory is that people are going to return to buy the product where they first found it.
“Private label has been around a long time, but I think it’s been classified as branding for a lot of roasteries,” Lusareta said. “But I think the way it’s changing is roasters, such as our company and others, are realizing that you’ve got to do something to help your customer. And by promoting their name on the label and helping them brand themselves is the way I think the business is actually changing. It’s a tool for us to create a value-added service for our customers. The companies who aren’t willing to see that are going to start losing,” Lusareta cautioned.
Mountanos Brothers Coffee & Lindsay’s Tea has a plant in South San Francisco where they do it all - roasting, blending, packaging and flavoring and blending of teas. “Probably where we’ve been able to build a niche is from the owner of our company Mike Mountanos, who has been able to do a custom roast for our customers,” Gigi Glafkides, the tea director at the company said. “He’ll do custom blends and coffee roasts, personalized blends for particular customers. It really is a private label program. Many of our existing blends are used with other people’s packaging.”
“I can speak for what experiences that we’ve had with our customers and the trends that seem to be going with our business,” Glafkides began. “We are doing more private labeling. What I’ve noticed or what at least helps on the end of private labeling is that it allows for companies to place emphasis on their own brand name, as opposed to picking someone else’s brand and promoting someone else’s brand.”
Private labeling can be more of a reasonable option for retailers. The cost of roasters and packaging machines can be expensive. “This way people can get into the market without having to have that initial capital outlay on the equipment side,” Glafkides explained. “On the flip side, what companies do have to keep in mind is that with the benefits, there comes the other side of private labeling in that, that company is responsible for doing the marketing and advertising of their own brand.”
“I think what sets us apart is the fact that everything is centrally located here,” Glafkides said of her company. “We do all the roasting, all the blending, all the packaging here. On the tea side, we do all the blending here. We have the ability to customize the packaging for any private label program. So if someone wants 12 oz. valve bags for their coffee, we can do that. If they prefer 16 oz. bags, we can do that on the coffee side.” Mountanos customers come to them with different needs and Glafkides said they do what they can to work it out. Whether that’s in the blending or the packaging. “We also have nitrogen flushed canisters that we do. On the tea side we have the machines to do the iced tea filters and basically customize blends for that. We also have the nitrogen flushed for the teas and then we do the teabags. We basically give them as much help as possible to formulate a program that’s for their needs.”
Scott Lowe, president of David Rio Chai & Tea, Inc., also in San Francisco, does chai and some tea private label. He offered some comments about what their customers should consider before getting started in the private label sector.
“The fundamental of the private label is for their own brand and recognition, but they want to avoid the research and product development of it themselves,” he began. “And they just want to have someone else deal with all the headaches of production and inventory. In order to compensate for those various tasks, we always require some sort of minimum.” Lowe said that while sometimes they might “scare some customers” with that minimum, David Rio’s first goal is to help customers determine whether or not they can afford to get into private label. And once the customers make the commitment, then they help them execute everything involved in the private label process. “There are a lot of customers who want to do private label and they want to do 100 units because they think 100 units is maybe a lot,” Lowe recalled. “In order to do any sort of start-up and production of anything, the start-up numbers are such that you might destroy 100 things in starting up a run. You have to get into realistic quantities. I think that is one thing that people often come up against.”
Lowe said that retailers are anxious to do private label because they want to have their own name on their products. “But in order for it to make sense, there’s definitely a break-even point that sometimes, I’m not sure if people are aware of,” Lowe explained. “That’s usually one of the biggest hurdles. The numbers always determine what makes sense. And that’s really so much of what private label is, sort of a numbers game.”
But private label is more than a numbers game; it allows a lot more companies to be offering coffee and tea products to their customers while extending their brand at the same time. Often the most crucial factor is the existing equity in the private label brand and whether consumers will accept a coffee or tea product marketed under that brand name. Roasters and packers, just pack the stuff, and while they often have a good idea of who’s really going to be able to sell a product and who’s only going to be doing one or two runs.
It may be then, that private labelers are selling themselves short by and that their clients are not appreciative enough of the expertise they have to offer not only in blending, roasting and packing…but in what a products chances are once it’s on the shelf. Maybe the next logical step in the private label industry is marketing, as well as roasting and packing.
Timothy J. Castle is the president of Castle Communications, a company specializing in marketing and public relations for the coffee and tea industries. He is also the co-author (with Joan Nielsen) of The Great Coffee Book, recently published by Ten Speed Press, and the author of The Perfect Cup (Perseus Books). He may be reached at: (310) 479-7370 or via E-mail at: email@example.com