Should dairy processors get involved with private label/co-packing?

Rebecca Kozerski, director of retail, BASES Retail Account Development for NeilsenIQ, said during a December NACS webinar that she does not expect private label to go away any time soon, so there may be an opportunity.

“There might be some shift back to national brands, but … many retailers have said they want to be their own brands,” she says.

Being a co-packer for private brands can be a lucrative addition to an existing business, representing almost 25% of all grocery sales in total, Jim Dimataris, vice president of Processor Partnerships for the California Milk Advisory Board, Tracy, Calif., reveals. “Processors/manufacturers must first evaluate their capabilities and how nimble they can be on the production line. Can the production line stop and change labels or cartons quickly or will they need to CIP (clean in place)? If there is formulation involved, is the lab equipped with staff and equipment to develop custom formulas? The most efficient mode for the facility would be to run the same product as the company’s brand. That is a decision marketing would need to make.

“The best scenario is to develop a formula that is NBE (national brand equivalent) in quality that can be used with several customers,” Dimataris continues. “This is where efficiency gains are made to keep the cost of production low, critical to meeting the lower costs expected by grocery chains for their own brands.

“Typically, a store brand item allows the chain to merchandise that item in the store at a savings of approximately 20% below the competing national brand, while generating a higher penny profit and gross margin.," he adds. "This is how the big chains report higher earnings based on increased private brand share. Key to success for all includes the item being equal to or better than the leading national brand in taste
and quality.”

Understanding co-packers’ capabilities

No different from developing a branded item, processors/manufacturers need to survey their competitive set. It is critical to know all co-packers in close proximity with the same capabilities, what the capacity situation is and what scale they are operating at. This will help to know whether you can be competitive for the category and item(s), Dimataris comments.

Dairy processors seeking the answers to private label/co-packing questions can seek the help of an organization like the California Dairy Innovation Center (CDIC), part of the California Milk Advisory Board (CMAB), which is designed to provide solutions for the California dairy industry by bringing together producers, processors and educators around a common set of innovation and productivity goals.

CDIC offers technical support for product development, process, and packaging innovation, collaborates with academic institutions focused on hands-on, practical training, and is dedicated to attracting and develop talent for the entire industry.

“Many private-label manufacturers do not have their own research and development department and may need assistance in developing formulations,” notes Veronique Lagrange, CDIC director. “While we do not develop products per-se, we do work on product concepts and formulation solutions to help private-label manufactures and their customers. For example, we worked on a full range of high protein, no-sugar-added ice cream and frozen desserts, and in collaboration with CalPoly San Luis Obispo, are testing the functionality of a whole range of alternative sweeteners.”

CDIC has “turnkey” formulations that can be easily customized to meet a market or customer-segment need. “This cuts down on product development time, so the industry is equipped with solutions to meet fast-changing fads and long-term trends,” Lagrange explains.

Boulder, Colo.-based Aurora Organic Dairy (AOD) offers several organic private-label products, including Organic A2 Protein Mill, Organic Grass Fed Milk, Organic Lactose Free Milk, Organic Flavored Creamers, Organic Half and Half, Organic Heavy Whip and 8-ounce ready-to-drink milk.

AOD's Chief Customer Officer Jason Lee notes that once the decision is made to private-label dairy products, developing a philosophy and determining which dairy products to private label is an important first step. He also stresses that private-label milk should be high quality and great-tasting to foster return customers.

“Our philosophy is to deliver organic dairy with integrity, from cow to carton, to everyone, everywhere," Lee explains. "Our goal is to make our customers' brands No. 1 in the categories that we compete in. Our vertical integration from grass to glass gives us the ability to succeed. Our focus is organic dairy, so our portfolio is based in this space. We work closely with our retail partners to innovate and expand new offerings in organic dairy.” DF