Taking the Plunge into Private Labeling

No guarantees, but ...

Toll blending companies can help resellers grow their product offerings through strategic shipping capabilities.  
Photo courtesy of Empire Blended Products Inc.

So you’re a reseller of materials and products for concrete, and you heard that launching your own brand is one way to strike it rich.

OK, chances are you didn’t hear something put exactly that way.

But what about the idea of launching Sam’s Special Stains or Harry’s Hellacious Hardeners? Maybe you’re skilled in tinkering in the lab and coming up with new and interesting chemistries. Or perhaps you’re a sales dynamo looking for an angle to compete with the store down the road that’s selling the big-name brand, but you’ve heard the product range and quality or the tech support are less than stellar. You sense there’s an opening for a nimble competitor with the kind of products and support you can deliver.

Welcome to the world of private-label product sales and distribution! To gain entry and succeed in this challenging but potentially rewarding arena, the player is advised to ask a few questions and consider a number of important issues before taking the plunge.

“Why would you want to do it? What’s the motive?” asks Bart Sacco of Kingdom Concrete Products, a manufacturer of dry-process private-label products based in Throop, Pennsylvania. The company also offers its own Kingdom brand of decorative-concrete products, including colorants, coatings and sealers, solvents, overlays and countertop materials.

“If they are bringing a formula to market that has great attributes and fills a niche, it can be highly successful, if done properly,” Sacco says.

But if the products seen as offering promise don’t bring something new or improved to the marketplace, this kind of venture may not be advisable, he says. “It’s going to be an uphill battle.”

Sacco is one of several manufacturers of private-label and toll-blend products quizzed about the business of making and selling their own brands for sale to contractors in the concrete and decorative-concrete trades. Some of their replies and comments follow in this report on private-label branding and selling.

But first, a couple of general definitions:

Private-label products are typically based on formulas developed and processed by a manufacturer that supplies the products to the private-label owner — the reseller. In other words, the manufacturer is supplying, and often packaging, a product that has another company’s name on it, but the formula and process belong to the manufacturer.

Toll-blended or toll-manufactured products are made by a manufacturer using a formula and process belonging to the customer. Toll blending/manufacturing is common with major companies selling well-known brands nationally and internationally. These major companies often contract with manufacturers that can economically produce and distribute products in a regional market.

You want to do what?

Sacco and other suppliers of private-label manufacturing don’t sugar-coat the realities of risk versus reward when discussing the prospects of entering the branding business.

“It’s going to be costly,” says Sacco, whose company makes products and toll blends for several other companies. Kingdom’s portfolio includes color hardeners, microtoppings, overlays, vertical wall mixes, sculpturing clays, stucco mixes, mortars and plasters. The company specializes in dry-powder processing, with an in-house color lab.

Sacco, a onetime contractor then a distributor, says a reseller contemplating a venture into private-label products is well advised to weigh several issues:

Safeguarding intellectual property. Here, it’s important to have in place a confidentiality agreement with any manufacturer supplying the product. Otherwise, there’s the danger of formulas being stolen. This protects the formulas and processes involved in manufacturing.

Packaging and presentation. How do you want the product to look to the customer?

Paperwork and product literature. All paperwork requirements need to be met — safety data sheets, product data literature, color information, sales literature and application guides.

Finances. “Are you prepared for the financial situation?” Sacco asks. In addition to investing in things already listed, the manufacturer may want payment upfront, depending on perceived credit risk with a new customer. “Do you have the financial ability to take this on? That’s generally what stops a lot of people,” he says.

Facilities. Does the company have the space for warehousing and storage for new and additional products?

Lead time. The new player in the private-label game won’t order a supply today and have it tomorrow. “Be prepared for adequate lead time,” Sacco cautions. An eight- to 10-week lead time may be needed to ensure all the moving parts are in place for a new addition to the manufacturer’s lineup — paperwork, packaging, materials and formula.

On the plus side

While the challenges are significant, a private-label business offers potential for participants who do their homework, says Scott Farr, who heads EZChem USA in Canton, Georgia. The company offers private-label product manufacturing and sells its own line of stains, cleaners, sealers, strippers and overlays under the PermaPro label.

Farr mentions market-niche opportunities that may exist due to specific regional needs and limited product offerings, or the need for better technical support and service that may be best served by a smaller, more nimble supplier. A private-label brand also can build the company’s name recognition and brand loyalty.

“If you’re building that brand, or maybe hope to sell the business, you may get more for it selling products with your name on it,” Farr says.

Todd Winters, president of Surface Koatings Inc. in Portland, Tennessee, says the private-label business brings several assets to the table for the brand owner: maximizing customer focus, education and training; instilling confidence in product quality that helps drive repeat business; providing the benefit of dependable tech support; and supporting the ability to add new products, including custom products, at any time “without hassle.” Surface Koatings makes the extensive Surfkoat brand of concrete products in addition to its private-label business.

Rich Sanders, general manager of Clemons Concrete Coatings, agrees, noting the private-label brand can convey the concept of product uniqueness and quality. The brand also can help expand the business’ market reach, giving the impression that the business is larger than it really is. Clemons, based in Nashville, Tennessee, makes sealers, stains and dyes sold under the Clemons label, and also supplies private-label customers. This combination is common among such producers.

Randy Gornitzky, president of Empire Blended Products Inc., says his company’s “extensive logistical expertise” facilitates expanded market reach economically with its shipping capabilities.

“We also have the ability to help grow your product offering,” Gornitzky says. He adds that the company’s location in Bayville, New Jersey, positions it in the largest U.S. regional market — the Northeast. He says Empire is a “fully vertically integrated manufacturer with a very broad product line,” giving the company’s private-label customers significant potential for brand expansion.

“More manufacturing capacity means more product sold, which means more profits for everyone involved,” he says.

Gornitzky cites other economies the manufacturer can offer to the private-label customer, including product trials, designing new packaging and third-party lab testing of new products.

Usually, Winters says, Surface Koatings initially sets modest minimum order requirements for new customers to “justify the time and costs of developing new formulas, product label designs and packaging. Once a private-label program is set up, our volume requirements are flexible to help meet customer needs.”

Such minimum order requirements are common, but not universal, based on information from the manufacturers interviewed. Empire Blended does not require a minimum, Gornitzky says, while Clemons may require a minimum for “special orders” but not for standard stock items.

Crucial to success:
Supplier with the right stuff

A manufacturing partner with proven repute is pivotal to success for the private-label purveyor, says EZChem’s Farr.

“We specialize in making decorative concrete products,” he says. A manufacturer known for its dog food or detergent may not make the ideal supplier in the decorative-concrete trade.

“Last year we made 42,000 gallons of (concrete) stains,” Farr says. “They’ve been tested and used in the market, and the customer’s going to get quality. You want to go to a company familiar with these types of products.”

Making a house paint, on the other hand, is outside EZChem’s expertise zone and not in its portfolio. The company, Farr says, chooses to stay with what it does well.

Sanders, of Clemons, says the newcomer to the private-label business must take pains to ensure confidentiality and performance from the supplier. A formal agreement is part of the package, but the customer must have complete trust in the supplier, beyond a written document. “Clemons will not share customer identity, trade secrets and formulas with other potential customers and competitors of the private-label customers,” he says.

The established, reputable supplier brings other extras to the table, he says, mentioning Clemons’ knowledge of environmental and other product regulations all over the country, meaning the company has formulations that meet the rules, along with the associated documentation and labels. Lab and tech support are other areas of important expertise, with support personnel and a full-time chemist on duty for customer assistance.

“We understand the laws,” Sanders says — from the local and regional rules on VOCs in California’s South Coast Air Quality Management District to the Northeast Ozone Transport Commission rules in the northeastern U.S. “We don’t let our customers get in trouble,” he says.

Gornitzky says the partnership between a supplier and its customers comes down to a question of trust. “Can they trust their producer partner?” he says. “The last thing you would want is to work with a company that’s going to produce bad product and make your brand look bad, or someone that will gather your secret information and then compete with you.”

Winters, of Surface Koatings, says businesses looking to enter into a supply deal should ask: “How long has the manufacturer been in business? Do they have technical experience with the specific industry? What are their standard product-stocking volumes and/or order turnaround times? Do they carry product liability insurance? Can they handle the volume necessary for long-term growth?”

The up-market angle

The suppliers sharing their views for this report agree that positioning the private-label brand as a premium product is recommended, although in some situations the “knock-off” generic brand is an option.

Sanders says Clemons sells its own brand as top quality, and says its private-label customers should do the same. “It’s of the highest quality and should be sold as such,” he says.

“You need to advertise it, and push it,” says EZChem’s Farr.

Sacco, of Kingdom Products, says the private-label business also can benefit from the ability to tailor products to meet its particular regional needs. The business is closely tuned in to what its customers are seeking.

As an example, Sacco cites an overlay product that Kingdom makes, which he describes as highly robust, formulated to stand up to the harsh climate fluctuations of the Northeast and Midwest. In Louisiana, by contrast, the product may require a lower degree of freeze-thaw stability but conversely needs a slower set-up time in the South’s warmer temperatures. The supplier can add rheology modifiers or otherwise tweak the formula to match the performance and application parameters dictated by the regional conditions.

Here, the private-label product may cross over into the toll-blend category, where the private-label customer has revised the supplier’s in-house formula and it’s now the customer’s proprietary recipe. But crossing the line brings additional tasks, such as compiling product data, including performance test measures. The supplier can provide some, if not all, of the needed services for testing and publishing product data and information, but at a price.

“Many companies prefer private label over toll blend because it puts a bit more responsibility on the producer,” Gornitzky says. “As a private-label product (manufacturer), since it would be my formula, I am responsible for its quality and make sure it performs the way I say it’s going to perform. As a toll blender, my responsibility is just to make sure we follow your formula to a ‘T’ and get it in the bag.”

Once again, the value of expertise, track record and trust come into play in a big way. As partners, supplier and reseller look for the optimal solution, whether the deal is for private label or toll blend.

The suppliers featured in this report agree that maintaining confidentiality and “not competing against our customers with our own product brand names are very important aspects of business relationships,” says Sacco. Successful toll blenders or the actual product manufacturers must be able to master both.