FEATURE
How Licensing Can Help Food Manufacturers Fight The Private-Label Threat
By Jeff Lotman, Founder and CEO, Global Icons
Over the past decade, a new type of food has been quietly disrupting grocery stores across America. Both retailers and consumers have embraced these goods with gusto, yet manufacturers have been slow to adapt. You likely know these foods as “private-label brands,” “store brands” or “house brands.” They’re the equivalent of buying acetaminophen instead of Tylenol. You can find them in Costco’s Kirkland Signature line, Walmart’s Great Value department and Target’s Archer Farms offerings. What most people don’t know is that most of this stuff is made at the same factory, on the same manufacturing line, as the high-priced goods — just with a white label on it. (For full disclosure, I run a brand-licensing agency that brokers relationships between brands and manufacturing partners.) Today, these once-distinct lines have become almost fully blurred. Private-label brands have transformed into full-fledged brands of their own. According to research, traditional brands are seeing a 3% annual growth, compared to a 10% growth for private-label brands. According to another source, 8 out of 10 people make a private-label purchase on every shopping trip.
1. Lower Innovation Costs The larger a company is, the harder it is to innovate. Size shackles swiftness. By the same token, a small company may be nimble but lack the resources to commercialize its ideas. Innovating isn’t cheap. Instead of trying to develop an entirely new product, a manufacturer can team up with a licensee to develop an extension. The result? A unique flavor of an existing product. Of course, a new flavor by itself isn’t terribly exciting. But a unique flavor that’s derived from and built on a beloved brand? That’s how empires are erected. For example, Nestle teamed up with Hostess, a client of ours, to unveil Twinkie, CupCakes, Sno Balls and Ding Dong-flavored ice cream. The symbiosis works: Hostess licenses its trusted name to Nestle, which manufacturers the desserts. Nestle reaps the rewards of a hot new product, yet doesn’t have to spend a fortune creating it.
2. Cheaper Marketing Expenses The costs of introducing an entirely new product are never-ending, but licensing can help minimize these marketing expenses. For example, earlier this year, Oreo licensed the Peeps brand to create marshmallow-flavored creme cookies. In this way, Mondelēz, which manufacturers Oreos, gained a new audience for its treats without the dollars and difficulties of hawking something from scratch. The manufacturer is now making Dunkin Donuts and Good Humor Oreos. It takes time to unlock a consumer’s heart, but by
Traditional consumer packaged goods (CPG) manufacturers like Kraft, General Mills and Nestle are well aware of this new reality. While some are trying to compete by increasing advertising spend or couponing, others are going the licensing route. Here are three reasons why manufacturers might want to consider licensing:
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TOTAL BRAND LICENSING