As we meet, I am Yuan Lai. After recent visits, I've found that there is no longer any dispute about whether to do private labels; the discussion now is more about how to do them. Over the past year or two, almost all chain retailers in China have been exploring private labels. But it seems that very few have truly succeeded and become well-known in the industry. When it comes to private labels, many people immediately talk about product selection, packaging, pricing, etc., but I believe the most important thing to think about first is a more preliminary question: Where do your products come from, and how do you obtain them? Most people treat private labels as a "product problem," but in essence, it is a "supply chain problem." The way you source products directly determines your cost structure, quality control, product differentiation potential, and the relationship with your suppliers—whether it's a "transactional relationship" or a "symbiotic relationship." Recently, I've been looking at insights from global consulting firms on private labels. Among them, Kearney systematically sorted out seven sourcing models for retailers doing private labels. I think it's very valuable and worth every private label practitioner to carefully compare and self-check. Kearney divided their value contributions into three groups: improving supply chain cost effectiveness, ensuring supply chain controllability, and encouraging supply chain product innovation. Different sourcing models correspond to different value contributions, and they have also made corresponding classifications. Next, I will interpret them one by one based on my own understanding. OEM (Original Equipment Manufacturing) OEM is traditional contract manufacturing. The factory has ready-made products and formulas; the retailer just changes the packaging and puts its own label on it. Suppliers are basically not involved in R&D, and retailers do not participate in production. The advantage of this sourcing model is quick startup, low investment, and low trial-and-error costs. For regional supermarkets, this is just the starting point for private labels, with typical categories like bottled water, tissue, and wet wipes. But quick startup and low cost also mean severe product homogeneity and no barriers. OEM can help you "have" a private label, but it cannot help you "strengthen" your private label. ODM (Original Design Manufacturing) ODM goes a step further than OEM. The retailer puts forward requirements, such as "I want a 0-additive children's soy sauce, priced no more than 12 yuan," and the factory is responsible for formula development, sampling, and production. Retailers can propose product directions based on their consumer insights, and factories use their professional capabilities to realize them. This is currently the most used model by leading domestic retailers. Basically, some SKUs of Sam's Club, Hema, RT-Mart, and Aldi follow this path. Although the R&D initiative is not in the retailer's own hands, the key to doing ODM well is not whether the factory does R&D, but whether you have the ability to define R&D and whether you can define requirements precisely enough. The vaguer the requirements, the greater the factory's freedom, and the weaker the differentiation. Conversely, the more precise the requirements—such as raw material origin, process parameters, taste indicators—the more the factory will truly "customize." Toll Manufacturing (来料加工) The logic of toll manufacturing is: the retailer controls the procurement of raw materials and sends them to the factory for processing. The factory only earns processing fees. In a word, the retailer manages the raw materials, and the factory just does the production. The advantage of this sourcing model is the strongest cost and quality control, and product traceability is also clear. According to industry reports, some nuts and olive oil at Sam's Club and Costco, and some fresh private label products at Dingdong Maicai, follow this path. Of course, the threshold for this approach is also high. You need the ability to find good raw material suppliers, judge raw material quality, and manage the entire process from raw material procurement to processing and production. This is not a job for a single procurement department; it requires a complete supply chain management system. Co-branding/Exclusive Supply Instead of finding small factories, you directly cooperate with first-tier brand manufacturers. Either co-brand a product, or the brand develops a SKU exclusively for this retailer. A typical example is Yonghui's customization. The advantage of this model is leveraging first-tier brands to lower consumer trust barriers. The biggest challenge for private labels is that consumers don't recognize them. Through co-branding/exclusive supply, private labels enter the "fast track" of trust. My understanding: co-branding/exclusive supply is suitable as a "transition strategy." Use co-branding to build trust in the initial stage, and once the brand has consumer recognition, gradually increase the proportion of independent development. Joint Venture/Merger & Acquisition Retailers are not satisfied with "finding suppliers" but instead take equity stakes, control, or even fully acquire upstream factories. The supply chain becomes an internal asset. Costco has taken stakes in some core Kirkland suppliers, and Dingdong Maicai owns 11 self-operated factories, directly managed by the cereal, meat, and quick-cuisine divisions, with core category quality control fully internal. Of course, this model also has drawbacks: it is asset-heavy. Although it can build a moat for cost and quality, it is a long cycle, and if not done well, it becomes a burden. In my view, joint ventures and M&A are only suitable for "strategic core categories." For example, for Dingdong, it's cereal, rice, and flour products; for 7-Eleven, it's fresh food categories. Long-term Agreements Instead of acquiring factories, you sign a long-term exclusive supply agreement. A factory's certain product line supplies only you, and the retailer guarantees purchase volume. This approach is lighter than a joint venture but more stable than ODM. Both parties share risks; the factory dares to invest in dedicated production lines, and the retailer dares to invest in brand building for this product. Most of Trader Joe's core SKUs follow this model, with many suppliers having cooperated for 20-30 years. Frankly, long-term agreements are less discussed in the domestic private label field. Because retailers often lack long-term mutual trust with suppliers and are accustomed to one-year contracts and one-order negotiations. But doing private labels is completely different from ordinary agency; you need suppliers to invest in your brand, and you must give them a sense of security. Joint Procurement When a single retailer's volume is insufficient to negotiate good prices, several retailers join forces to procure and develop together. With volume up, factories are willing to customize, and costs can be reduced. A typical domestic example is Ant Alliance (蚂蚁商联). Dozens of regional retailers band together to jointly develop private label SKUs. The difficulty of this model is that dozens of companies each have their own ideas, standards, and interests. Coordination costs are high, and decision-making efficiency is low. More troublesome is the free-rider problem: some companies push hard, others sell casually, resulting in huge differences in sell-through. To summarize, in fact, these seven sourcing models can be divided into three categories: transactional (OEM|ODM), control-oriented (toll manufacturing|JV/M&A), and relational (long-term agreements|co-branding|joint procurement). It is particularly important to note that these seven sourcing models are not a simple linear progression. I believe that what truly determines differentiation is not which model you use, but how much control you have in that model.
Final Thoughts
OEM and ODM solve the problem of "having something to sell," but they cannot make consumers make a special trip for you. Toll manufacturing, long-term exclusive agreements, and JV/M&A solve the problem of "only you have it"—this product is not available elsewhere; if you want it, you have to come to me. This is the true goal of private labels: not low-price substitution, not earning the price difference, but establishing a unique reason for consumers to buy. Today, most Chinese private labels are still in the OEM and ODM stages, with the core logic being cost reduction—pressing prices, labeling and shelving, and widening the price gap with brands. But this path is getting narrower because everyone is doing it. True competitiveness is not about price, but about who has a deeper relationship with the supply chain. Can you define products, control costs, and lock in the supply chain? Whoever can achieve long-term binding, toll control, and joint construction will be able to create things that are not available in other stores. Trader Joe's took decades to get where it is today, Costco has used Kirkland for 30 years, and Sam's Club's Member's Mark has been deeply cultivated for over 20 years. China's private labels are just beginning. So back to the original question—where do your products come from and how do you obtain them? The answer to this question determines how far you can go on the private label path! But this question is hard to figure out by thinking alone. Because it is not just a strategy issue, but also a resource issue: "which factories can you access, what cooperation models can you see, and do you know people who have actually done it." How to upgrade from OEM to ODM? How to negotiate long-term agreements? How to build a supply chain system for toll manufacturing? How to design coordination mechanisms for joint procurement? There are no standard answers to these questions; only through real cases and real conversations can you find a path that suits you. On June 4-5, 2026, we will hold the first China Private Label Industry Chain Conference in Hangzhou—Dingdong Maicai, Metro, Tmall Supermarket, and other leading retail decision-makers will personally share supply chain cooperation paths and factory selection logic; factories will showcase real production capacity and R&D capabilities on site; and in the supply-demand matching session, every handshake will not just be about getting to know each other, but about finding a partner for long-term co-creation.