---
title: "In-Depth Guide: Don't Blindly Add SKUs—Choosing the Wrong Category for Private Label Is a Waste of Effort"
description: "At an annual industry trade show, a private label manager from a regional supermarket collected over 70 supplier business cards in three days. Back at the office, he reviewed them all and proposed a project list of eight categories and over 20 SKUs from seven suppliers. His boss approved everything, but a year later, all eight categories were underperforming, with inventory turnover at the bottom of their categories and year-end losses in the millions. The problem wasn't the execution but the initial category selection—private label isn't about doing whatever you can find; it's about doing what you can do well."
author: "薛文发"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2026-06-04"
categories: "Brand Marketing, Consumer & Categories"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/in-depth-guide-don-t-blindly-add-skuschoosing-the-wrong-category-for-pri-22e04922/"
markdown: "https://xinjignxiao.com/en/articles/in-depth-guide-don-t-blindly-add-skuschoosing-the-wrong-category-for-pri-22e04922.md"
original_source: "https://mp.weixin.qq.com/s/6_-PdFTAiKLy3OeYwHwXjg"
translation: "https://xinjignxiao.com/zh/articles/%E5%B9%B2%E8%B4%A7%E9%95%BF%E6%96%87-%E5%88%AB%E7%9B%B2%E7%9B%AE%E4%B8%8Asku-%E5%81%9A%E8%87%AA%E6%9C%89%E5%93%81%E7%89%8C%E9%80%89%E9%94%99%E4%BA%86%E5%93%81%E7%B1%BB-%E7%AD%89%E4%BA%8E%E7%99%BD%E5%BF%99%E6%B4%BB-22e04922.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/in-depth-guide-don-t-blindly-add-skuschoosing-the-wrong-category-for-pri-22e04922/"
citation: "薛文发. “In-Depth Guide: Don't Blindly Add SKUs—Choosing the Wrong Category for Private Label Is a Waste of Effort.” New Distribution, 2026-06-04. https://xinjignxiao.com/en/articles/in-depth-guide-don-t-blindly-add-skuschoosing-the-wrong-category-for-pri-22e04922/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# In-Depth Guide: Don't Blindly Add SKUs—Choosing the Wrong Category for Private Label Is a Waste of Effort

> At an annual industry trade show, a private label manager from a regional supermarket collected over 70 supplier business cards in three days. Back at the office, he reviewed them all and proposed a project list of eight categories and over 20 SKUs from seven suppliers. His boss approved everything, but a year later, all eight categories were underperforming, with inventory turnover at the bottom of their categories and year-end losses in the millions. The problem wasn't the execution but the initial category selection—private label isn't about doing whatever you can find; it's about doing what you can do well.

At an annual industry trade show, a private label manager from a regional supermarket collected over 70 supplier business cards in three days.
Back at the office, he spread out the cards and reviewed them one by one: tissue paper with low quotes, nuts with attractive packaging, baijiu that could be private-labeled at low cost, and socks with a minimum order of just 1,000 pairs...
A month later, he reported a project list to his boss: eight categories, over 20 SKUs, involving seven suppliers. The boss made an immediate decision: "Do them all! Go big!"
A year later, the supermarket's private label section was fully stocked with all eight categories, but each one was lukewarm, with inventory turnover ranking at the bottom of their respective categories. When year-end losses were calculated, they amounted to millions. The boss was puzzled: "We did everything, so why isn't it working?"
**The problem lies precisely in "doing everything."**
The chaos in private label isn't about "doing" itself, but about the step of "where to start." **Which categories to do first, which to do later, which not to do, and which to never touch—**if this judgment is wrong from the start, no matter how many resources you invest later, it's just adding mistakes to mistakes.
**Private label isn't about doing whatever you have; it's about doing what you can do well.**
# **Four Common Mistakes in the Category Selection Stage**
Among the private label teams I've encountered, very few have actually done systematic judgment during the category selection stage. The vast majority of category lists are generated under the following four mindsets, each of which is a source of later problems.
**First: Random Type—"Do whatever you encounter."**
See a good product at a trade show, start a project; a friend introduces a factory, start a project; stumble upon a trending category online, start a project.
Developers work like they're "collecting stamps," and by the end of the year, the category list is a hodgepodge with no logic—not based on consumer profiles, not on category competition, and not on company strategy. Each product "looks good," but has no place in the company's overall plan.
**Second: Blind Expansion Type—"Full coverage of all categories."**
Some retailers are stimulated by the 18%-40% private label share in Europe and the US, set a slogan like "reach 20% in three years," and then spread across all categories—paper products, grain and oil, beverages, snacks, daily chemicals, home goods, 3C, clothing. The result is that each category is only superficially touched, and none accumulates any depth.
A typical example is Yonghui Youxuan.
In 2018, Yonghui launched nearly 300 SKUs at once, covering almost all categories including home goods, snacks, and dry goods, but with confusing positioning—the "Youxuan" label and "Jingxuan" label appeared simultaneously, and even branded products (like Nestlé and Hanshu) were tagged with the "Yonghui Youxuan" label, leaving consumers completely unable to distinguish "whether this is private label, co-branded, or supplier-recommended."
Over the years, consumers have not formed any perception of "Yonghui = a certain category."
**Third: Overambitious Type—"Trying to grab what you can't reach."**
Retailers with insufficient brand reputation, weak supply chain capabilities, and inadequate talent reserves attempt to go for high-end private labels and high-barrier categories—for example, regional chains just starting out directly challenge infant formula, baby food, and professional outdoor equipment.
The result is that products are made, but consumers dare not buy them; sell-through is less than 10% after six months on the shelf; and eventually they have to be discounted for clearance, which in turn damages the retailer's own brand image. Clearly, these categories aren't impossible to do, but they can't be done at this stage.
**Fourth: Follow-the-Leader Type—"Do what others do."**
Private label teams don't study their own consumers or their own category landscape; they only watch competitors—if Sam's Club launches a new product, they do it too; if Aldi has a hit, they follow.
The problem is that Sam's Swiss roll became a hit because Sam's has millions of paying members, large-pack consumption scenarios, and cold chain support; Aldi's 9.9 yuan baijiu became a hit because Aldi's hard discount positioning and store flow are already mature.
Copying a product that succeeded in scenario A into scenario B is like putting a fish on land and asking it to run. **Successful category strategies are not replicable, because each retailer's competitive environment, core customer base, and supply chain capabilities are different.**
# **Why Category Strategy Is the "First Button" of Private Label**
If you choose the wrong category, all subsequent efforts are just paying for the mistake.
A positive example is Hema.
In 2016, when it opened its first store, its first private label product was "Wuchang rice." On the surface, it's just "an ordinary agricultural product," but the category logic behind Hema is very clear—rice is a high-frequency necessity, contributes significant foot traffic, consumers have a strong need for source traceability, the Wuchang rice market is flooded with fakes, which is a consumer pain point, and Hema's buyer model can handle direct sourcing from the origin.
Each of these four judgments holds true, so Wuchang rice became a hit as soon as it launched, and later gave rise to Hema's private label matrix like Hema Daily Fresh and Hema Workshop. As of 2025, Hema's private label categories exceed 1,200, and it has nurtured 10 "Hema brands" with sales exceeding 100 million yuan.
Conversely, look at Yonghui.
In 2017, it partnered with Daymon to launch three private labels, and in 2018 expanded to 300 SKUs, covering almost every category, but no category formed the perception that "when consumers think of Yonghui, they buy it."
Over the years, private label share has remained in single digits.
In 2024, facing huge losses, Yonghui had to restart its "433" plan to refocus on categories. A good start doubles the effect; a bad start halves it.
**The importance of category strategy is essentially "strategic focus under resource constraints."**
Private label resources are always scarce—limited development talent, limited supply chain capabilities, limited shelf space, and limited consumer attention. Investing scarce resources in the wrong categories isn't just a low-output problem; it's an "opportunity cost" problem—if you do what you shouldn't, you definitely won't do what you should.
# **A Framework for Category Strategy: The 5C Model**
I've distilled a judgment framework for whether to do a category, when to do it, and to what extent—the 5C Model. The five Cs are: Customer, Category, Competition, Capability, and Channel.
These five dimensions aren't a simple checklist but a sequential judgment chain: first look at the customer, then the category, then competition, then capability, and finally channel. If any C can't be answered, you need to go back to the previous C and rethink.
**First C: Customer—Is this category a high-frequency necessity for your core customer base?**
Private label isn't for everyone; it must serve the consumers that the retailer can "clearly define." Sam's Club serves middle-class families, so it does rice, Swiss rolls, nuts, and frozen steak—each is a high-frequency category for middle-class families. The first step in deciding whether to do a category isn't to look at its gross margin, but to see if it's "frequent enough" and "daily enough" for your core customers.
If a category is only low-frequency and occasional for your customer base, even if the gross margin is high, it shouldn't be a starting category. Consumers need at least a few successful repurchase experiences to establish the perception that "this retailer = this category." Without enough frequency, the perception won't stick.
**Second C: Category—Is there a gap in the category's maturity, brand concentration, and consumer demand?**
High category maturity (clear consumer demand, large market capacity, clear industry standards) + low brand concentration (no strong national brands dominating) + a gap in consumer demand (unmet needs in function, specification, price point, quality, scenario, etc.)—this is the ideal entry point for private label.
Conversely, categories that are rapidly changing (high consumer education costs), have extremely high brand concentration (consumers are loyal to a brand), and where demand is fully satisfied—these are extremely difficult for private label. Infant formula is a typical example—consumer loyalty is extremely high, the trust threshold is extremely high, and there's a strong "better buy a big brand" mentality.
**Third C: Competition—What role do you plan to play in this category?**
Category strategy and role positioning are inseparable. If brand concentration is low and consumer loyalty is weak, you can choose direct competition (find demand differences and quickly occupy); if brand concentration is high and consumer stickiness is strong, you should be cautious about direct competition and instead do differentiated supplementation or substitution; if you can challenge old categories with new ones, substitution competition is an efficient approach.
For example, in the bottled water category, directly competing with Nongfu Spring or C'estbon is almost hopeless; but you can do "large-format family bottles" (specification supplement), "soda sparkling water" (substitution competition), or "premium mineral water" (tiered positioning). Each is a different competitive role.
**Fourth C: Capability—Do you have the development, supply chain, quality control, and branding capabilities to match this category?**
Capability is divided into four parts: development capability (can you gain insight into consumer value and develop differentiated products), supply chain capability (can you find stable factories that meet quality control requirements), quality control capability (can you establish a continuous quality monitoring system), and branding capability (can you clearly communicate the product's value proposition). If a category has a serious shortfall in any of these four capabilities, you need to be cautious—either build the capability or switch categories.
**Fifth C: Channel—Does your channel format, SKU space, and consumer flow suit this category?**
Convenience stores typically control SKUs to 1,500-2,000, meaning every private label SKU must serve a clear category function; hypermarkets can have up to 10,000 SKUs, but consumer flow is long, and private label products without dedicated sections or visual anchors can easily get lost; e-commerce platforms have almost unlimited SKU space, but traffic is allocated by algorithms, and without content support, you won't get exposure.
> Different channel formats suit different categories:
>
> Convenience stores are suitable for high-frequency, ready-to-eat, solution-oriented small packages;
>
> Hypermarkets are suitable for large-pack family sizes and fresh produce with visible quality control;
>
> Membership warehouse clubs are suitable for large-format, stock-up, and quality-visible categories;
>
> Hard discount stores are suitable for daily necessities, extreme cost-performance, and high-frequency standardized products;
>
> Near-field e-commerce is more suitable for products with topicality and strong scenario appeal.
The 5C Model isn't a sum of separate scores; it's that **all five dimensions must pass the threshold.** If any dimension fails to meet the standard, that category isn't "the one to do now."
# **Strategies and Representative Cases for Four Category Clusters**
Common retail categories—beverages, food, daily chemicals, home goods, supplies, clothing, 3C, and non-standard products (fruits, fresh produce, processed cooked food, 3R)—can be grouped into four category clusters. Each cluster has different characteristics, strategies, and considerations.
## **Cluster 1: Standard FMCG Cluster (Beverages, Food, Daily Chemicals)**
Characteristics: Mature consumer awareness, unified industry standards, high consumption frequency, and brand concentration ranging from medium to high. This is the preferred starting point for most private labels—clear entry barriers and large market capacity.
Strategy: In segments with low or breakable brand concentration, aim for category leadership; in segments with high brand concentration, do specification or scenario supplementation—niche specifications, price points, or clean-label directions that big brands are unwilling to pursue.
Considerations: Beware the "same quality, same price, low margin" trap. Many private labels only dare to follow a "same specification, 30% lower price" strategy compared to brands, resulting in consumers seeing them as "low-end knockoffs," which neither builds brand equity nor maintains price space. The real private label strategy is "differentiated value + reasonable price point," not "no differentiation + extreme low price."
Representative case: Aldi's "Super Value" series soda crackers, cut to 400g family packs with clean labels, priced at 6.72 yuan during the launch period, quickly became a category hit—not by "low-price confrontation" with brands, nor by "imitating big brands," but by responding to the overlooked scenario of "family afternoon tea for three."
## **Cluster 2: Non-Standard Fresh Food Cluster (Fruits, Fresh Produce, Processed Cooked Food, 3R)**
Characteristics: Low standardization, lack of strong national brands, strong consumer demand for freshness and source traceability, relatively attractive gross margins, and extremely high supply chain requirements. This cluster is underestimated by most retailers; on the surface, "non-standard = difficult," but in reality, "non-standard = opportunity," because no strong brand occupies consumer mindshare.
Strategy: Category leadership is the most worthwhile goal in this cluster. Through direct sourcing from origin, shortening supply chains, establishing freshness standards, and providing quality control visibility (e.g., production date labeling), turn "non-standard" into "branded standard."
Considerations: This cluster requires extremely high supply chain investment—cold chain, daily replenishment, and loss control capabilities. If a retailer lacks stable daily foot traffic, cold chain support, and a direct sourcing team, entering rashly can lead to a "loss black hole."
Representative case: Hema's "Daily Fresh" is the benchmark in this cluster. Hema uses the largest font on packaging to mark the production date, promising "sold only for one day"—using an extreme freshness promise to turn unbranded non-standard products like vegetables and milk into brands.
As of 2020, Daily Fresh had over 400 SKUs, extending from vegetables to milk, soy milk, meat, poultry, eggs, and 3R product lines, with repurchase rates twice that of ordinary products. Supply chain support includes direct sourcing from over 450 vegetable bases nationwide, cooperation with 140 "Hema villages," and two supply chain centers in Wuhan and Chengdu. The success of "Daily Fresh" is the result of both category strategy and supply chain capability.
## **Cluster 3: High-Frequency, Low-Value Daily Use Cluster (Home Goods, Supplies, Stationery, Cleaning)**
Characteristics: Medium-to-high consumption frequency, low average transaction value, weak brand loyalty, high price sensitivity, and high standardization. This is a cluster that "doesn't look sexy but is actually very efficient"—single-item gross margins are low, but total gross profit is supported by scale and repurchase rates.
Strategy: Both category supplementation and category leadership are viable. Home goods (trash bags, plastic wrap, dishcloths), stationery (pens, notebooks, storage), and personal cleaning (cotton swabs, wet wipes, hand soap) are almost natural battlegrounds for private label. Consumers have no strong brand loyalty; as long as quality is acceptable and price is reasonable, they're willing to try.
Considerations: The trap in this cluster is "unlimited SKU stacking"—low entry barriers and small minimum order quantities mean developers can easily create hundreds of SKUs, making the category look rich, but each SKU has low sales and a bit of inventory pressure, which together become large inventory and large dead stock. The goal here isn't "more" but "precise"—choose 1-2 best solutions for each sub-function.
Representative case: NetEase Yanxuan's early practice in the home goods cluster is the most classic example of "precise but not many." When it launched in 2016, Yanxuan supported the entire platform with just over 30 SKUs, selecting only 1-2 best solutions for each sub-function in high-frequency, low-value categories like home cleaning, washing, and bedding. The "few but fine" hassle-free experience won over new middle-class consumers, with monthly turnover exceeding 60 million yuan within a year and daily orders soaring 20-fold.
But after 2018, Yanxuan itself made the mistake of "unlimited SKU stacking"—SKUs once expanded to 5,000 and later exceeded 10,000, with categories extending from home goods to food, appliances, and outdoor sports. The result was blurred consumer perception, quality control pressure, and declining repurchase rates.
In 2021, Yanxuan had to publicly announce "streamlining SKUs, focusing on advantageous categories like home cleaning, pets, and bedding, compressing new product development, and tilting resources toward bestsellers." This was a self-correction and a mirror for all retailers. "Precise but not many" isn't just a strategy for the start-up phase; it's a discipline that should run through the entire cycle.
## **Cluster 4: High-Barrier Durable Cluster (Clothing, 3C, Appliances, Baby Products)**
Characteristics: Low consumption frequency, high average transaction value, high technical or brand barriers, long consumer decision cycles, and strong brand loyalty (especially 3C, but excluding high-frequency consumables). This is the cluster most retailers should avoid in the early stages of private label.
Strategy: The core strategy here isn't "do" but "wait"—wait until private label has built brand equity in the first three clusters and consumers have formed the perception that "this retailer = this quality," then consider entering. Sam's Club and Costco only entered clothing, appliances, and 3C after 20+ years of private label and sufficient brand equity, and mostly through "licensed big brands" (e.g., Kirkland licensed Tumi and Champion), not building brands from scratch.
Considerations: Beware the "gross margin temptation." Single-item gross margins in this cluster are often high, easily creating the illusion of "one sale equals three." But the price of high gross margin is low turnover and high dead stock risk; if consumers don't buy, a few hundred units of inventory mean losses of hundreds of thousands.
Representative case (warning): A regional supermarket, in the second year of its private label, attempted to develop "premium business travel luggage" with price points of 800-1,500 yuan, benchmarking Samsonite. The result was less than 5% sell-through after six months, eventually discounted for clearance, losing nearly a million yuan. The problem wasn't the product itself but the category choice—a regional supermarket's brand equity simply couldn't support consumer trust in "luggage over 800 yuan."
# **Which Categories Shouldn't Be Rushed? Or Should Never Be Done?**
After discussing "what to do," I must also discuss "what not to do"—because the latter is even more important than the former.
**First: Categories with extremely high consumer trust thresholds and huge error costs.**
The most typical are infant formula, baby food, health supplements, and pregnancy-specific products. These categories are characterized by "once a problem occurs, the brand dies"—consumers have almost zero tolerance for errors in these categories.
After the melamine incident, it took over a decade for Chinese consumers to slowly regain trust in domestic milk powder. A regional retailer's brand equity is far from sufficient to support this level of trust.
These categories aren't "not now, but later"; they're "never should be done"—unless the retailer can invest in R&D, quality control, traceability, and brand trust building at the same level as major brands.
**Second: Categories with extremely high R&D investment and rapid iteration.**
3C digital products, professional outdoor equipment, and professional medical devices—these categories have product iteration cycles measured in quarters or even months, with huge technical barriers and R&D investment.
Retailers doing private label are essentially "OEM licensing," which can't keep up with the factory's own R&D pace. If you want to do these categories, you can only do it by "licensing mature products from big factories," and never think about "independent development."
**Third: Categories with complex regulatory compliance and tightening supervision.**
Cosmetics, medical devices, health foods, and pet food (some categories)—these have extremely high compliance costs and regulatory risks, and any quality issue can trigger systemic risks. Unless the retailer has a professional regulatory team and continuous compliance investment, don't proactively enter.
**Fourth: Categories with extremely strong consumer loyalty and locked-in mindshare.**
Coca-Cola, high-end baijiu (Moutai, Wuliangye), and first-tier luxury goods—consumers have the perception of "only buy this brand." If private label enters with "substitutes," consumers would rather not buy than switch.
**Fifth: Categories beyond the consumption scenarios of your core customer base.**
If your core customers are middle-class families, then "low-price products for down-market" shouldn't be done—your supply chain efficiency can't support extreme low prices, and your brand can't match down-market perceptions.
Conversely, if your core customers are price-sensitive masses, then "high-end imported premium products" shouldn't be done either. The core of category strategy is matching your core customers, not "jumping on any opportunity."
# **In Conclusion: Category Strategy Is Foundational Engineering, Not Opportunism.**
Private label has evolved past the "relying on dividends" stage. In the early days, you could rely on the luck of "finding a good product and it explodes," but today, the success or failure of private label depends 80% on the initial category strategy and only 20% on later execution.
**Category strategy isn't a checklist; it's a system.**
It needs to answer not "how many categories to do," but "why do these categories, why not those, in what order, and to what extent." The earlier and clearer these questions are answered, the more precise and effective later resource investment will be.
**Category strategy isn't a one-time decision; it's dynamic iteration.**
Consumers change, competition changes, capabilities change, and channels change. Categories that shouldn't be done today might be right in three years; categories that should be a focus today might need to be exited in three years. I recommend every retailer do a category strategy review annually—run the 5C Model again and re-rank the category clusters. A good category strategy breathes.
**Finally, three messages for three types of people:**
For top executives: Stop using simple KPIs like "private label share should reach 20%" to assess your team. What you should really assess is "what is the share of private label in your defined core category clusters, how many bestsellers do you have, and what is the repurchase rate." Focus is ten times more important than expansion.
For private label managers: Before you initiate any project, ask yourself five questions—Who is this for? Is there a gap in this category? What is our role? Do we have the capability? Does our channel suit this category? If you can't answer all five, don't start the project.
For private label product developers: Don't start a project just because you got a business card at a trade show. A truly qualified developer isn't measured by "how many SKUs you made," but by "how many SKUs you made that sell well, retain customers, and have high repurchase rates." The former is quantity; the latter is quality, and the difference lies in that step of category selection.
**The category strategy of private label is foundational engineering, not opportunism.**
**May every retail enterprise on the private label path move from "doing whatever you have" to "doing what you can do well."**
Xue Wenfa, Deputy General Manager of Guangdong Yinxue Group, columnist for New Distribution's private label section, senior private label expert, with 20 years of experience injecting "value differentiation genes" into brands. He has participated in Nongfu Spring's brand reshaping, led the youth-oriented transformation of Zhujiang Beer, and built Meiyijia's private ecosystem. He is currently responsible for OEM/ODM and product innovation, dedicated to category innovation and value differentiation system construction for private labels, as well as private label training and consulting for retailers and manufacturers in the supply chain.


---

## Citation metadata

- Publisher: New Distribution
- Author: 薛文发
- Published: 2026-06-04
- Canonical: https://xinjignxiao.com/en/articles/in-depth-guide-don-t-blindly-add-skuschoosing-the-wrong-category-for-pri-22e04922/
- Original source: https://mp.weixin.qq.com/s/6_-PdFTAiKLy3OeYwHwXjg

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671