---
title: "Is Private Label a 'Trap'?"
description: "As platform flash sales, instant retail, and private domain livestreamers divert foot traffic from physical stores with extreme efficiency, physical supermarkets are realizing the importance of building their own moats. Standardizing fresh produce, making processed categories night-market style, and personalizing industrial products have become the focus of store renovations. Meanwhile, Aldi, with a scale of 2 billion yuan, ranks 61st in the 2024 China Supermarket Ranking but is undeniably the industry's top benchmark, thanks to its strong private label development capabilities. Every single product from Pangdonglai that sells hundreds of millions of units can revive a mid-sized listed company."
author: "零售荆言"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2025-08-26"
categories: "Brand Marketing, E-commerce & Instant Retail, Retail Formats"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/TyzxD78PBGrXNhaDVTpWrw"
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citation: "零售荆言. “Is Private Label a 'Trap'?.” New Distribution, 2025-08-26. https://xinjignxiao.com/en/articles/is-private-label-a-trap-e2504684/"
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---

# Is Private Label a 'Trap'?

> As platform flash sales, instant retail, and private domain livestreamers divert foot traffic from physical stores with extreme efficiency, physical supermarkets are realizing the importance of building their own moats. Standardizing fresh produce, making processed categories night-market style, and personalizing industrial products have become the focus of store renovations. Meanwhile, Aldi, with a scale of 2 billion yuan, ranks 61st in the 2024 China Supermarket Ranking but is undeniably the industry's top benchmark, thanks to its strong private label development capabilities. Every single product from Pangdonglai that sells hundreds of millions of units can revive a mid-sized listed company.

### **Source** | Retail Circle
When platform flash sales, instant retail, and private domain livestreamers use extreme efficiency to divert foot traffic from physical stores, physical supermarkets have finally realized the importance of building their own moats. **Standardizing fresh produce, making processed categories night-market style, and personalizing industrial products have become the focus of store renovations.**
Meanwhile, Aldi, with a scale of 2 billion yuan, ranks 61st in the 2024 China Supermarket Ranking but is undeniably the industry's top benchmark, thanks to its strong private label development capabilities. Every single product from Pangdonglai that sells hundreds of millions of units can revive a mid-sized listed company.
Physical retail peers lament that when God closes a door, He opens a window, and that window is private label. Suddenly, **supermarket buyers are going up tea mountains, down to the fields, into workshops, and into fermentation cellars, making private label the focus of intense competition.**
Private label is not a new concept, but in the summer of 2025, it brings a breath of fresh air to struggling physical supermarkets. However, is it the only salvation? The answer is no.
Why Old Tunes Play New Melodies
The first to win customers with private label was Metro, which entered China in 1996. By 2010, Metro had 63 stores, and its rapid expansion, combined with the ultra-high cost-performance of its private label Arika, won widespread customer recognition.
Unlike Metro, in October 2014, Costco, the second-largest supermarket chain in the U.S., launched on Tmall Global. Its private label Kirkland Signature, leveraging the then-emerging online platform, captured the minds of young Chinese consumers. By August 2019, when it officially entered the Chinese market, its reputation as the king of value had already taken root.
In August 1996, Sam's Club landed in Shenzhen with its private label Member's Mark. Sam's strong product power made it the preferred shopping destination for middle-class customers. It can be said that **the private labels of domestic supermarkets were enlightened by advanced foreign retail.**
According to relevant data, the earliest domestic private label was developed by Wumart, which established the first private label R&D department in 2001, beginning its journey of independent brand development and sales. That same year, Wumart integrated its resources and established the Private Label Department under the Wumart Merchandise Center, fully responsible for the group's private label strategy, design, R&D, quality control, and market sales.
In December 2005, Wumart launched its private label "Gei Ni Sheng" (Save for You), which shocked the market with ultra-low prices and won enthusiastic consumer response and praise.
Following the lead of advanced peers, domestic chain supermarkets of scale have entered the private label arena, launching private label portfolios. For example, China Resources Vanguard launched Runzhijia, Huimai, and Simple Combination; Yonghui Superstores launched Tianqu, Yonghui Farm, Huixiangsui, Chan Master, Yousong, and Huima Daojia; and new retail representative Hema Fresh developed Hema MAX, Hema Workshop, Daily Fresh, Emperor Fresh, Hema Gold Label, Hema Blue Label, and Hema Black Label, covering fresh produce, snacks, alcoholic beverages, imported ingredients, and more.
Why haven't these chains with private label portfolios created the powerful impact of the "ALDI" and "DL" brands?
Mr. Liu, a retail veteran with 25 years of experience, said: "Managers of domestic supermarkets are accustomed to operating with supplier advances, and most private labels are simply relabeled products from existing suppliers. Even when seeking new suppliers for direct sourcing, **from the perspective of maximizing company profits, with their own brand and cash purchases, the most important assessment criterion is gross margin.** The high markup makes private label prices close to those of comparable national brand products, failing to demonstrate the cost advantage of private label or establish a quality-and-value corporate image."
In contrast, the private labels of Aldi and Pangdonglai leave the deepest impression on industry insiders and customers, such as 49.9 yuan for 5L sunflower oil or 2.5 yuan for a can of craft wheat beer. They source directly from manufacturers, **leveraging the advantage of autonomous pricing for private labels, using them as traffic-driving items. Through the impact of price-breaking, they create unique memory points, establishing the retail enterprise's price image and competitive advantage.**
This approach, distinct from traditional supermarkets, has given new vitality and historical mission to private labels that have existed in retail for many years but remained lukewarm.
Under the demonstration effect of Aldi and Pangdonglai, **from regional leaders to industry newcomers**, many have shifted their product development focus to private labels. Some retail executives even say, "If you don't do private label, you're embarrassed to attend industry conferences." But can private label truly transform a company and make it invincible?
**Private Label for SMEs Is a Gamble**
Recently, the co-branded "Jiugui Free Love" between Pangdonglai and Jiugui Liquor sold like hotcakes. Many see the explosive scene, but few know that negotiations began on February 19, 2025, and the product officially launched on July 19, taking a total of 150 days.
Foreign retailers like Aldi and Sam's Club have a complete new product development process. For example, Aldi in China follows a global single-supplier strategy, cooperating with only one core supplier per subcategory. This exclusive partnership model ensures long-term stable supply chains and strengthens dual control over quality and cost.
They establish a quality control mechanism of supplier self-inspection (first line of defense), enterprise quality inspection (second verification), and third-party surprise inspections (final guarantee). In addition to routine batch sampling, they conduct unannounced visits to production lines to inspect the production environment, ensuring process standards are implemented from the source.
Even a single product can take up to a year from conception to shelf. Factory inspections cover employee accommodation, income, factory environment, and even the manufacturer's profitability over several consecutive years, as they believe that unprofitable companies will only seek to increase profits, potentially affecting product quality. This rigorous screening process is the first layer of protection for qualified products. **How many domestic retail enterprises can match the meticulous factory selection of Pangdonglai and Aldi?**
Private label is still in its infancy for domestic retail enterprises. One retail insider believes that most domestic retail private labels are simply simple OEM relabeling.
In fact, building a private label requires integrating the supply chain, from design, R&D, production, quality monitoring, logistics, to product promotion, all of which must be handled by the retail enterprise itself. Traditional retail enterprises have advantages at the end of the supply chain, but private label requires efforts upstream. The initial investment is large, requiring not only a professional department but also buyers with merchandising skills, potentially consuming up to 10% of the company's resources.
Doing private label means transforming into a "retail manufacturer," a lengthy process that is difficult to recoup in the short term. Data shows that among 65 large and medium-sized supermarkets, 39 sell private label products, but they contribute only 4% of store sales. **Exchanging 10% of resources for 4% of sales requires retail enterprises to have a long-term strategic perspective before embarking on private label.**
"Ultra-low prices" make it hard to guarantee quality. When it comes to private label, most people's first impression is "cheap." The secret to low prices is eliminating brand licensing fees and intermediate supply costs. In China, retail enterprises emphasize low prices to attract customers, and they are particularly strict on private label procurement prices. They require the same raw materials and technology as first-tier brands but at lower prices. OEM factories find it unprofitable but still want the business, resulting in inferior raw materials being used.
Moreover, most retail enterprises lack comprehensive quality control and testing capabilities, so such private labels cannot guarantee quality and may even have safety issues. **Once a private label product has a quality problem on the shelf, the retailer must bear all responsibility**, potentially causing a catastrophic collapse of the image they have painstakingly built over years in the minds of surrounding customers.
Retail enterprises have long provided venues and shelves, with product operations led by brand owners and executed by suppliers and promoters. From headquarters to store employees, supermarket staff mostly act as managers, lacking autonomous operational capabilities. For private labels to achieve the desired effect, a complete model and mechanism are needed. **Physical supermarkets that cannot operate effectively cannot form a team capable of selling goods in the short term**, and it is not uncommon for good products to become slow-moving items in stores.
Private label looks beautiful, but for SMEs, it is a double-edged sword: used well, it can be invincible; used poorly, it can hurt oneself.
The author once interviewed Zhou Zuoshun, founder of "Zhuansen" Commercial, ranked 70th in the 2024 convenience store rankings, specifically about private label. Zhou clearly stated: "We currently have no plans to do private label because our procurement's understanding of products, experience in product development, and distribution capabilities cannot guarantee that private label will bring both traffic and profit. When our scale is larger and capabilities stronger, we will put it on the agenda."
In contrast, Qixi Supermarket in Shangqiu, Henan, an inconspicuous small regional supermarket, has established a private label development department. Under the personal leadership of its innovative chairman, it has developed several single products that are very popular with customers. **In today's retail industry, where value pursuits diverge, private label strategy has become a gamble for SMEs. Whether to enter the game requires careful consideration and deliberate action.**
**Co-branding: A Compromise Between Radical and Mediocre**
While lingering in Aldi's stores and marveling at the extreme cost-performance of the "ALDI" brand, have you noticed that Aldi's shelves are filled with more co-branded products? Co-branded items account for about 60% of the total SKUs.
A senior executive from a famous domestic edible oil company admitted that in a weak consumer market, manufacturers face even more severe problems than retailers. As a result, their factory has lowered its once-high posture and started flexible production: orders of 500 boxes or more can be customized, and they are also considering co-branding with retailers.
Yang Fan, a senior retail industry expert and member of the Expert Committee of the China Chain Store & Franchise Association, shared with Retail Circle that recently, while assisting retailers in connecting with origin resources, he was deeply impressed that retailers are highly enthusiastic about private label development, but most buyers understand customer needs while lacking professional knowledge in production and quality control. **Cultivating a buyer who is proficient from origin to process for a category requires a long process.**
There are many excellent origin and geographical indication products in China that eagerly hope to reach consumers through the most direct channel, but manufacturers know little about end-customer needs. **It is also very difficult for them to master all nodes from product design, supply chain, to sales.**
In the Pangdonglai-Jiugui co-branding, Pangdonglai handled all work except the liquor itself and bottling. Retailers with such capabilities are rare in China.
If manufacturers and retailers can form a mechanism to jointly create products, leveraging each other's strengths, with each responsible for production and sales, and jointly naming the product, it **avoids the issues of using the manufacturer's brand alone (which could affect its premium and conflict with existing distributors) and opens a new path for manufacturer-retailer cooperation.**
Co-created products carry both the manufacturer's brand and the retailer's brand. The manufacturer must ensure product quality for its own brand's sake, while the retailer, sourcing directly from the source, gains absolute price competitiveness and exclusive sales rights. **This brings consumers dual brand assurance and benefits without intermediate links.** Of course, before co-branding, both parties must align on the understanding of the co-branded product.
**Conclusion**
Recently, Sam's Club has faced frequent reports of declining quality control, stemming from the fundamental shift in its supply chain structure under rapid expansion: originally 70% overseas and 30% domestic. In the rush, according to Supermarket Weekly, Sam's store growth rate of 50% far exceeds the 15% growth in its quality control team, supplier audit cycles have been compressed from 90 days to 45 days, and cold storage sampling frequency has been halved. Even a company as excellent as Sam's Club, if quality spirals out of control, can be abandoned by long-trusted members.
Among domestic retail enterprises, only Costco, Sam's Club, Aldi, and Pangdonglai have successfully built private labels into first-tier brands. The development and operation of private labels is not an overnight achievement but a reflection of a retail enterprise's long-term value anchoring and a strategic decision.
**Co-branded products, which sit between national brands and private labels, may be a solution that allows manufacturers and retailers to reduce difficulty and achieve rapid results.** It could be one path for small and medium-sized retail enterprises to break out of their product boundaries.


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## Citation metadata

- Publisher: New Distribution
- Author: 零售荆言
- Published: 2025-08-26
- Canonical: https://xinjignxiao.com/en/articles/is-private-label-a-trap-e2504684/
- Original source: https://mp.weixin.qq.com/s/TyzxD78PBGrXNhaDVTpWrw

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