This article originates from a conversation with a brand executive. Previously, during field research, I heard feedback from regional sales managers and combined it with my industry insights. I told an executive friend that private labels are a trend, and brands should proactively co-create with retailers rather than resist. I still remember his retort: 'The logic seems off. We spend at least a year on R&D, hundreds of millions on advertising, and deploy thousands of stores, distributors, and promoters to launch a new product. The success rate is less than 10%. How can retailers, with nothing, succeed with private labels?' I was stunned and had no reply. It seemed to make sense. Because I've recently started focusing on private labels, I've thought about this seriously and, combined with conversations with retailer friends, I've figured it out. What I figured out is not that 'retailers beat brands,' but something more important: these two roles are not fighting the same battle. Once this is clear, the answer to where brands should stand in the era of retailers and private labels becomes apparent.
Building a Brand vs. Building a Product My friend mentioned hundreds of millions in advertising, thousands of promoters, and thousands of distributors—these are the costs of 'building a national brand,' not the costs of 'making a good product.' At the core, building a brand and building a product are completely different. Retailers making private labels never aim to recreate Nongfu Spring or Haitian. When Pangdonglai makes private-label juice, the goal is not to conquer the national market but to sell better, achieve higher margins, and satisfy consumers more than branded products within their own stores. They don't need national awareness, distribution to stores they don't own, a national sales force, or dealer management, nor do they need to pay display fees. In fact, over 80% of the costs brands calculate are for 'pushing good products in front of consumers.' Retailers don't need this step because consumers are already in the store. In short, one is a national campaign, the other is a positional battle. Their cost structures are inherently different. Moreover, their definitions of success are completely different. For a brand, a new product needs to reach hundreds of millions in sales to be considered successful; for a retailer, a private-label product only needs to outperform the category in its own stores and achieve higher margins. They are not in the same evaluation system.
Betting on the Future vs. Focusing on the Present Let's break this down further. What is the logic and path for brands launching new products? Based on so-called big data, they conduct consumer insight research, design concepts, and then develop products. After the product is ready, they do small-scale tests, distribute, advertise, and finally receive real feedback. The entire process is speculative, predicting consumer preferences. They guess what consumers like and then verify. This is why the success rate of new products is low. To be clear, this is not about brand capability but about positioning. Brands are separated from consumers by layers of channels, so they must 'guess' to predict the market. But retailers' logic is the opposite. How does Pangdonglai decide to make a juice? Because this category has been sold in their stores for over a decade, they know exactly: what specifications, price points, flavors, who buys it, how often, and what it's paired with. They are not guessing; they are responding to a validated, certain demand. I want to emphasize again: this does not mean retailers are 'smarter' than brands; it's that their positions lead to different information structures. Let me compare the differences. Brands use a 'telescope' to see category trends, national markets, and consumer commonalities. Retailers use a 'microscope' to see product sell-through, repurchase, and individual consumers. The telescope is suitable for developing new categories and educating new demands, which has been the core value of brands for decades and remains irreplaceable today. The microscope is more suitable for mature categories, using minimal cost to create products that best match in-store consumers. This is the late-mover advantage exclusive to retailers. The rise of private labels is not the microscope defeating the telescope, but rather that in a market that previously only had telescopes, there is now a microscope. For consumers, there is an additional choice.
Challenges and Opportunities for Brands The above explains that brands and retailers are doing different things with different positioning, but in real business, the impact on brands is 'naked.' I heard a story from a friend: a contract manufacturer, also a manufacturer for a leading brand, uses the same production line, workers, and raw material standards. On the left, it produces the brand's products; on the right, it produces private-label products. Today, retailers making private labels don't need to build R&D, factories, or supply chains from scratch. These 'heavy assets' are already mature in China's FMCG supply chain; they can just 'move in with a suitcase.' In many mature categories, retailers don't seek differentiation; they seek 'equal quality, lower price.' They don't do product differentiation or formula innovation. With this goal, finding a good contract manufacturer can get things running in a few months. Except for a few leading retailers with differentiated innovation, most retail chains follow this path. Mature supply chain + real demand data + built-in traffic stores + store trust endorsement, combined, makes creating a good product an order of magnitude easier than building a new brand. For brands, this is the most direct challenge to sales. Of course, the story sounds good, but whether consumers will actually buy and repurchase is not that easy. For brands, I think the more important question is: where are my advantages? I've summarized three: First, category creation from 0 to 1. Any category that looks 'mature' today was educated by brands a decade ago. Sparkling water, zero-sugar drinks, plant protein, ambient yogurt... these are not things retailers can see from store data. Retailers can only see what exists on the shelf, not what doesn't. If a category is not sold in stores, retailer data will never show it. Only brands can develop new categories. Second, sales scaling capability. Selling a product to hundreds of thousands or millions of outlets nationwide, and making it sell across different cities and channels, is an extremely complex capability. Brands must recognize that retailers' 'efficiency' with private labels comes from high dependence on a single channel, which is their operational boundary. Third, brand mind-share assets. Coca-Cola, Nongfu Spring, Haitian, Yili, etc., have accumulated decades of trust and emotion in consumers' minds, which private labels cannot replace in the short term. Private labels can offer 'equal quality, lower price,' but they cannot easily make consumers willing to pay 20% more. Brands' most profitable business is never cost-performance but consumer mind-share, emotional premium, and trust endorsement.
Final Thoughts Putting it all together, I find: the rise of private labels is not retailers taking away brands' jobs, but the entire industry chain's capabilities are being re-divided. In the past 30 years, brands did three things alone: develop new categories, make good products, and sell to consumers. But now, in some categories and some chain systems, these three things are being split. Regarding the rise of private labels, I think this is an unavoidable strategic topic for all brand manufacturers. On June 4-5, we will hold a China Private Label Industry Chain Conference in Hangzhou. If you care about the development of private labels, I think you should come, listen, see, and talk.