Click to read the original article for details. Nowadays, distributors are all anxious: small ones worry about survival, while large ones worry about transformation. In today's fiercely competitive market, anxiety has become a normal state for distributors. The main reasons for distributors' anxiety are low profits from first-tier brands, intense market competition, and high costs of nurturing new products. Therefore, many distributors are seeking change, trying to find a path suitable for their own development, and creating private labels is the choice of most distributors.**** Distributors create private labels for the following reasons:****

  1. Enhance company value**** Distributors who create private labels undergo a role change, shifting from being a manufacturer's salesperson to a brand operator, which enhances the brand influence of their company.******** 2. Strengthen channel control**** By building private labels, distributors significantly strengthen their control over secondary wholesalers and terminal retailers, and can no longer rely on the strong channel penetration of first-tier brands. More importantly, distributors with private labels can establish core resources in the market through their own products, and their developed marketing teams and channel networks can help them develop better.******** 3. Achieve higher profits First-tier brands have high price transparency and unstable market price systems, with frequent issues like inventory pressure, price undercutting, and cross-regional selling. Distributors' profits from representing first-tier brands are decreasing. Although second- and third-tier brands offer better profit margins, distributors need to invest a lot of effort in market development. In this context, some distributors have the idea of creating private labels. Private labels are a stage that some distributors go through in their development. Over the years, many distributors have joined the private label construction army, but few have succeeded. The reason, aside from private label operations and corporate management, is whether your industry is suitable for private labels. Let's look at a set of data: In the UK, the share of private labels from high to low is: milk, paper products, frozen food, household goods, alcoholic beverages, dry goods, cold drinks, etc. From this, it can be seen that FMCG categories are the most suitable for private labels. Looking at the Chinese market, the FMCG industry has matured over many years, with head brands, international giants, and regional brands forming a huge Chinese FMCG market. With the maturity of production technology, it has become increasingly easy for distributors to create private labels. Although many distributors create private labels, few succeed. Why? Most fail due to category positioning.**** Which categories are not suitable for distributors to create private labels? 1. Categories with high brand concentration are not suitable**** High brand concentration means that the category holds a large market share and has already occupied a major position in consumers' minds, such as dairy products. Yili and Mengniu have become synonymous with dairy products for consumers. For dairy distributors, if they create their own dairy private label, the chance of success is very small. Similarly, in the frozen food industry, the quick-frozen dumpling market is already controlled by head brands like Sanquan, Synear, and Wanchai Ferry. Although the technical cost of quick-frozen dumplings is low, for channels and end consumers, they are more willing to accept established brands.**** 2. Categories with high production technology are not suitable**** When distributors transform to create private labels, although their identity changes, it is difficult to change their mindset and capabilities in a short time. If a distributor enters a private label with high technical requirements, it is a waste of effort. For example, beverage distributors, whether it's soda water, sparkling water, tea drinks, or functional drinks, all have very high technical requirements, not only in equipment but also in product R&D and innovation investment.**** 3. Categories with low profits are not suitable**** If the category a distributor represents is a low-margin product, it is not recommended to create a private label for such products. Because unless you can develop a new product that disrupts the category, you still won't gain more profit. 4. Categories with unclear industry development are not suitable**** This mainly refers to emerging categories or those in the integration period. Emerging categories have just entered the market and are in the consumer cultivation stage, with high technical and process requirements, requiring significant financial and material investment. Categories in the integration period have saturated overall market and are in a resource integration stage, so distributors entering will not have significant development. Overall, in the FMCG industry, there are not many categories truly suitable for distributors to create private labels, and snack foods and frozen foods are probably the most suitable, as they have low technical requirements and lower investment costs. But even so, a large number of distributors still fail on the private label path. Besides choosing the right product, other resource allocation and mindset are also essential! Which distributors are suitable for creating private labels? 1. Distributors with channel control**** Channels are the foundation of a distributor's survival. Channel control is one of the important criteria for evaluating whether a distributor is doing well. Distributors with strong channel control are suitable for creating private labels because they can sell private label products through their own channels and can produce different private label products for different types of channels.******** 2. Distributors with sufficient funds**** Creating private labels requires a certain financial foundation, with investments needed in product production, product promotion, marketing, channel maintenance, and team building. For small and medium-sized distributors, they may take loans to inject funds into private labels, which carries certain risks. Therefore, if a distributor does not have sufficient cash flow, it is not recommended to create private labels.******** 3. Distributors with the ability to shift their mindset**** Creating private labels is not just about adding products; it is a change in identity and role. Many distributors, after having private labels, still play the role of a distributor, throwing products into channels and letting them fend for themselves, which inevitably leads to failure. Distributors transitioning from sellers to producers must have the ability to shift their mindset, have a foundation in corporate management theory, and form an independent team to support product R&D, brand promotion, and market maintenance. It is found that many distributors create private labels on a whim, without a clear understanding and positioning of private labels. Decisions made under such emotional impulses will not last long.**** How can distributors do well in private labels? We will analyze from the aspects of brand, product, price, and channel.**** Brand******** Distributors all know that first- and second-tier products sell well, while third- and fourth-tier products do not, due to brand influence. Distributors creating private labels often have two demands: one is to create a product of their own to enhance channel competitiveness, and the other is to enhance their company's brand awareness through the shaping of private labels. At the same time, many distributors ignore the protection of private labels, including trademarks, packaging, and patents. Protecting private labels is essential to safeguard distributors' legitimate rights and interests.******** Product******** The first hurdle distributors face in creating private labels is the product. The quality of the product determines whether the brand can sustain development. So what rules should distributors follow for private label products?******** 1. Create differentiated products**** The purpose of creating private labels is to increase profits and enhance channel competitiveness through product portfolios. Therefore, differentiated products are important. Unfortunately, many distributors often see which products sell well and then launch private labels for those products at low prices. This may generate some sales in the short term, but as homogenization intensifies in the market, such private labels will eventually be eliminated. For example, if you are a frozen food distributor representing Sanquan and Synear quick-frozen dumplings, and you create a private label for dumplings, you will definitely not achieve good profits. If you develop other types of frozen products, such as prepared dishes, you can enrich your category.**** In fact, for distributors, creating differentiated products should emphasize differentiation in packaging, design, specifications, and selling points. When creating private labels, you can't "play tricks" with the product itself. The key here is to combine local market consumption characteristics, preferences, and even channel features to achieve differentiation. 2. Focus on OEM production for lightweight investment**** OEM (Original Equipment Manufacturer) is a cooperative production method where products are developed and manufactured according to the original unit's (brand unit's) commission contract, using the original unit's trademark, and sold or operated by the original unit. It is what we commonly know as contract manufacturing. Leave professional matters to professionals. In reality, a large portion of distributors, when creating private labels, first spend money to build factories and buy equipment. After investing a large amount of funds, they find that they are familiar with every product ingredient but do not understand production at all, and product quality is hard to praise. The large upfront investment brings serious debt crises. Using OEM production allows for quality control, and professional production teams are highly efficient in both new product R&D and mass production. Most importantly, distributors do not need to invest heavily in equipment. Although OEM production helps distributors save costs, it also carries risks, such as product batch quality. Since it is not their own production team, it is difficult to fully guarantee product quality in production, relying only on a strict inspection system later. Secondly, during peak sales seasons, OEM manufacturers may compress OEM products to ensure their own output. Distributors must sign order contracts with manufacturers in advance. Of course, these two risks can be controlled within a reasonable range if distributors manage them well.**** 3. Personalized packaging**** Packaging is an important factor in enhancing the competitiveness of private labels. Good packaging can make the promotion of private labels twice as effective with half the effort. Therefore, when designing private label packaging, distributors must clearly define which channels the private label is suitable for, whether it targets traditional channel markets or terminals facing young consumers. Attractive packaging design is key to improving the competitiveness of private labels against first- and second-tier brands.******** 4. Differentiated specifications******** After determining the product and packaging, private labels can enhance competitiveness through specifications. Creating specifications different from mainstream products can better penetrate channels, especially for snack foods. Making packaging larger or smaller can adapt to different sales scenarios.******** Price******** Pricing is the second hurdle for private labels, of course, based on the product. Most distributors set private label prices relatively low, trying to gain sales through low prices, which is a short-term behavior. Whether a product can settle in the market depends on product quality. If distributors set prices lower than market prices, the quality of their private label products is certainly questionable. So how should pricing be determined? Generally, it should be lower than first- and second-tier brands and higher than third- and fourth-tier brands, but ultimately it must be combined with the distributor's product costs. This requires distributors to conduct thorough market research.**** Channel******** For distributors, channels are the most familiar. Therefore, many distributors, after having private labels, will quickly fill all channels with private label products, but the results are often unsatisfactory. This is because private labels are not suitable for all channels. Many successful private label distributors usually select channels suitable for their products, such as supermarkets, hypermarkets, and convenience stores. With the development of new retail channels, many distributors have also sent private labels to innovative channels, such as community group buying. In such channels, private labels can quickly reach end consumers and use repurchase rates to determine whether the private label is recognized by the market, thereby attracting B-end attention.******** Different types of distributors, distributors at different growth stages, and distributors in different competitive situations (category, brand) have different purposes and goals in private label development. Whether it is to make money and increase profits, to increase product portfolios to enhance channel competitiveness, or to transform into brand owners to build their own brands, these are all things distributors need to seriously consider. In the new retail era, the emergence of innovative channels is undoubtedly a blessing for the promotion of private labels. Convenience stores and community group buying allow products to quickly reach consumers, and the rise of social software like Douyin and Xiaohongshu makes brand promotion for distributors no longer as difficult as before. What we need to do is seriously examine ourselves and seriously make good products. Face the market with a calm mind, face terminals with humility and reverence, and face products with an innovative and transformative mindset. This is the worst of times, and also the best of times. The path of rise and fall lies only in the distributor's thoughts. Whether distributors are suitable for creating private labels is not a new topic. Bringing it up again now is only to tell everyone: do your homework before you practice.