Private Label vs. National Brands

© Stuart Daw
(originally published in Tea & Coffee Trade Journal, August)

Two successive debates, the first in March 1983 in Atlantic City, the second this month at the Las Vegas National Coffee Service Association convention, have served to define the questions surrounding the issue that is important to every coffee service operator. "Should I push coffee carrying my own label, or should I push nationally branded labels?"Neither choice is "right" or "wrong," in the sense that an operator can survive without using his own private label. In fact, you will rarely see even the strongest advocate of private label coffee having no nationally branded coffee in his warehouse.

Let us begin with the question: "If you had 2,000 customers consuming 25,000 pounds of coffee per month, which would you prefer — that they all be using your own brand, with your own proprietary graphics, or that they be using someone else's brand?"

"My Own"

With the question put in that fashion, we assume the answer would emphatically be "my own." For even the laziest, poorest operator among us would recognize that a likely 30 cents per pound lower cost for equivalent cup quality provided by private label multiplied by 25,000 pounds would mean an extra $7,500 on the bottom line every month.

Let's look at the specific arguments, pro and con, before coming to the philosophically right decision for any given operator. That right decision will rest on the right ideas, conceptual thought, not just by merely copying others and doing things the easy way.

Advantages of National Brands

1. Product recognition — almost everyone recognizes the names of the leading nationally branded coffees. Millions of dollars are spent advertising these products, making them easier to sell.2. People can choose between various familiar labels.3. A buyer interviewing a private label salesman and a national brand salesman is likely to have more confidence in the latter, all other aspects of their presentations being equal.4. The nationally branded coffees generally represent consistent quality control. Their slogan might be "It’s all right to sell (your word for it here, please) as long as you keep it consistent."5. The nationally branded companies help promote sales with and for you, albeit sales for their own brand.

6. Nationally branded coffees are generally available in constant supply from local wholesalers with short lead times on ordering (though the coffee may have been there for weeks or months).

Advantages of Private Label

1. You have control over your pivotal product, and that means over your business.2. It is the only way to be able to market high quality coffee, if you so choose.3. You save substantially in product cost. You can spend these savings on anything you please, including higher product quality.4. You have no competition for the brand of coffee that you carry. No one can trade on your name legally. This is a strong motivational plus for your salespeople.5. With your exclusive brand you can, if you wish, enter the entire Out-of-Home market supply for coffee, selling to restaurants, the hospital and health care field, hotels, catering trucks, stadiums, indeed every other nook and cranny of the market. The potential volume in the Out-of-Home market is many times more than in coffee service itself.

6. You can sell the mystique as well as the real quality of your coffee, enabling you to achieve a higher average selling price (though many operators make the mistake of selling their private label for a lower price than the national brands).

Disadvantages of National Brands

1. With practically every other operator in your market selling nationally branded coffee, you have an inevitable "auction sale" effect, the business going to the lowest bidder. "Service" is too abstract a thing to sell in a conversation with a buyer. The only reality is the actual coffee itself, during a demonstration. Proof of your service comes after you get the business.2. The upcharge in prices levied by nationally branded companies is spent on promotion in which you may or may not get your share of the booty. At 30 cents or more extra per pound you have to constantly make the nearly impossible judgment as to whether you might be giving more than you are getting.As your business grows, you pay more and more in promotional upcharges built into your price. Thus the "little guy" benefits at your expense.3. As to an even quality level, the national brands are generally consistent, as are reputable private label roasters. But the national brands buy in such quantities for the retail market that they tend to not buy high grade coffees from small producing countries where the entire crop is insufficient to make a noticeable dent in their blend structure. Thus high quality per se is not seriously considered by them, just control over a cost-dictated blend structure.4. It is true that national brands are recognized in the home market where they spend their way to market share. But in all segments of the away from home market the buyer brings different value judgments to bear than does the homemaker. Making comparisons, he tries to buy the best possible coffee at the lowest possible price, which the homemaker has less opportunity to do. Unfortunately for coffee service, offices are the one exception to the rule, as the habits of the home buyer all too often influence what happens in the office setting.5. The sales promotion conducted by the nationally branded companies with funds collected by upcharging the coffee is done in their own self-interest. The coffee service operator is looked at disdainfully by them as a conduit to the marketplace for their product which they have presold for you to deliver.6. Through their promotional activity they generate a huge computerized list of customers — your customers — which would become their customers at the whim of any new group vice president with a budget and an evil idea.One such idea we have seen in action is a national brand representative offering a list of customers belonging to one coffee service operator to another operator because the first operator had just discontinued the national brand.More and more large roasters, possibly including the national brands, will enter the field of coffee service directly. This includes the selling of prepackaged coffee for offices through supermarkets and convenience stores.7. Nationally branded companies use their list of your customers to promote products you may not want to sell. For example, they have been known to introduce a new blend of coffee directly to customers of coffee service operators. The operator may or may not wish to introduce a new brand into his product mix.8. The foregoing brings up the question, "whose customers are they anyway, yours or those of the national brands?" If it is the coffee brand the customer is buying and not your service, you may guess the answer. And the easy availability of the national brand at the retail store is dangerous to the whole coffee service industry.9. In the selling of coffee at the restaurant and institutional level, you are in hopeless shape in terms of using the nationally branded coffee because the company that owns the brand is already selling it there.10. The nationally branded company may promote coffee on behalf of local coffee services, providing a list of suppliers to prospective customers, ignoring coffee services who are in that marketplace but who operate from a nearby city. Names provided by the national brands may include wholesalers, whose price structure selling by the pound is extremely low.Indeed, wholesalers often buy nationally branded coffee for less money than a coffee service operator would pay on equivalent poundage, enabling the wholesaler to sell in some cases to a large end user at a price that is below the cost of the coffee service operator.One of the wonderful things about coffee is that quality judgments are subjective. There is much mystique involved, much scope for good marketing by the imaginative entrepreneur. The only way to objectify coffee flavor is by slapping a label on the bag. That tells the coffee drinker what taste to expect.

Once you use the non-exclusive national brand label, you have objectified things for the customer, letting him take bids on an objectively knowable, standard product. That puts you in the same class as the sugar or toilet tissue salesman.

Disadvantages of Private Label

1. It takes time to work up your private label with the right quality coffee. While that is not terribly difficult, you can simply opt to have the supplier pack one of his standard blends in your graphics.2. Because no one else is handling your product it will have to be packed to order, requiring some lead time from the day of order to the day of delivery. This requires at least a bit more organizing and control of inventory than would be necessary in purchasing the national branded, though of course it guarantees freshness.3. The private label roaster may have his own imperatives in terms of production, with your order being shoved aside in favor of his own customers' needs.

4. Although the cost of your coffee will be substantially less when bought from a good private label supplier there will, of course, be little "help" in marketing the product by that supplier. The selling of your own product is likely to be entirely in your own hands.

The Choice

To resolve the whole issue you might begin by asking a question, the answer to which has enormous consequences for you. What business are you in? Are you in the coffee business for yourself, or are you merely a jobber? If you are in the coffee business for yourself you are in the same business as the roaster. You merely subcontract the roasting, grinding and packaging to someone else.The nationally branded coffee is your competitor and enemy, not your supplier and friend. National brands now probably sell as much coffee to businesses through retail stores as they do to coffee service operators.That is the proper goal from their point of view — to sell as much poundage as they can by every possible means. But because they pursue their own self interest does not mean that they should also pursue yours. For pursuing your own interests is your job. And if you decide you are in the coffee business you must control that business, including your quality, packaging, economics, graphics, distribution, and all the other elements involved.

Your business is the sum total of all the choices you have ever made for it. Do you make these choices yourself, or do you choose to allow others to make the choices for you? Remember, the national brands started at pound one several years ago. Think of yourself as being a national brand too, one that just hasn't broken out of your own home town yet.

The Other Choice

But maybe you'd rather not be in the coffee business as such, but would prefer to be a jobber for one or more national brands. There is nothing wrong with that decision provided you plan your business knowing that you really aren't doing much of the selling or of building goodwill to your name. As a jobber you will merely be providing an efficient method of delivery for a well recognized product or products.

There is a serious trade-off here that you must accept. If you are efficient you can turn a profit, as all good jobbers and wholesalers should. But you will not control your product, its quality, its cost, or its pricing (which may be largely dictated by your competition). You will be akin to the wholesale grocer who says, "Oh, you don't want this brand of salt? No problem, I'll sell you that one."

Never Too Late

If I could choose for you, I would recommend the former answer, the one that says "I'll do it my way." And it's never too late to start.You can learn from the Standard Coffee Service of New Orleans who, upon making an acquisition merely converts everyone, immediately, to their own label. And while I can't speak for them my guess from all that I have seen is that their customer loss is insignificant, far outstripped by the overwhelming advantages of having complete control over their own business.If fear is your motive, remember that coffee mystique is okay for your own customer, but not for you. Learn at least enough about coffee to demystify it for yourself.Don't be seduced by the siren call of the gift-bearing national brand representative. The panty hose, the nail polish, the clocks (which may wholesale at under $1), are not really that important. And don't accept as fair the idea that their "generosity" should warrant an upcharge on the coffee.

If nationally branded coffee is being served in millions of business offices supplied by coffee service operators all over America, then many more millions of people see their proprietary graphics every day. That is priceless exposure, impossible to get in the business environment in any other way. Cooperative advertising is self-liquidating for the same reason — exposure of the national label to the retail public.

Goodwill is the Thing

In the last analysis the value of any business is not really found in its buildings, vehicles, machinery, inventory, receivables, or even in its people. Its real value can be stated in one word — goodwill. Goodwill to you, your company and products that makes people want to buy from you. The building of your own goodwill is harder to do, but the rewards are sweeter too.

© 1983 Stuart Daw

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