In the recent quarterly MDM-Baird Distribution Survey, nearly 60 percent of manufacturer respondents said they provided contract manufacturing for distributors’ private brands.
They gave several reasons for doing so, including:
Distributors require it of them. In the survey, some manufacturers said they fear losing the distributors’ business if they don’t manufacture the private label products. “There is a growing private label market,” one manufacturer survey respondent wrote. “Unless we participate, we will lose that share of the revenue and possibly see share erosion.” Many manufacturers produce private label with extra capacity.
To strengthen relationships with distributors. Agreeing to manufacture private brands can help get branded products placed, according to some manufacturers. “(It’s) not as profitable as other parts of our business but helps to deepen relationships with distributor partners,” a respondent said.
To access markets they don’t already reach. Working with existing suppliers can provide an opportunity for manufacturers to supply product at a tier they are unwilling to position premium brands in. “In some cases we’re building partnerships with existing suppliers where they have the volume base to provide the product,” says Michael Flink, president of ADI, a security and low-voltage products distributor with more than 200 branch locations.
Read more about the impact of distributor private label brands on channel relationships in the latest issue of MDM Premium:
The article is the third in a series on private label in wholesale distribution. Get the other articles on private label here.
