A private label product is a product sold by a retainer under its own packaging but is manufactured/ developed by a third party. Though there is no specific law regulating private labels in India, the Labelling laws for Private Labels in India can be derived from Legal Metrology Laws. Some retail businesses have a pre-built brand image in the market which is easily identifiable by the consumers. There can be instances where the retail businesses might be interested to carry out trade in certain demographic areas or can be interested in trading of such products which cannot be produced on their own. This can be due to non-availability of manufacturing facility, or other reasons. In such circumstances, products are brought into the market through private label process.
As stated above, even though the manufacturing/ development of the product is done by third party, the retail business owner is responsible for packaging it under its own brand name. However, the retail business owner and the manufacturer can mutually agree on the party carrying out the compliances. For instance, a company manufacturing health and wellness products wishes to enter the market of beauty products, however, it does not have the required amenities for its manufacture. In this situation it can engage an entity to manufacture beauty products for itself and it can sell such products manufactured by the third party under its own label. The entities can then mutually decide the distribution/share of revenue amongst themselves by way of an agreement.
PROs and CONs of Private Label
There can be several merits and demerits of a private label arrangement. Merits may include control over production, price and branding, wherein production can be carried out in a hassle free manner as requisite compliances for manufacturing unit will have to be borne by the manufacturer. However, private label process can also be a challenge as availability of the products become entirely dependent on the manufacturer.
Private label branding can also assist foreign companies to establish their brands in India. Foreign retail companies can sell their products in India through the private label process after choosing a domestic manufacturer to carry out production for its products in India.
Legal Metrology Compliances
The Legal metrology (Packaged Commodities) Rules, 2011 makes it mandatory for the labels to mention mandatory labels on the packaged product offered for sale by the retail business owner. These declarations include generic name of the product, name and address of the packer and manufacturer, net quantity, date of manufacturing, etc.
Private Label Agreements
Private label process can be implemented through a contract/ agreement with the manufacturer, clearly defining the terms of relationship between the retail business owner and the manufacturer. A well-structured private label agreement contains specifications related to product orders, payment terms, indemnification and other relevant general clauses.
Private label and startups
Startups are entities which are infants for the larger industry. Private labelling can therefore assist startups in a much elaborated and well developed manner. Third party vendors or entities can provide the required material assistance to the startups and the startups can accordingly collaborate with these entities for their product development. In this way, startups can incur production and product management at lower risks than what could involve much higher costs and compliances which could be difficult for a startup to bear with initially.
Private Labelling and E-commerce
Private labelling can also assist ecommerce entities for customized product development. Recently, an ecommerce mega giant launched its own range of products which were produced under private labelling. The ecommerce entities already have a well-established marketing platform and private label could help them in convenient product placement.