To sell private label brands or not?
Distributors have differing views on the issue. But it all comes down to giving customers what they want.
By Susan Avery -- Purchasing, 8/22/2007 7:56:00 PM
In an interview with Purchasing earlier this year, Adam J. Fein, president of Pembroke Consulting in Philadelphia, and author of Facing the Forces of Change: Lead the Way in the Supply Chain, said more distributors will be selling private label brands in the future as a way to strengthen relationships with customers and improve profitability. Typically, private label brand products are purchased from low cost manufacturers for resale by a distributor, or the distributor may manufacture the product itself under its own label.
After Facing the Forces of Change was published in the spring, Robert A. Reynolds Jr., chairman, president and CEO of Graybar, took a stand against private labeling at the National Association of Electrical Distributors annual meeting in Washington, D.C.
Then, in August, Industrial Distribution published results of its 61st Annual Survey of Distributor Operations, which show that more than one-in-four distributors now sells private-label products. It’s especially popular with larger distributors, the magazine reports, with more than one-third of those with sales of more than $20 million, selling private label products. For distributors already engaged in the practice, private labels make up 20% of annual sales. Industrial Distribution and Purchasing both are published by Reed Business Information.
What does this all mean MRO buyers? For the answer to this question, Purchasing talked to executives at two distributor suppliers: Dick Offenbacher, senior vice president of sales and marketing at Graybar in St. Louis, and Tom Murray, director, private label, at Grainger in Lake Forest, Ill. They each have a different take on the issue and the implications for their customers.
Dick Offenbacher
Senior vice president of sales and marketing
Graybar
St. Louis, Mo.
We had an interesting NAED meeting when we announced our commitment to not produce private label products, and had some positive reactions from within the industry. Supplier after supplier, whether it was a supplier we do business with, or not, thanked us for taking a leadership role on the issue. Smaller, competitor distributors appreciated our taking a stand. Executives at companies that are members of the National Electrical Manufacturers Representatives Association commended us for putting a stake in the ground. They all feel it’s simply not an appropriate direction for the industry to take.
Graybar’s executive committee met with Fein in January, who raised the issue as one opportunity that distributors may pursue to become more profitable. We discussed it, and decided it is not a fit for us, based on our culture as a company.
As a distributor, we believe we work to our suppliers’ advantage, and our relationships with them are very important. We believe that brands our suppliers promote to our mutual customers are extremely important.
Our primary function is to identify the needs of our customers and come up with solutions that include identifying products as well as providing services to them in a timely fashion. We don’t see that our bringing a product to market under our brand is what our customers want.
One major concern with private labeling is quality. Many products we sell have electrical current flowing through them (that can be dangerous in and of itself). Many are also mechanical products. If there’s a failure, that can be a problem. On the communication side of our business, a failure can bring down a customer’s network. If we marketed private label products and had performance issues with them that led to a lawsuit, the manufacturer from whom we are purchasing the products might not be there, especially if it is located overseas.
So, we’ve decided we will only sell quality products from well-known suppliers that have the brands and resources we can count on.
Our customers tell us they don’t look to Graybar to offer non branded or private label products on either the electrical or communications side of our business. We think brand means a lot to our customers. Certainly our customers want to purchase products that are fairly and competitively priced. But, at the end of the day, they still put value in known brands on the market.
Tom Murray
Director, private label
Grainger
Lake Forest, Ill.
Grainger has been marketing its own private label brands for decades. Our Dayton brand, which is our single largest private label brand, has been available through our catalog for more than 70 years. We started with motors, and now we sell pumps, HVAC (heating, ventilation, air conditioning) equipment, and a variety of other product categories under private labels. Among those we sell are Westward tools, Speedaire pneumatic products and Condor personal protection equipment. In 2006, approximately 22% of Grainger Industrial Supply sales were of private label brand products.
For our customers, that means we offer plenty of choices in terms of high value, high quality, private-label products that make it easier for them to consolidate their MRO purchases in a very convenient and efficient way, with Grainger.
Our customers look to Grainger more and more for more than just products. They look to us for solutions to their business issues, and, one of those key issues is controlling MRO costs, in terms of both product and overall cost of acquisition. Our private label program in terms of quality of the merchandise, ready availability and cost at which we can provide the products is a key solution for them.
Private label brands help us to strengthen relationships with our customers. Our private label program is very much part of our overall product expansion program, which we launched in 2005. As we add categories as part of the product expansion programs, we’re on the lookout for expansion of our private label offering as well.
Our private label program is not intended to move us away from the strong relationships we have with our existing supplier base. More than anything, it’s meant to provide our customers with choice. So, it’s in Grainger’s interest not to limit those choices, but to provide as many as we can. For customers who seek national brands, we built a great business around providing ready availability for national brands. For those looking for advantages of private label brands, we can do both. These advantages include: brands developed and managed to Grainger’s own exacting standards, exclusively for Grainger. This, in our customers’ eyes, is a badge of trust.
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