[00:00:05] Melissa Traverse: Hello, and thank you for joining. I am Melissa Traverse, Director of Community here at BevNET CPG Media, and I'm excited to welcome you to the NonBase podcast, built to help CPG owners and operators navigate growth challenges and build more profitable businesses. Be sure to check out nonbase.com, BevNET's platform for the CPG community, where you'll find tactical content like this and so much more. Private label is playing a bigger role in CPG than ever before, yet reliable information how it actually works is surprisingly thin. Consumers are buying more of it and retailers are actively pushing for more of it in their sets. But the problem is there aren't a ton of places you can go for information on private label. The NDAs are intense, the retailer relationships can be sensitive, and the whole industry kind of runs on confidentiality. Today we are joined by Derek Brawley, U.S. sales director and private label lead at Prana. With nearly two decades of experience managing private label programs around the world, He's seen what works, what doesn't, and he is here to share as much of the inside story as he can. Derek, thank you so much for joining us today. It's such a pleasure to have you here on the Numbees podcast.
[00:01:24] Derek Brawley: Well, thank you for having me. It's a great opportunity to share a couple decades of work.
[00:01:29] Melissa Traverse: So great to have you here again, because it really can be so hard to find people who are willing to talk about private label because it really it's almost like the Wizard of Oz, you know, like getting behind the curtain can be really difficult. Why don't we start off with learning a little bit about Prana. Prana is an enormous Canadian based brand. Could you tell us a little bit about how the Prana business works and what your sort of day to day is like there?
[00:01:58] Speaker 1: Yeah, well Prawn is a leader in the organic space in Canada and I really don't touch that part of the business much at all. My role is really focused on the U.S. branded business and private label and I would say the majority of what I do is private label. So, but big picture, Pwana is your better for the planet. We're a leader in the breakfast category, snack category, and we do a number of other items. We've got well over a hundred SKUs in our portfolio.
[00:02:33] Melissa Traverse: You know, I know I mentioned this to you earlier, but on a recent trip to Canada, I was in a grocery store and Prana just owns shelf after shelf. Can you explain what its role is in grocery retail in Canada? Because I mean, I just saw it everywhere.
[00:02:51] Speaker 1: Yeah, well, we're basically in the organic snack set and in the breakfast categories. We're one of the leaders in the market. And if you walk into a store, you're going to see in some of the big stores, you're going to see 30 to 40 SKUs in the set. There are large sets that we work with. You need to think of Canada like being a big California. There's 38 million people here. There's 38 million people in California. So we're sort of like the leader in a California market in terms of the number of people that we work with. We're 20 years old. We've been doing it for a long time. We're a B Corp. We're family owned. And We are really a magical place, I would say. We're known as, in Quebec, we're known as a magical place where people are really happy to work here because we're a leader in an alternative culture, which is really about people and planet, triple bottom line.
[00:03:45] Melissa Traverse: So cool. And can you explain a little bit more about your role? So you said you don't really touch the retail business. You handle the private label business. So does that mean that you're handling the private labeling for retailers in Canada, maybe the United States, other countries? Where are the retailers that you're working with?
[00:04:12] Speaker 1: I manage a private label internationally. So anywhere in the world where there's a retailer that wants a product that we have produced under their label is going to fall under my shop description, I guess, as you would say. We attend a number of shows globally every year. And right now we're working, we talk to people all over the world on a regular basis.
[00:04:37] Melissa Traverse: Well, you are certainly the person to be talking to about private label. From where you sit, how would you describe the appetite for private label right now? I mean, you and I have been talking about how there seems to be an increasing desire on both the consumer side and the retailer side. What are you seeing right now in terms of appetite?
[00:05:00] Speaker 1: What's happening right now is the world is really in a change and private labels starting to take a really predominant position in grocery stores. I think it's something that occurred over a number of years as private labels really gone from like through an evolution. At the beginning, it was this low cost yellow label, something that was really like the cheap alternative. You were almost embarrassed to tell people you were giving them the yellow label ketchup. and not Heinz Ketchup back in the day. Today, everything's transitioned with this mindset of private label costing and brand equality. And that's really what's driven the evolution. And we see more and more that private label now is a gourmet brand. A private label is a premium product, but it's got this competitive pricing. So this is a really big piece of what's happened in terms of the quality game of private label. The quality game has just skyrocketed over the last 10, 20 years in private label. And as a result, they've got a brand that consumers can trust in private label. And this is what's really developing. COVID has really served as a big lever because during this period, we saw a lot of price inflation, we saw trouble getting products. A lot of consumers started to be concerned about where pricing and food and everything was going. And that was really a transition point for a lot of customers to try Private Label. And once they tried it and they realized the quality that was sitting at the table in front of them next to some of the branded items, there's no return. So I think There's a lot of these pieces in terms of what's driving the consumer. But on the other side, there's what's driving the retailer as well.
[00:06:51] Melissa Traverse: And what do you say for retailers, the brand loyalty is a large factor. So if you love 365 pretzels, you'll go to Whole Foods Market and buy them there because they're the only people that have the you know, the only places that have them. How much of that do you think plays into it?
[00:07:08] Speaker 1: Well, it's huge. Like so, so retailers are trusted and retail 365 is a great example. This is one of the most trusted brands in the market. So once you understand that this brand produces a great product, then you're going to try the other products in the category. So what these major retailers have done is they've typically the way private label starts is they go into a category that is a highly performing category and they pick like the top one, two, three SKUs. flavor profiles, concepts in the category. They're the winners, and they know they're the winners because the grocery stores own the data. They've been selling them day in, day out. They know how they perform on sale. They know how they perform on end cap. They know that this particular flavor is going to outsell everything. They then take those flavors and they create a best-in-class. So private label typically represents the best-in-class flavor profiles that have proven themselves to be winners. There are some innovations coming now, but traditionally they take the very best-selling items in the set and they make them private label. So when you look at SKU2SKU, the private label items are always selling more velocity because they're great items, just a little bit cheaper and the retailers got all the tools of placement and lift and data information to help drive them.
[00:08:34] Melissa Traverse: You mentioned that 365 is one of the most trusted private label brands. I'm just curious from where you sit, which other retailers do you think have trusted brands? I mean, I would think of, you know, Kirkland. What other retailers do you think have private label brands that are very well trusted and respected?
[00:08:54] Speaker 1: I would say all the majors have done a really good job. So whether you're looking at really like the conventional chains like Albertson, Safeway and Kroger, they've done a brilliant job with their sets. A leader in the U.S. market would obviously be Trader Joe's in Canada. President's Choice is really like known as one of the creators of Private Label back in the day. They did a really big job on it. But, to really truly answer your question, I'm seeing retailers across the spectrum that are doing brilliant jobs on private label. Some of them are 50 to 100 stores, and they're coming out with great products and great concepts. So, in earlier days, it was the big guys that were doing private label. Now, everybody wants a piece of private label. stores in the 100 range, 300 door range, and all the way up into the 2000s, like the big guys, creating the brands and putting their energy into it. There isn't a major player or a culture shop in the US that isn't investing in private label.
[00:10:07] Melissa Traverse: Do you have any idea what percentage of private label SKUs at retailers are made by a branded product that's sitting right next to it?
[00:10:19] Speaker 1: I have no idea how to answer that question, but I'm going to say it's probably a huge number. If you're performing great and you're in the category, and the retailer is going to do a review on private label, there's a very good chance they're going to ask you to bid for it. So you have to remember a branded product is split in brands that own their manufacturing facility and they can therefore co-pack directly and brands that are produced in a packing facility. So in some cases it may be coming from a packing facility that is producing 100 other brands and other cases it may be the brand itself. But it's very likely with a number of the leading products that you see in the market that they're being produced by your favorite brands.
[00:11:06] Melissa Traverse: Well, I have a few more questions for you about that a little later on. But before that, you know, I know you mentor a lot of emerging brands. As a matter of fact, the way I even got in touch with you was with another brand who you had given some information for. What's one of the biggest misconceptions that founders have about private label when they come to talk to you?
[00:11:29] Speaker 1: For sure, private label is always this thing that we're not supposed to do. It's going to deteriorate my brand. It's going to take away from my energy. I have to tell you, I'm a little bit radical on this side. I'm a huge believer in the potential of private label, and not everybody in the market feels the same way. And I can tell you that 99.9% of entrepreneurs that I've helped over the last several years, they all start believing that they're either not ready, not capable, or they're simply scared of private label. And from my perspective, this is kind of backwards thinking. There's so much opportunity that private label can give an emerging company in terms of cash flow, in terms of in-market experience, in terms of cost of entry that simply aren't available to a brand, the brand has to make such heavy investments to trial business at a retailer. So I strongly believe that when you're building a business model, there's a few things you need, you need your brand of business, that's your pillar, that's your marketing, that's, that's the big boat. But you also need a liquidation partner in case things go wrong. And you need a club partner to really get the word out there. And you need private label to have consistent forecasted business and strong numbers.
[00:12:51] Melissa Traverse: One of the most surprising things that you told me when we were preparing for the show is that one of the biggest advantages of doing private label is the information that you get. What data do retailers share with private label suppliers and how does that change your ability to forecast accurately, plan your inventory cycles, and the sort of overall economics of running your business?
[00:13:18] Speaker 1: Yeah, I think the way to answer that question is to first think about what is your reality as a brand. So your reality as a brand is that you are going to produce the product, you're going to warehouse it in your facility, waiting to ship it out, you're going to ship it to a distributor, and then you're going to ship it to a grocery store. Now, through all of these processes, you have shelf life. And the way that shelf life works is, let's call it 12 months. As a brand, typically through distribution, you get to own 25% of your shelf life, and you have to give the distributor 75%. And then this distributor, depending on his customers, will give them 30, 60, 90 days guarantee. But they're sitting with that big whack of nine months, which is 75% of a 12-month shelf life. So through this period, you don't really know how much the distributor is going to sell. You don't really know how much the grocery store is going to sell. And if you want to get the data from, you can see your sales from the distributor, and you can kind of monitor them on monthly reporting, but they're going out the door into this black hole that we call retail. And if you want to buy your data, you can do that, but it's going to cost you tens of thousands of dollars per set that you're in to have visibility on the sales, and you're still not really going to have a clear picture on where the inventory is sitting in all of the stores. So you're always making these guesses that lead to too much inventory, too little inventory, spoils, shortages. It's a full-time job managing this. equation. And as any salesperson will tell you, forecasting is a difficult part of the game when we don't own the data and we can't afford. So most startups, that's not available to them. They can't spend $30,000 on data. They need that $30,000 to buy raw material. When you get into private label, it's a completely different game. These guys are going to give you an annual number. I have customers, I mean, they'll give me a 12-month prediction and it's remarkable how accurate they are because they own the cash register. So they know how much the competitors are selling. They know the leaders, the low liars. They also can see that their product's not performing, and they can quickly put it on an end cap. They can put it in their own ad. They control these so they're not paying the same cost. They're really able to project because they own the true source of data. So when it comes to private label partners, they'll give you a projection. And they are almost always extraordinarily accurate. And this is magic. Whether you own your own facility or you're working with a producer who's producing your brand and your private label partners for you, being able to have an accurate forecast and one that you can rely on is magic in business.
[00:16:19] Melissa Traverse: Can you talk a little bit about what the profit margins are like in private label versus selling branded product to a grocery retailer?
[00:16:28] Speaker 1: As a brand, when you're selling your product and you have your margin, but you also have to have what's called a trade spend budget. And this is a percentage of funding, a percentage of money that you're going to allocate towards funding activity on the shelf. Those are things like you're going to have to pay for an end cap and add to execute a TPR, which is to put a discount on the shelf, a temporary price reduction. A lot of retailers will have an activation fee for the TPR. That could be $1,000, $1,500. I've seen them go as high as $11,000. So there's a lot of fees that we budget for in the cost of our goods. And those fees drive the price of the branded product up rapidly. When we get into private label, it's a dead net relationship. So we establish a price at the beginning, and then that price is flat for the term of the contract. There will be opportunities. Usually, you have an opportunity once a year, once every two years, depending on the contract, to say, hey, this went up, this went up. Can we renegotiate? But for the period of the term, your price is flat. So what this does in terms of for a company is it makes it much easier for you to kind of budget for that account. What happens in the branded world is we make all these assumptions. We're going to buy this ad, and our velocity will go up from the ad, and we're going to pump in all the extra product to support the growth that's going to come from the ad, and then the ad flops. And then the product is stuck there, and then spoils come. And then we thought something was going to cost us 10% or 12%, and it cost us 23%. And all of a sudden, the margin is creeping away. These are the challenges you hear startups going through all the time on their brands. But in private label, you're going to have an agreement up front on what you're going to pay for. And then after that, it's a flat price and the retailer manages all those costs on their end. This is the part of the business that I love the most because it's so much like private label. Consider it very technical at the beginning when you open the relationship, but very smooth while the relationship is running.
[00:18:56] Melissa Traverse: And then at the end of the day, I know it completely depends on how much you're putting into trade spend and the assorted costs that come with selling a branded product versus a private label product. But is it reasonable to think that you might net out about the same amount between selling branded product to a grocery retailer and private label? Or I would assume that you would expect to net out less by selling private label because there are so few other ways to kind of negotiate costs. Is there any way to kind of paint a picture there?
[00:19:33] Speaker 1: Obviously, there's a volume. There's a volume piece, which really makes it hard to answer that question one time. The bigger the customer, the more you're going to try to get them, because it comes with larger volume that allows you to get better pricing on everything that you're buying. But big picture. What a brand needs to do is they need to establish what their margin target is. And they need to understand that that margin target, typically grocery retailers are looking to provide a savings against a branded product. So if you look in the market, on average, a private label SKU is anywhere from 20% to 40% less than a branded SKU. The high ends are I think really more like commodity base and I would say that the average is sort of around that 25% less to 30% less than the market. A brand is probably paying a lot of these costs or some of this cost at least in all the fees that are associated with managing a branded business. So I would say that there is a competitive trade-off. Sometimes the brand wins, sometimes private label wins. It's not cookie cutter for a winner every time.
[00:21:03] Melissa Traverse: Let's dig into the manufacturing piece a little bit because I think that there is a misconception, certainly one that I had sort of bought into, was that if you don't own your own manufacturing, then private label isn't really an option to you. Let's talk about both sides. So we'll explore if you do own your own manufacturing and if you don't. Let's start with if you do. What are some of the first things you should be asking yourself as a brand if you manufacture your own product and you're interested into getting into the private label world?
[00:21:37] Speaker 1: Again, I'm a bit of a vanguard even here. Not everybody's going to agree with me on the way I look at it, but I believe that immediately you need to be thinking about private label. If you launch your brand today, I believe you need to be thinking about private label today. Private label takes a long time to develop a sales cycle. It takes a long time to get in. And from an approval, you can be 24 to 36 months working on creating the product and the paperwork because you've got to wait. The retailer might need to create the image of the brand. They might need to have the rest of the set. They might have a schedule that's really far out. It takes time and you have to anticipate delays. So if you want private label in 36 months in your vision, you need to start today. For sure. Like there's no question about it.
[00:22:30] Melissa Traverse: Is that whether you own your own manufacturing or not? Would you say either one?
[00:22:34] Speaker 1: Yeah. So I, you know, this is one of the things that, you know, I, I, I mentored 10 to 12, uh, companies co-mentor with a number of them. They teach me stuff. I teach them stuff and, The biggest thing that I cross with a lot of them is that they're having the products produced for them by another packer. And they think, well, I can't make this work. I mean, I can barely hit my minimums today to justify a private label. And also, I don't want to dilute the brand. I'm trying to build this brand, Derek. I want it to be great. I want it to be number one. We're going to win. We're going to win. We're going to be great. And I said, OK, well, where's your brand? Well, we're selling in California. I said, all right, what are you doing on the East Coast? Nothing. Right. So sort of my philosophy is like, look, if you're developing your brand at the beginning and you're barely skimming by and you barely know how to run your budget, your budgets are going over, your cash flow is not steady, but then you can get private label. And yeah, maybe you make less money on private label because you have a packer. But if you go over to the east coast or you go to Canada or somewhere else with your product that's not even in your seven-year radar right now, and you get some steady cash flowing in, it's really going to help you pay the bills. beyond that it's going to help you with your relationship with your packer because you're going to have more volume for them. So what my recommendation is always sort of on this this approach is that if you are going to take the time to go and negotiate branded volume at your small branded Volume that you can offer because you're just building your company at the beginning in the same time Negotiate your volume tiers so that you know where you can get a discount and negotiate your private label offering all that can be done at the same time so that when you're engaging customers and you're at a show and you've gone to a Show and you I'm gonna show my brand and everybody's coming from all these states where you don't sell your product, you can say, hey, I don't sell the brand there, but I am open to do private label and let's talk. Once that door is open, it can start.
[00:24:49] Melissa Traverse: And what would you say about the idea that if you are selling a retailer your product and they're selling it under their private label, but your branded item isn't in the store yet, but you'd like it to be, that maybe you're compromising your chances to get the branded product in because they're already buying it for their private label. How does that rationale play out?
[00:25:13] Speaker 1: I think it's kind of a delusional thought process. And I don't mean to be critical on this. But look, if you're, especially if you're a startup, but if you've got a branded product, and you've not been able to put it into the retailer, and that retailer is saying, I want a private label product, it's very unlikely that you're going to be able to convince them not to do a private label and instead to do your brand. It's very unlikely that it's going to work that way, because they probably have a KPI to develop a certain percentage of their shelf space into private label. That KPI is not coming from the buyer. It's coming from the executive team up top, who's saying, guys, we want the margin from private label. We want it in your shelf. We want you guys to hit 52% private label items in this set. and make it happen. So there's something driving that decision. So if there's an opportunity where you're not on the shelf to bid, take that opportunity to get on the shelf, even if it's with private label.
[00:26:14] Melissa Traverse: So let's assume that you are talking to someone at a brand that does own their own manufacturing. Beyond making a great product, what does it actually take for a manufacturer to become private label ready? And what are some of the capabilities and certifications that they should make sure to have?
[00:26:36] Speaker 1: Yeah, so I think one of the things people don't really think about is what percentage do you want private label to be of your business? So this is an important thing to understand when you're building out the roadmap for how you're going to grow your business. I know a company here that's 70% private label and 30% branded and they love that model and they never intend to sell their company. I know other companies where their long-term intention is to sell the brand, and the general belief is that the brand itself has a higher dollar return when you sell the company than the private label, so they want to put more of their energy into that. So a brand has to kind of look at the long-term strategy and figure out what they want to do. Think about it from a cash flow and start there with having the objective on what we want in terms of a split. How do we want to split our business? Private label, brand it, club, build your map. What's going to be interesting is that no matter how you build that map, private label, club, mulo, natural channel, retailers are gonna look for some of the same qualifications, whether you're branded or private label. So the key qualification is gonna be BRC, SQF, which is a GFSI, Global Food Safety Standard, is what these guys are looking for. And North America, it's SQF, is really the one that's the leader in the market. And this certification gives your retailers the confidence to know that their brand is protected. And that is huge. A buyer wants to be able to buy your product, go to bed at night and sleep. If they have to toss and turn that there might be a recall or there might be a problem with the quality of the product, you're not on board. And the way that they go to sleep is they have an SQF certification, and they usually set a standard 98.5, excellent rating, and they'll come and they'll audit your facilities as well often. The big players will. But all of this is built around systems that have been proven in the food industry to protect the well-being of people. So that would be the number one.
[00:28:57] Melissa Traverse: You know, your point about recalls is an interesting one, because if a retailer has a product recall and it's on one of their private label items, that does a lot more damage, of course, to the retailer than if it was a branded product. I didn't even consider that.
[00:29:15] Speaker 1: Yeah, well, so a brand can be destroyed with a recall. The damage is it's expensive. It has publicity. So protecting the quality of food is the game when it comes to producing food. You can make a great recipe, but if you cannot protect the quality of that food, you're going to have no business at all. And that's what SQF was developed for. It was developed to give food manufacturers a roadmap on how to protect the quality of the food that's coming out of their facilities. And it's super urgent. And that being number one, there's number two as well that's come up, which I think is, for me, is just equally as important. And those are social and ethical standards. So especially with grocery brands, I mean, you think about a lot from the perspective of, like, T-shirts and running shoes. You used to hear a lot of them being produced in facilities overseas with poor standards. What are the conditions of the workers? this is really a big concern for a brand or for a retailer that something is done wrong. So in the retail world, like SMETA is a social and ethical accountability audit that takes place. They're going to look to see if you have a social and ethical audit that you take place. Are you a B Corp? If you're a B Corp, You get this great kick because everybody will believe in you. B Corp's done such an amazing job at setting global standards for manufacturers that are part of their program. SMETA, again, another social compliance audit. So I would say the two big things are SQF, NS, and social compliance auditing.
[00:31:10] Melissa Traverse: And then let's consider the other side, which is if you are a brand and you're using a co-manufacturer, you're saying that it makes sense when you're signing on with a co-manufacturer to talk about private label. What questions should you be asking your co-manufacturer about private label and what are the considerations there?
[00:31:31] Speaker 1: The way that we weave private label into our business will protect our brand. The way that we weave the two together, because whatever a grocery store is asking of you for private label is what you should be asking of your producer for your brand. So understanding what a retailer's wish list is will help you protect your brand if you don't understand it. If you're building a brand, you don't want to go to a guy that doesn't have SQF. You can go there. You can start your business. You sell to all the independents. And then, boom, a big club partner comes, or a mass market partner comes, or a large national or even regional MULO player comes on board. And you don't have the standards to ship your brand into them. because the big players are looking to have food protected equally, whether it's in private label or brand. So there's a synergy in what you should be looking for for private label and for your brand. And if you're producing your brand in a place that doesn't have these today, you're just capping how far you can grow your brand.
[00:32:44] Melissa Traverse: This is all sounding very appealing. How does it work if you are a brand and you have a product that you think would, you know, that retailers would love to privately? Well, I oftentimes hear of the retailer coming to the brand, but if you are a brand and you want to kind of pitch your product to retailers, what's the best way to do that?
[00:33:05] Speaker 1: I would definitely say that there's two shows that stand out above everything else in the industry. It's the PLMA in Chicago and the PLMA in Amsterdam. And this is private label manufacturing. And these shows are Absolutely incredible. I mean, I attend these shows on an annual basis, and what happens is you get the buyers that are specifically looking for private label all in one place. I know there's shows in China now, and there's smaller shows in Italy as well, but these two shows, they're the big ones. They're the ones where everybody's attending. They're the Expo West of private label. Not as exciting, no parties at night the same way at Expo West, but you get the drive of true customers that are looking to build a store brand. Beyond this, Beyond the shows, I believe that in every interaction that you have with a customer, every time that you touch the customer, you go to their office for a presentation, you send them a deck about your brand, you should always somewhere in that engage them and say, private label SKU is available. And the reason for this is over my time, I've met buyers who have told me that they have KPIs assigned to them to identify potential private label SKUs. So even though your buyer may not be the private label buyer for your item, there's often a separate buyer for this. they may be actually actively searching for items to share with their team members. So what you want to do is, I really believe in dropping seeds wherever you go, little opportunities to water and grow. So if I'm engaging a retailer to talk about the brand, I'm going to tell that retailer, hey, we could do x, y, and z for you.
[00:35:20] Melissa Traverse: So you mentioned when we were just starting this conversation that you handle international private label business. Are there any interesting notes that you might have about countries that do? And I know, again, it depends on what your product is, but any countries that do a lot of private label business or might be worth looking into? I would assume the US does a lot. What else is there?
[00:35:44] Speaker 1: So as a Canadian, the US is a giant, our best friend, we love you, keep buying. The EU is another very powerful market. So there's some really magical things that can happen here, especially if we're talking about natural products. I am in the natural food space. So we do, my headset is a lot about organic, non-GMO, gluten free. And a lot of time you're going to be adding certifications for your partners or offering, you produce an organic product in the US, you want to offer an organic product to Canada or to the EU. So what's really critical here is to do some research to understand equivalency agreements. So equivalency agreements are where a certification let's use the USDA Organic as an example, has an equivalency agreement with another country. So the USDA Organic has an equivalency agreement with Canada Eco-Cert, which means that if you're USDA certified, your brand is USDA certified, your facility that's producing is USDA certified, you can put the Eco-Cert logo on it, which means you can sell to a Canadian retailer with the Canadian organic logo on it. I believe the USDA also has with the EU. I know that Canada does with the EU, because I'm a Canadian. I know more about where my equivalency are. But I believe the US also has an equivalency with the EU. And that means that you can put the LEAF organic certification on the logo. And there are some processes that you have to do, notifications and et cetera. But if this is the case, what you can do is you can use equivalency agreements to shortlist where you want to focus your energy on selling your product, because that means you have the certifications available for that customer base.
[00:37:45] Melissa Traverse: Let's talk a little bit more about brand delusion because I do think that is, as you know, as you mentioned, one of the primary concerns that brands have. How do you think founders should think about brand delusion, assuming that selling the business at some point is important to them?
[00:38:04] Speaker 1: It's such a tricky question. And again, I'm a vanguard on this. I look at it from a really different perspective. But I think that they need to talk to somebody who sells a company. and talk to them about the value of the brand versus the value of the private label business, because it is a different multiplier. Once you understand that multiplier, then you can start to think about the resources that you have to build both models. But what's really key is that if, let's say you're at $2 million today and you want to sell at $50 million, Getting those private label guys on board earlier are going to get you to the 50 mark faster. But they're also going to finance you along the way. So I would sit down with my finance team or my finance advisor and say, look, building the brand cost me this huge mountain of money. And make no mistake, it's a mountain of money to build a brand. supporting and contributing to build somebody else's brand with our innovation and their resources, which is what private label is. Your innovation and their resources will grow my business to X. much faster. So you might want to kind of create a model and each brand based on what their targets, their timeline to sell, where they want to get to is going to build this slightly different. But I would build it really quickly with the one caveat being sell private label from day one. And nobody's going out anymore and selling private label, launching a brand nationally, all across US, all across Canada, all across Europe. You have other markets that you can sell to. Whatever your fear is, you have another market you can sell to. That's so important for people to understand. Because our mind is that we, oh, I can't produce another label with different writing. But that label is going to come to you other company with the writing and your system that, let's say you use Genesis to get your nutritional values, it can give you the nutritional values for different countries. It's not as complicated as people think. So open your mind to those other markets as soon as you can. And then the other thing I'm going to say about brands is brands hold on to their skews. They protect a skew. They say like, this is my winner. I'm never going to do this on private label. And I believe that all of them hold on to it for too long. You want to, whatever your leader is today, your objective should be to replace it with a better innovation. So knowing that this is your objective, you should start thinking about where you can offload it. And if you're not comfortable to offload it into your primary market where it's driving all your sales, I completely understand that. But there is so much more market waiting for you.
[00:41:10] Melissa Traverse: You know, that's such a good point, because no matter how unique the product that you're making is, there are always going to be copycats, you know, like right behind you. Like I was thinking about Takis. I mean, how long did it take to go from the branded Takis to the Trader Joe's version and, you know, all of these other versions? You always need to be innovating. That makes so much sense.
[00:41:34] Speaker 1: OK, this is a really good point that you're bringing up. So one of the things I really want to point out is there's a difference in how private label products go to market. One is, what is the brand going to push? And this is kind of what we were talking about. What is the brand going to push out to retailers and offer to them? And again, I think that's what I said. Find your market. Find a place where you're willing to do it. And just make sure you're going to get some big key customers that give you the volume. Make it happen. That volume, even if you don't own your own facility and you're packing for somebody else, and all of a sudden you get this extra volume, it's going to make everything smoother. But if the retailer comes to you and says, we like your product, will you co-pack it for us? If you say no, you're pretty much crazy, as far as I'm concerned, because you're giving it to somebody. It's not that you're, they're not going to say, they're not going to say, oh, he said no. We're not going to put that on our shelf. They're going to take your product. They're going to go take your product. They're going to call Joe at Joe's Manufacture and say, Joe, can you match this recipe for us? And Joe's going to be like, yeah. And I can give you a 15% discount on it as well. And you're out the door. Because what's going to happen is they're going to put the product on. And you're going to have said no to them. So they're kind of mad at you and the relationship. And it doesn't work. The alternative is they come to you and say, absolutely, how can we make this work between us? You know, boom, boom, boom, boom, boom. Let's put it on the shelf. Now you have two SKUs on the shelf. Worst case scenario, you have the private label SKU, and you get cut. But almost guaranteed, the private label does twice the volume. So where do you want to be? Do you want to be cut when Joe gets twice the volume? Or do you want to be cut when you get twice the volume?
[00:43:28] Melissa Traverse: Last question for you. So across retailers, is the private label business more or less standardized when you think of onboarding, fees, audits, insurance, that kind of thing?
[00:43:43] Speaker 1: Onboarding, fees, audits, insurance. OK, so basically the way that the private label industry works is there are some really basic expectations. So number one, The brand is going to provide the specifications. This is what the product is made of. These are the controls we do to keep it safety. Here's our certifications to make sure that we can actually manage the controls of the specifications. The brand is going to set up and administer the certifications, organic, non-GMO, gluten-free, whatever it may be. And they're going to provide the dye line and the case size, typically, unless it's a custom case. I've just done a couple of those, actually. And from the dye line of the packaging, the retailer is going to take that away either to an in-house team or a third party, which is most likely with the larger players. They're going to design the brand. and they're going to send you back artwork. Now there's kind of this like back and forth of editing where we make sure that it's compliant. We work together as a team with the retailer to make sure that the nutritional values and everything are going to be compliant with CFIA or FDA standards that are applicable. But the cost of designing that, even though it is engaged by the grocery retailer, is going to get charged to the manufacturer. So this is something that you were as a brain, you need to know what that cost is because you're going to eat it. You're going to amortize it over whatever period. They're probably going to ask you what period of time are you amortizing this packaging over so that they know when the packaging is paid off and talk to you about a price at this point.
[00:45:36] Melissa Traverse: Any tips there in terms of the amortization, like how you should think about that?
[00:45:42] Speaker 1: two years, like private label contracts, as long as you don't change the price or mess up, they can run for years. When you start trying to hike the price, and you just start not delivering or not doing customer service, then you're in trouble. But This is the other one of the most important things to know about private label is It's a lot of work to change your private label partner. So retailers don't want to do it It's really like a good anchor spot in the store when you win it Because an item that's private label is an item the grocery store believes in if they don't believe in it They're not putting it in private label. So if they invest in you like I've heard of people running 10 12 15 years without a competitive review because they've just been able to like float and deliver and the retailers are happy. Often it's three years or five years they set a term, but you're not getting terms like that for your brand. Okay. So coming by the cost, when you come in, you've got this cost in terms of setting this up and obviously the resources for you to manage, making sure you can check the nutritional panels and all of this stuff. But the other expectation is going to be insurance. So sort of think like the industry average is somewhere around $10 million of insurance that they're going to look for. And it's going to vary by retailer. And each one is going to have a different breakdown on how they want that to be covered. Some will be $5 million, some will be $10 million. It really depends on the retailer. But you know that you're going to need to have insurance. And that insurance, in general, is pretty close to what branded expectations of insurance would be for big retailers, I think.
[00:47:27] Melissa Traverse: Well, you know, I don't even have a brand and I'm excited about private label like crazy. I feel like hopefully I've generated a ton of enthusiasm in our audience for private label because you really have explained so many of the benefits of working in that business. So thank you so much for joining us today on the Nonbase podcast. Derek Brawley at Prana. Really, it's been such a pleasure to have you here and explaining such useful information on the topic.
[00:47:57] Speaker 1: Well, thank you for having me. I'm really pleased to kind of share. I have this dream that all these entrepreneurs that have better for you businesses, especially, that they all win because every time they win a little bit of shelf space is better for this beautiful planet that we all share together. So I hope that some of these great little natural organic companies that are growing will take a little bit of this and blossom with it.
[00:48:25] Melissa Traverse: Couldn't have said it better myself. Thank you so much, Derek. And to everybody in the audience, thank you for listening to the Non-Based Podcast, and we will see you next time. That concludes another episode of the Nambase podcast. If you enjoyed the show, please leave us a review and follow us on your listening platform of choice. You can also watch and listen to past episodes on nambase.com. And don't forget to join our Nambase Slack at slack.BevNET.com for company updates, industry networking, and community discussions. See you next time.
