What makes a private label a private label? Is it the products sold under the label, the brand built around it, or the distribution it has access to?

In a retail landscape where direct to consumer brands are making a limited number of simple products, where platforms such as Amazon and media companies like BuzzFeed are making their own products, where traditional retailers are expanding their own product lines, and where private-label only startups are entering the space, it’s a complex question. But it’s a fascinating one we tackled this week in The Private Label Report.

First, it’s worth understanding the private label landscape.

Traditional private labels

Private labels, by definition, are products that a multi-brand retailer sells alongside other named brands. Costco, for example, sells hundreds if not thousands of brands, but its own Kirkland brand makes up 25% of its revenue. The promise of private label is to offer the same product, often created with the same or similar manufacturer that a named brand uses, at a cheaper price since the multi-brand retailer already has distribution to sell it through. The named brand is the middleman getting cut out.

Direct to consumer

Direct to consumer brands, which are well known at this point, mostly exist on the premise of cutting out the wholesaler, allowing it to offer goods with less markup. While direct to consumer brands are named brands in theory, many of them act like private label brands. They have a limited number of products, they employ simple, value-driven messaging, and they try to be price competitive relative to the higher end of the market.

Platform private label

While retailers were the primary private label user, Amazon is no longer a retailer. Its ecommerce business is a platform with an increasingly growing third-party marketplace. This gives the company an immense amount of data about what is and is not selling, which it can then use to build its own products to fill white spaces.

Amazon, which introduced its first private label in 2009, now has 29 of them at last count. Walmart, who has been selling private labels for decades, has close to 50. (Jet.com, a Walmart subsidiary, just introduced its first.) While not every one of Amazon’s brands will succeed, and the volume is still small, the speed at which it continues to roll them out is noteworthy. Platforms like Amazon (and increasingly Stitch Fix and Dia & Co) have an immense amount of leverage over suppliers. While no middleman is getting cut out, per se, Amazon and its ilk will be able to command more scale than traditional retailers ever have and thus offer its customers lower prices.

Media private label

BuzzFeed is the first modern media company that has started a product arm that drives significant revenue, in the tens of millions of dollars per year. BuzzFeed Product Labs, as it is called, creates products BuzzFeed’s audience helps inform and is eager to consume. Its early successes are Homesick candles (candles that remind people of their home state), the Fondoodler (a cheese gun), a customizable Tasty cookbook, and the Tasty One Top, a smart appliance meant to help customers seamlessly cook meals in connection with the Tasty app. Depending on the products these media companies sell, the retailer and the name brand are the middleman getting cut out.

Private label only startups

Finally, a new crop of startups from Movebutter to Brandless only sell their own products, which are inspired by private label. The goal is to drive value for shoppers by making simple, no frills products that get the job done. Movebutter started with supermarket items and Brandless is more pantry and household focused. While these companies harness the aesthetics and familiar product categories of private labels, they have to build their distribution from scratch. This misses a significant advantage of what private label is, and is the opposite of cutting something out—it’s adding another thing the company needs to do. It will be interesting to watch if these companies have the margins to compete in an increasingly expensive digital customer acquisition environment at scale.

The future

All of this raises a number of questions:

  • Readily available distribution and the margins one could earn from it used to be the main reason private labels existed. Companies like Amazon and BuzzFeed are in very good shape on this front, but how can private-label-only startups thrive if they have to rebuild this distribution from scratch? The perils of The Honest Company, which tried a similar path and had to retreat into wholesale because of its lack of online distribution, are important to learn from.
  • From a product perspective, it’s clear that there is deflationary price pressure across the ecosystem. But as we wrote about previously, is there room for a new middle price-wise, below luxury but above commodity products, or will the race to the bottom continue?
  • From a branding perspective, how will traditional private labels need to up their game as direct to consumer brands raise the branding bar? Do shoppers still want value but don’t want it to look like communist rations?

All of this will play out over the coming years, but any simple definition of what a private label is no longer cuts it. It’s an increasingly blurry space, which means both chaos and opportunity.

Loose Threads Member have access to The Private Label Report and much more. Learn more about Membership.