Private Label Beverage Complete Guide for Beginners : Benefits and Challenges

    In short, a private label beverage is a drink product sold under one brand but manufactured by a different company. Private label beverages are now sold under the store brands of major retailers like Costco (Kirkland Signature), Walmart (Great Value) and Target (Good & Gather).

    As an experienced manufacturer specializing in creating private label beverages for food and beverage companies, Tan Do will provide you will all the important knowledge about this type of outsourced beverage manufacturing service. We hope that this article can help you get started on your journey of creating the next explosive brand in the beverage world.

    Tan Do Private Label Beverage Definition
    What is a private label beverage?

    Private label beverage vs. outsourced beverage manufacturing

    Private label beverages (ODM) and outsourced beverage manufacturing (OEM) are 2 terms often used in beverage supply chains. But, these terms talk about 2 completely different processes.

    The difference between them can be seen in the contracts and ownership of the beverage recipes. We’ll refer to the original brand/buying company as “the buyer”.

    Private label beverages

    (ODM)

    Outsourced beverage manufacturing

    (OEM)

    Definition A private label beverage is produced by a private label beverage manufacturer, using their own recipes. Then, the client company (or buyer) sells that products with their own branding and labels. The buyer hires the manufacturer to produce their drinks; the buyer will provide a formulation for the manufacturer. In this case, the manufacturer only rents out their factory to the buyer.
    Recipe (or formulation) The recipe is developed by the manufacturer.

    The original manufacturer owns the recipe.

    The recipe is developed by the buyer.

    The buyer owns that recipe.

    Customization The buyer has limited control over recipe and product specifications (as far as the manufacturer allows) The buyer has full control over recipe and product specifications.
    Brand The manufacturer can control a few technical aspects of the label (like nutrition facts, or ingredient lists) The manufacturer has no control over the label.
    Exclusivity The manufacturer is under contract to exclusively sell the product to the buyer. The manufacturer has to sign an NDA (non-disclosure agreement) to protect the buyer’s recipe.

    What types of companies use private label beverage?

    As one of the most well known examples, the Kirkland Signature Organic Coconut Water is a private label beverage. It is sold under Costco’s “Kirkland Signature” store brand. However, Costco doesn’t manufacture this Coconut Water product. Rather, it is produced a private label manufacturer in Vietnam, with Kirkland’s label and branding.

    Kirkland Signature Private Label Coconut Water
    Kirkland Signature Private Label Coconut Water

    From Tan Do’s experience working in the private label industry, we usually see 4 types of companies using private label beverage services.

    Start-up beverage brands

    These are newly-founded beverage brands, freshers to the beverage industry. Usually, they have an innovative beverage idea, or are trying to enter a new market niche.

    Usually, these brands have limited resources and funds. Thus, they can’t build their own qualified factories or manufacturing facilities. As a result, they need help from private label beverage manufacturers like us, with established bottling/canning facilities.

    Supermarkets/Retail chains

    These are existing retail brand names like Walmart, Costco, Aldi, etc. These companies are trying to give customers more value to beat out competitors.

    Through private label beverages, retailers can provide good prices for high quality. The quality is assured by their brand image.

    If a product with Walmart’s brand name is priced similar to a generic product, products with Walmart’s brand will be perceived as higher quality. In turn, this will drive more sales to Walmart and keep luring customers back to their stores.

    Existing FMCG brands/wholesalers

    These are usually established players/distributors in the FMCG and beverage industry. They are looking to develop a new product line and pilot test these new products.

    These companies choose private labels, instead of spending millions on research and development, or a new factory. If the product fails, they can move on with very little loss.

    Other Food and Beverage businesses

    These are usually businesses in the Food and Beverage Service Industry (Coffee shops, Milk tea franchises, Fast food chains, etc.).

    These companies use private label beverages to offer a packaged version of their on-the-spot prepared beverages. For instance, if Starbucks decided to offer a bottled version of their Frappuccino, they’ll contact a private label manufacturer instead of building their own factory.

    Why do companies use private label beverage?

    As listed above, these types of companies use private label beverages for these reasons:

    • Build a start-up business: For new companies looking to create new beverage ideas
    • Expand into new markets: For established companies to start expanding their product offerings and introduce new beverage products
    • Outsource supply chain: For companies looking to expand their supplier network or find better efficiency from other manufacturers
    • Pilot testing products: For companies to test new product ideas

    Each type of company will have different goals for their private label beverages. If you’re looking for a private label beverage manufacturer, first you must consider the following advantages.

    Tan Do Beverage is a credible OEM/ODM private label beverage manufacturer. We have all the capacities and machineries to help brands develop their next ground-breaking beverage products.

    Tan Do Private label beverage manufacturer
    Tan Do Private label beverage manufacturer

    Feel free to contact us, or find out more about our products portfolio to enjoy all benefits for your business:

    • Exotic Vietnamese Beverages: Fruit Juice, Coconut Water, Aloe Vera Drinks
    • Great economy of scale, with 2 advanced manufacturing facilities and 12 bottling/can filling lines
    • Located near Hai Phong Port – One of the busiest trade routes in the world
    • Low MOQ – Launch your beverage with just 500 units

    The cost of private label beverage

    Cost-saving is probably the biggest benefit of private label beverage services. Here are a few reasons why these private label beverage manufacturers can achieve such competitive pricings.

    • Low labor cost: If the manufacturer is located in regions with relatively low labor costs like Mexico, Vietnam, India, they can hire high-quality labor for much lower than in other countries. This can drastically reduce prices, as manual labor is still a major part of producing fresh, organic beverages.
    • Low material cost: Established private label beverage companies usually have optimal geographical locations and supplier relations. This means that they can have direct access to necessary ingredients, cutting out many middle-mans and transportation steps, which can significantly add to the product’s cost.
    • Low fixed cost: The depreciation and costs of assets like the factory, production lines and other equipments will be equally divided among all the customers of the private label company. Thus, the price of the private label beverages can be vastly reduced.
    • High product yield and efficiency: Manufacturing expertise is few and far between. But with more experience producing beverages, good private label manufacturers will be able to maximize product yield and minimize waste or errors, thus lowering the overheads from their ends.

    Even with all these cost-optimization, private label beverages still require the buyer to have good economy of scale, to have the best business operation.

    From our experience, we have identified the 2 main types of costs that buyers need to consider before developing a private label beverage.

    • Private label fee: Usually $1.500 – $2.000 for 1 SKU. This is the fee for your private label beverage manufacturers to cover the expenses of designing, printing and implementing your label on their products. It is also used to cover any research and development cost, if you need to customize the beverage recipe.
    • Production cost: Usually $2.000 – $4.000 for the first 10.000 units of 1 SKU. The price range depends on which type of product and what is your desired formulation quality. It also depends on the type of packaging technology used for the product. For example, orgarnic beverages or dairy packaged in paper boxes will be more expensive than the beverage packaged in PET bottle.

    Advantages of using private label beverage

    With established production facilities and beverage manufacturing expertise, using a private label beverage can give companies many advantages.

    Smaller start-up investment

    By using a private label beverage, companies don’t have to invest money into production facilities and equipment. This can significantly reduce capital requirements and labor costs (no factory workers). Thanks to this, start-ups and established brands alike can create new beverages with as little capital as possible.

    Cost efficiency

    Private label beverages can reduce unnecessary costs in the supply chain. They have experience for sourcing materials, maximizing batch yields, reducing labor costs, optimizing warehouse and deliveries. They offer lower prices for the best qualities.

    Diversification of beverage lines

    A private label beverage manufacturer usually has expertise in many different categories. Juice drink, Coffee, Energy drinks, etc. Whichever market you need to enter, private label beverages are always available.

    Exotic and unique beverage offerings

    You can also have access to some of the most exotic beverages in the world. You can contract local beverage manufacturers to make a traditional/historic beverage. Or, you can make exotic tropical fruit juice drinks by partnering with other international beverage manufacturers.

    Access to manufacturing expertise

    It’s not always possible to hire a beverage production expert at the top of their field. But private label beverage manufacturers will always employ experts to maintain their standards. Thus, you can use their expertise to your own advantage.

    Risk sheltering

    What happens when economic crises hit, or a global pandemic disrupts supply chains? Your factory will suffer and you have to bear the costs. Outsourcing your production to a private label beverage manufacturer shelters you from this risk.

    Quick market response

    If your beverage becomes a hit and demand rises, you can quickly scale up your order of the private label beverage. They have the economy of scale to handle such volume.

    Challenges and difficulties of private label beverage

    However, there are still some difficulties when working with a 3rd party, external supplier. Here are a few things you need to be careful of:

    Tan Do Advantages of private label beverage
    4 Challenges of Private label beverage – Tan Do

    Quality control/assurance

    You have very little control over the production process of a private label beverage. All quality control is performed by the manufacturer. There’s a higher chance of faulty products and inconsistent taste, if the quality standards are low.

    Longer lead time

    A company can make private label beverages for many different brands. Thus, there’s usually a first-come-first-served waitlist for private label beverage manufacturers. If you don’t place your order early, the lead time can be much longer.

    Difficulties in regulatory compliance/transparency

    Some manufacturers don’t fully disclose their recipe and formulation of private label beverages. This may increase regulatory compliance difficulties, if there are certain restricted ingredients in the beverage.

    Negative brand perception

    Generally, customers perceive store brand beverages as lower quality than household brand name (e.g Kirkland soda vs Cocacola). However, according to the PLMA, this trend is reversing in recent years.

    5-Step process of developing a private label beverage

    No two manufacturers have the same product development process. But from our experience developing private label beverage brands. Here are the quick 5 steps to develop a private label beverage.

    5 Steps to Develop Private Label Beverage
    5 Steps to Develop Private Label Beverage
    1. Ideation and sampling formulation

    Everything starts with an idea. You need to have a clear vision of what your beverage will be. The formulation, taste, flavor, packaging, pricing levels, etc. must be clearly defined. You can read more in our guide to beverage formulation.

    Then, you’ll use these specifications to reach out to private label beverage manufacturers. They’ll decide whether or not your beverage is suitable for their factory. Only then, they’ll start producing samples for you to try.

    1. Quotation

    Once you agree on the sample, you’ll reach the quotation stage. From the sample, your private label beverage will be given a total price tag, i.e how much your total order costs. This cost depends on the ingredients and material costs, order quantity, shipping costs and other commissions.

    Generally, the higher your order quantity, the more favorable the price.

    1. Shortlisting

    You usually need to consult multiple suppliers to have an understanding of market price. Then, from the list of suppliers, you’ll assess and choose the most suitable private label beverage manufacturer.

    Here’s a list of criteria on how to choose the best private label beverage manufacturer:

    • Diversity: They offer a wide range of beverage products. They can also offer a diverse portfolio of packaging and labels for your beverage.
    • Credibility: There’s transparency between you and your supplier. You can know all necessary information for your beverage and formulation.
    • Reliability: The manufacturer has a clear track record of good orders, with consistent quality assurance.
    • Qualifications: Look for necessary international qualifications and certifications like: ISO, HACCP, BRC, Halal, etc.
    • Good management practices: The manufacturer has good management practices to reduce unnecessary costs and ensure economies of scales.
    • Geographical location: The manufacturer needs to be located near important trade routes (like Hai Phong port in Vietnam), and has direct access to ingredient sources (e.g. fresh tropical fruit sources in Vietnam)
    1. Private Label Agreement

    After choosing a final supplier, you can move on to sign an agreement with the private label manufacturer.

    The agreement/contract includes clauses such as: Nondisclosure agreement, exclusive supplying conditions for your formulation, payment terms, etc.

    1. Payment and manufacturing

    Finally, you’ll start the manufacturing process of your private label beverage. First, you’ll pay a deposit, usually 30-50% of the total order. This is to facilitate the purchase of raw materials. Then after the finished beverages are delivered, you’ll pay the remaining balance, according to your agreement.

    Conclusion

    ‘Private label’ is a hot new topic in recent years. Private label products are said to offer great value at an affordable price. For the beverage industry, this means that ‘private label beverages’ are the next big trend to push growth in the competitive retail landscape.

    For small beverage businesses, selling a private label beverage is a great way to enter the competitive beverage market, without low capital investment and fairly little risks.

    Tan Do Beverage is a credible OEM/ODM private label beverage manufacturer. We have all the capacities and machineries to help brands develop their next ground-breaking beverage products.

    Tan Do Private label beverage manufacturer
    Tan Do Private label beverage manufacturer

    Feel free to contact us, or find out more about our products portfolio to enjoy all benefits for your business:

    • Exotic Vietnamese Beverages: Fruit Juice, Coconut Water, Aloe Vera Drinks
    • Great economy of scale, with 2 advanced manufacturing facilities and 12 bottling/can filling lines
    • Located near Hai Phong Port – One of the busiest trade routes in the world
    • Low MOQ – Launch your beverage with just 500 units
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    Richard
    Hi readers, I'm Richard, F&B marketing executive for Tan Do Beverage - a leading private label manufacturer in the beverage industry. The articles that I write have all been consulted with our professional R&D and Quality Control staff, so that all knowledge shared will be accurate and helpful. Our Blog is designed to provide the best industry insights about general beverage trends, manufacturing knowledge and guides for beverage business operations.

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