Core Viewpoint - The article discusses the dilemma faced by a dairy company in East China regarding whether to accept private label orders from channel partners, highlighting the pressure on brand owners as retailers increasingly develop their own brands, which can lead to price competition and reduced brand value [2][12][16]. Group 1: Market Dynamics - Retailers' private label sales growth is significantly outpacing overall fast-moving consumer goods (FMCG) sales, with a reported 40% increase in private label sales compared to just 2% for overall FMCG sales in the first half of 2024 [2]. - Major retailers like Sam's Club have seen their private label, Member's Mark, capture over 0.5% market share in certain categories [2]. Group 2: Manufacturer Challenges - Manufacturers face extreme transparency in cost structures when competing for private label contracts, with channel partners demanding detailed breakdowns of all costs, including minor expenses like packaging and utilities [9][10]. - The profit margins for contract manufacturing can be significantly lower, with some products yielding gross margins that are half of those for proprietary brands [8][12]. Group 3: Strategic Responses - Some manufacturers, like a leading grain and oil company, have opted to engage in contract manufacturing to maintain market presence, acknowledging that if they do not participate, competitors will [4][15]. - Companies are increasingly focusing on building their own brands while balancing the need for immediate cash flow from contract manufacturing, which can help establish trust with channel partners for future brand collaborations [17]. Group 4: Competitive Landscape - The entry of retailers into private label production has led to increased competition, particularly in categories that were previously dominated by established brands, such as dairy products [20]. - Retailers are not only looking for low-cost products but also for unique offerings, which can create opportunities for brand manufacturers to negotiate better terms based on their product quality [21]. Group 5: Long-term Implications - The reliance on contract manufacturing can weaken brand value and increase vulnerability to price competition, as seen in the experiences of various manufacturers [12][15]. - The article suggests that while contract manufacturing can provide short-term revenue, it may also pose risks to long-term brand positioning and market stability [16][23].

Group 1 - A dairy company with annual sales of less than 10 billion yuan faces a dilemma regarding whether to accept private label orders from channel partners, which could alleviate excess milk supply but also lead to intense price competition and brand dilution [1][10] - The Kantar Consumer Index indicates that in the first half of 2024, the overall sales growth of private label products in monitored fast-moving consumer goods categories is 40%, significantly higher than the 2% growth of overall fast-moving consumer goods [1] - The trend of channel partners launching private label products is causing brand manufacturers to feel threatened, as they must compete directly with these private labels on supermarket shelves [1][14] Group 2 - A leading grain and oil company has adopted an open mindset towards the trend of channel partners launching private labels, acknowledging that if they do not participate, others will [2] - The company has decided to engage in contract manufacturing for channel partners, aiming to maximize profits despite the pressure to lower prices from these partners [3][11] - Contract manufacturing often results in lower profit margins, with some products yielding profits that are only half of those from self-branded products [5][11] Group 3 - The transparency required by channel partners during the bidding process for private label products puts significant pressure on manufacturers, as they must disclose all cost details [6][8] - The shift towards private labels has led to increased competition, with channel partners leveraging their pricing power to negotiate lower costs from manufacturers [9][12] - The dairy company’s market representative noted that the demand from channels includes both straightforward orders and specific product requirements, which can increase supply chain costs if not met [13] Group 4 - The emergence of private labels in traditionally branded categories, such as dairy, indicates a shift in strategy by channel partners, who are now competing in higher brand equity segments [14][15] - The collaboration between channel partners and manufacturers is evolving, with some partners seeking to create unique products rather than simply relying on low-cost options [16] - The competitive landscape is forcing manufacturers to consider high-end positioning for their own brands to differentiate from private labels, which often dominate shelf space [16][17]