Profits in Private Labels
After spending 17 years developing and marketing products at Avon, Revlon, and other big brand marketers, Donald Lepone in 1987 founded NutraMax, where he could develop his own brand-name products. Three years later NutraMax merged with Aid-Pack, a sleepy Gloucester, Mass., maker of private-label douches, baby bottles, and enemas. A strange match?
Perhaps, but Lepone knew the market for private-label products was growing. Private labels are sold in supermarkets, drugstores, discount superstores, and warehouse clubs. They take two forms: national value brands, like the Sweet and Fresh douche Lepone inherited when he became CEO of the merged company, and store brands.
Lepone says Aid-Pack had viewed itself as more of a contract manufacturer than a consumer-goods company. But he's made the private labeler a marketing force in its own right, while growing sales from $14 million in 1990 to $25 million in 1992. How did he do it?
By aggressively going after new business. NutraMax snagged the Toys 'R' Us Baby Bottle account after a brand-name company turned it down. Baby bottles are now a $3-million-a-year business for NutraMax. Lepone sells the same baby bottle to 70 other retailers under 70 different names. So, though his prices to retailers are lower than what he'd get as a brand marketer, his gross margins are up, to 45% from 31% two years ago. Also, he doesn't have the cost of slotting fees or advertising.
By expanding old lines. He's broadened Aid-Pack's old product lines from 250 to about 750 products. The "depth of distribution gives us the same effect as a branded product," he says.
By consulting customers. Last spring NutraMax came out with its first pediatric electrolyte solution after talking to parents, pharmacists, and retailers, all of whom gave feedback on pricing. Reorders were five times greater than expected. Lepone says, "Businesses survive based on fulfilling customer needs -- you learn that in brand marketing." -- Susan Greco* * *
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