Jeff Koeze's Blog Good Food, Good Business, and the Good Food Business

8Oct/090

Private Label Manufacturing: Keep Your Thumbs Through Your Belt Loops

An Associated Press piece came out yesterday that reports that Kroger makes about half of its 14,400 private label products in a network of 40 of its own factories.  They have made their own peanut butter for many, many years.  I've also been told that they make peanut butter for people other than themselves, including at least one branded product.

This vertical integration is an interesting business model for a major grocer.  But for anybody contemplating doing private label work for Kroger, it has to be disconcerting at several levels.  They'll insist on coming into your plant -- are they going to school on you, planning to build their own plant, and ultimately intending to compete with you?  Are you a potential target for a purchase?

There have been rumors for years that large retailers will induce manufacturers to make large capital investments in order to ramp up to be able to produce large volume private label items.  Once the producer is deeply in debt, they pull they work, drive the producer into bankruptcy, and either purchase the plant for pennies on the dollar, or allow a more favored supplier to buy it.  (I've heard the same rumors surrounding contract packing done for major branded food manufacturers.)

As my grandfather always said, when the big boys come knocking, keep your thumbs through your belt loops.

Note: I haven't quoted the story or linked to the story because the AP has a new policy of charging by the word for quotations, and they also appear to refuse to provide permalinks.  I hope that is working out for them.

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