Last week, one of Kenya’s biggest retail chains called for applications from the public for the supply of various products. These products would then be re-packaged and sold under the retailer’s brand name and logo.
Such an arrangement is known as a private label agreement and is commonly used by big retailers. Under a private labelling agreement, an external company or individual will manufacture the products and supply them to the retailer. The retailer then repackages them and sells under their own brand. Under a private labelling agreement, the products do not bear the name or label of the actual producer. The actual producer remains anonymous and the products are not associated with him anymore.
Other than the manufacturing , private labelling has been used in many other industries. In the software and technology industry, it is commonly known as white labelling. This happens where an innovator comes up with some technology, for example software, but it is sold or licensed under the name of a bigger brand.
Private labelling has benefits for both the producer and the retailer and accords them a win-win relationship. It is, however very risky and a lot of caution ought to be taken to handle the legal issues prudently. Private labelling is often used by small scale producers to enable them access markets and reach target customers.
The producer takes advantage of the retailer’s existing market to ensure his product is well circulated. Often the retailer has a larger network than the producer which the producer can take advantage of. In this particular case, small producers will be able to tap into the supermarket chain’s wide network, a feat they could not have easily achieved before.
The retailer, and in this case, the supermarket, shall benefit from access to a wider range of products, increasing its diversity. This access enables the retailer to compete effectively against its competitors as the supply end is wide and diverse. In most cases, the products are sold at a cheaper price and therefore enables the retailer access diversity at a cheaper price.
Such an arrangement serves to boost domestic manufacturing over imported products. If it is done on a large scale then it will boost the domestic manufacturing industry leading to increased jobs. I would urge many retailers to consider the option of private labelling for local products so as to boost the sector.
There are, however very many legal issues that arise with a private labelling arrangement. One major issue is intellectual property rights. It should be clear from the onset that the producer will own no intellectual property rights to the products in as much as he is the one who manufactured them. The intellectual property rights belong to the retailer who rebrands.
There is also risk that would fall on the retailer’s side and therefore this is an arrangement that calls for due diligence. One has to ensure that the products are of good standard and do not compromise safety and health. Some retailers have their own laboratories to verify quality while others do it externally. This is because any consumer actions for substandard quality would be borne by the retailer.
The retailer is also responsible for compliances such as Kenya Bureau Of Standards certifications. The retailer can face legal action from the regulators if the products are of a low quality.
This is a strategy whose time has come. It will assist the local manufacturing industry grow while boosting the retailer’s competitiveness.
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