What are private label agreements?
Private label products are food products that are manufactured by one company for sale under another company’s brand. The agreement governs the relationship between the manufacturer and the retailer.
Private label arrangements are easily distinguishable from copacker agreements. Private label manufacturers produce their own recipe and formula for sale by an outside party. In a copacker agreement, the manufacturer produces a product to the retailers formulation or specification.
As with copacker agreements, in a private label agreement it is important to address issues like proper food and nutrition labeling, food safety, food recall liability, and the intellectual property issues related to product formulation.
Why use private label agreements?
From the manufacturer’s perspective, private label agreements maximize production potential without the need to build retail markets for the product. A manufacturer can get the product on lots of shelves without having to bear the expense of building a mass market.
From the retailer’s perspective, margins on private label goods are better, which gives retailers more economic bargaining power with suppliers of national brands. Private label agreements give major retailers like Amazon the capability to rapidly expand product offerings with minimal investment (both capital and intellectual) in food processing and production.
What to include in your private label agreement
- The most important part of a private label agreement is an acknowledgement that the manufacturer retains ownership of the product recipe or formulation after the conclusion of the production run.
- As with copacker agreements, a private label agreement should address which party bears responsibility for product recall expenses, accurate nutrition labeling, and recall management.
How We Can Help
We draft and negotiate private label agreements from either the perspective of manufacturers or purchasers.
Small manufacturers often do not have the bargaining power to draft or negotiate favorable terms for the private label agreements, and are driven by economic necessity to accept hard bargains. For manufacturers who accept these kinds of “take it or leave it” deals, we can perform a desk audit of the agreement to identify the liabilities assumed by the manufacturer, assess and prioritize the risks, then develop a risk mitigation strategy that meet the resource capabilities of the manufacturer.
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