Private-label pains Featured

10:07am EDT July 22, 2002

A year and a half ago, PublicLabel Brands was riding a wave. The company's own brands, like Steel City mustard and Geronimo salsa, were doing well, and contracts for private-label products were rolling in. But a kick that the 4-year-old company took last year could have easily knocked it out of business. Unfortunately, it could have been avoided, concedes Ty Ballou, the company's president.

In the private-label business, a considerable amount of churning of brands takes place. Labels are developed as promotional tools intended for short life. In the end, products fail and clients lose interest in brands. "You're always in the replacement mode," Ballou says.

PublicLabel Brands' business was being bolstered by a few large clients, including the former Thrift Drug Co. chain, based in Pittsburgh. PublicLabel Brands had a lucrative agreement for producing a line of private-label products for Thrift Drug, ranging from nuts to candy products that were sold under the well-known Treasury label.

Before Thrift's parent, J.C. Penney Co., purchased Eckerd Drug Co. in late 1996 and folded the Thrift operations∇more than 600 stores∇into the Eckerd chain, Thrift had gone on an acquisition binge, acquiring several other drugstore chains. Thrift asked Ballou to turn out an expanded line of Treasury label products. On the strength of a long-term relationship with the local chain, he agreed, on a handshake. But in the meantime, the Eckerd deal closed, Thrift converted to the bigger company's name, and the private label agreement was off, as far as Eckerd was concerned. With nothing in writing, Ballou was stuck with product that Eckerd refused to take title to.

Eckerd eventually agreed to purchase some private-label products through PublicLabel Brands, but because the company does not have a well-developed private-label program, sales have not been enough to erase the losses Ballou's firm took when the drug giant took over.

Looking back, it is clear to Ballou what he should have done differently.

"I would not have purchased that packaging without a written guarantee," Ballou says. "Your retailing partner should be able to understand and respect that."