The secret is out

Ozkan Gulbahar (left), sales director with Ospelt, is optimistic about his company's entry in the emerging markets. Provided to China Daily

Quality in products, Sharoff says, is key selling private label products, rather than a cheap price.

"They do not want goods that will not last long or taste good," he says.

Overseas retailers in these foods clearly have an advantage with their history and experience in selling safer foods but as Bulthuis explains, an understanding of the retail culture in China is also important.

"I have to learn the rules of retailers and know more about Chinese consumers," says Bulthuis, who says he will return to Shanghai in March.

Feintechnik has only one brand, called Croma, and 75 percent of its business comes from private label offerings. It is supplying 17 international retailers, such as Metro, as well as hypermarket chain Kaufland and supermarket corporation Edeka, both based in Germany.

"Although the turnover has doubled to 50 million euros ($65.2 million) from six years ago in Europe, it is slowing down in the mature markets. I am aiming at 30 percent of my business to be generated from China in the next 10 years," Bulthuis says.

In challenging Gillette, the famous razor manufacturer, he says his private label products are 20 percent cheaper.

"Private label products do not need marketing activities, and it is saving us some costs compared with promoting our own brand," he says.

Ospelt, a Liechtenstein-based pet food producer founded in 1958, whose customers includes Carrefour, Auchan, Proctor and Gamble and 60 other retailers in Europe, says it hopes to be the first overseas pet food maker of private label products in emerging markets.

"The average growth of the company's revenue is 10 percent year-on-year. The business is still there, but not satisfying anymore. We have a lot to do in emerging markets," says Ozkan Gulbahar, international sales director of Ospelt.

Although he says private labels are not well known in the pet food sector in China, and admits that the best way to enter a new market is with a brand name, he says big retailers' familiarity with his brand gives him an edge.

"Since Carrefour already know us, it was easier for us to march into the market with the Carrefour name," Gulbahar says.

Quality is another advantage for the confident producer.

"In the pet food industry, there are other quality standards in China. Our products do not use color or additives," he says.

But Gulbahar and Bulthuis will soon have to contend with Chinese manufacturers who previously made basic products mainly for exports at low prices, though the CEO of Feintechnik for the time being says he's not afraid of domestic competition.

"Talking about BMW, Porche and Audi, the label 'Made in Germany' always stands for quality," says Bulthuis. "At the end of the day, quality is the only thing that counts."

Still, domestic producers, who can save on the marketing and distributing costs that top brands have to endure as well as bypass tedious procedures for selling brandless products at big retailers, are closing in fast.

Xiamen Huli Fengyi Industry Trade Co Ltd has been making plastic food storage bags, cling wrap and aluminum foil for overseas retailers and distributors since it was established in 1996. In 2010, it began to work with local retailers, such as Rainbow and Yonghui Supermarket.

"The profit margin in domestic market is higher than in overseas markets because of the economic slowdown in Western countries," says Wu Peipei, a salesperson for the supermarket.

Wu says the prices of their export products are often just one-third compared with their overseas buyers' selling prices. Currently, overseas sales account for 70 percent of its turnover. The company has also registered two brands, Zipok and Wrapok, in China in 2010.

"But it is difficult to promote our own brands in the market because of the high admission fee, so we'd better operate the private label sector first," Wu says.

As for Nox-Bellcow (Zhongshan) Nonwoven Chemical Ltd, a non-woven fabric, cosmetics and anti-bacterial products producer that specializes in OEM and original design manufacturer services, its profit from the domestic market is 3 percent higher than from overseas orders.

"Overseas buyers are making comparisons among different factories around the world. The volume of the order is bigger than domestic ones, but the price is also forced down," says Fan Zhanhua, the company's deputy general manager.

Nox-Bellcow has OEM and ODM relationships with retailers around the world, including health and beauty retailer Watson's and Vinda Paper Group.

"Domestic sales account for 65 percent of the total business," Fan says.

Although it is considering its own brand, it is cautious because of the higher risk compared with just being a manufacturer.

"Running a brand often costs a lot of time and money. But we are not in charge of the promotion and marketing, and it is a much easier way for us," he says.

Fan admits that, as a manufacturer, quality is the key factor, especially considering the reputation of overseas competitors.

"The most painful thing for an ODM maker is that we spend a lot in researching, designing and manufacturing a product, but the product is not popular in the market. The order is terminated after the failure of the first order," Fan says.

Packaging is also important. If it is not attractive, customers will not buy it. And aggressive positioning - where to display private label products on store shelves - should also be taken into account, says Sharoff during the annual Private Label Fair held at the Shanghai Mart in December.

More than 220 exhibitors from 19 countries participated, including the US, Germany, France, Denmark, Italy and Turkey. Foreign exhibitors rented 25 percent of the show's booths.

yaojing@chinadaily.com.cn