At this point, my life has been heavily consumed by private label. But for weeks, I'd been thinking about it almost entirely through the lens of supermarkets, behaving as though retail and private label were joined at the hip.

Then I spoke to UK-based Rob Johnson, who has spent much of his career in foodservice and B2B F&B. He pointed out the rather enormous world I'd managed to ignore. “95-98% of professionals just consider retail when they think about private label,” he told me. “They think customer, consumer. But they don't think about who feeds them in the staff restaurant at work.”

Restaurant chains, contract caterers, airlines, hospitals, prisons, and so many large institutions buy food and drink for their own operations, much of it made to their specifications by manufacturers whose names never reach the menu. And the volumes are anything but small.

Then Rob gave me some industry lore. At a panel talk, a Walmart executive was proudly explaining how a few million shoppers came through its doors by Friday afternoon. Impressive footfall numbers. The McDonald's executive beside him listened politely and said that footfall number was interesting & that their QSR did that number by Wednesday afternoon. This is a vital point about the sheer volume of QSR & McDonald's operations, which probably alone moves more people through its doors than the world's biggest retailer. Add all the institutions we talked about earlier and then some, and you have that enormous market that I ignored.

But someone has to make the food. So why should that someone be you? Because for many manufacturers, retail is getting expensive. Slippage is a major challenge, as every year, the big retailers come back for more money for listings, category plans, and shelf space. In fact, standing still is actually costing you more money. For a business that's 98% retail, even shifting to 95% retail and 5% foodservice changes the growth story entirely.

That someone is playing a very different game from the supermarket supplier. Retail private label is a fight for shelf space, while foodservice is a tender. “You're in or you're out,” Rob says. “They don't need 15 Knorr soups or equivalents. They just need one soup supplier and a few flavor varieties to satisfy consumer needs.”

They don't need the packaging either. All those meetings about square box versus round box? Gone.

Rob said that's what he used to call “big bags of dusty stuff”. It's got minimal packaging in the cheapest brown box, with a food-safe plastic bag inside, an expiry date, and a barcode – and that's kind of it.

What goes inside hasn't been downgraded at all, though. “It's the same starches, the same ingredients, the same everything. It should perform as the brand should.” The difference is the price. Cutting that price down as much as possible is the real play here.

And “perform” means something different here as well. Picture a large industrial kitchen (airline catering, say) with huge brat pans that tilt and pour, feeding anywhere from 50 to 250 or 500+ people in one go. For this “batch cookery” you need bigger packs, larger yields, and a product a busy kitchen can't get wrong.

This channel runs from the very top to the very bottom. At one end, you have McDonald's, and at the other, “as a young military recruit in training sat on exercise on a cold, wet moorland” with a cup of instant coffee. “The coffee was awful,” Rob remembers, “but the caffeine hit and the hot liquid going into your body was extremely welcome.”

So the question isn't whether you can make it cheaper. It's whether your product still works when the box & the shelf space aren't doing any of the selling, and then which end of that spectrum you're built for.

Getting through the door is also its own challenge. Rob's advice is to go higher and senior, because further down the chain a new supplier is just more work for category buyers. He learned that the hard way: “We just created a lot of work for procurement guys that didn't want to do it. They were happy with their supply chain.” And patience is part of the deal. “The hustle is quite difficult. You might not get it on the first or second go. You might get it by the 5th or 7th attempt.” Persistence and resilience are key.

Sometimes, though, the door swings the other way. The customer comes to you, and what it wants is your brand. Rob calls what follows “a 10-year journey”.

McDonald's is always hunting for category growth, and burgers are pretty saturated. “Handheld snacks remain the way forward,” Rob says. The organization that operates in handheld snacks wins, and sitting right alongside snacking is coffee, a destination in its own right. Europe's love affair with out-of-home coffee has never dimmed.

And two decades ago, McDonald's wanted in. But nobody went to McDonald's for coffee, so it needed somebody to teach them how to do the category. That teacher was Kraft Foods, which owned leading coffee brands across Europe, including Kenco in the UK and Ireland, Jacobs in Germany, Saimaza in Spain.

Kraft's brands went up on the menu boards, and that was deliberate. Because the QSR chain was not known for coffee at that point, it was very valuable to put the brand on the menu board, especially while convincing the consumer you're a legit player here. Rob sees parents and grandparents taking the kids in for a treat, whilst getting a coffee for themselves. They see the name and think, I have that at home, that's good.

Meanwhile, McDonald's also did its homework. They ran multiple iterations of testing and learning, because the stakes were unusually high. When McDonald's retails anything, they become the world's largest overnight. That meant learning every market's palate. The UK and Germany drink Arabica, “the smoother flavor profile”. Spain leans towards Robusta. Italy prefers an Arabica blend with a little Robusta.

Rob also pointed out that McD's was never going to have Kenco on its menu board forever. The category heads within the QSR chain take the spider maps of the flavor profile for each individual country, and then “they own the category or 'McCafe' the category and send it out to tender, which is a private label tender.”

For the brand owner, that's the deal: 5-10 years of solid relations & revenues and a great deal of learning, then the fledgling category becomes fully fledged. In this case, the starting point was a brand and it ended up as a private label. So if a foodservice giant comes courting your brand, go in knowing potentially how the story can end, and price that ending in from day one.

Not every private label coffee story ends so neatly.

First, understand what you're signing up for. Foodservice contracts are “all about supply and swapping money. It's not always about best net price. It's about rebate or alternative income for the procurement teams, it's about investment, it's about bringing new categories.” And operators this size know exactly how hard to push and squeeze during the negotiations to get to a price that suits them.

Most large, well-resourced operators can reverse-engineer every category recipe and price point, so it knows your product costs to make. In Rob's illustrative numbers, of the full profit pool on a cup of coffee or a hand held snack, the supplier might be allowed low single digit percentage revenue share. The rest of the revenue pools goes to the operator for franchise fees, labor, procurement, and brand costs. A manufacturer could push back, and the chain might listen, but don't expect fat double digit margins.

Plenty of manufacturers take the deal anyway, because it fills the line. Factory teams sitting on idle capacity “will be pulling their hair out,” but the volume covers fixed costs and pays off the equipment. The supplier might just about scrape a profit, but is usually very grateful for the volume.

Despite these benefits, there's a floor. At Kraft, Rob worked on a private label business with coffee for another large contract caterer. The manufacturer felt it wasn't making a fair share. The options were to push a price increase through or move the contract caterer onto a branded offer, and the customer wasn't keen on the manufacturer branded route. The contract caterer preferred to build its own brands. So in the end, they parted ways.

Rob's rule here is simple: “Don't do anything that doesn't make money.”

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