Private Label (PL) in the Cosmetics Market of Ukraine

The use of Private Label (PL) in the cosmetics market, as in other consumer sectors, is a widespread phenomenon with a constantly growing share. Fashion houses, manufacturers of clothing and consumer goods, retail chains or pharmacies, celebrities, and even bloggers develop their own cosmetic brands. Production usually remains with a company that is not mentioned on the labeling and stays behind the scenes for the consumer, but not for regulatory authorities. In this article, we discuss the peculiarities of PL in the cosmetics market from the perspective of the regulatory requirements of the Ukrainian Technical Regulation on cosmetic products, which comes into effect on August 3, 2024. Since the Ukrainian Technical Regulation on cosmetic products is based on the EU Regulation 1223/2009, most of the information in the article will also be relevant for the European Union market.

PL in the cosmetics industry plays a strategic role, making the launch of a cosmetic product much more accessible, allowing brands to release better products with greater variety at a lower cost. By outsourcing production to a third party, brand owners can focus on their core competencies, such as marketing and distribution, while reducing costs and shortening time-to-market.

At the same time, the demands for quality, innovation, personalization, sustainability, and variety in cosmetic products are increasing, making the production itself more specialized, and the manufacturing processes complex and demanding. Additionally, contract manufacturers usually offer regulatory support, which eases the burden on the PL owner, simplifying market entry and post-marketing support.

This is why there are many popular brand products in the cosmetics market that are not actually developed and produced by these brands themselves but are created using third-party (contract) manufacturers.

There are two main approaches to cooperation with an involved manufacturer: “Private label” (aka “White label”) and “Contract manufacturing,” and in both cases, the final product will be labeled with the PL.

In the first option, the manufacturer applies the client’s trademark to a “white label” of an already finished product. The brand owner does not change the formulation but only works with the appearance—design of primary and secondary packaging, and partially with information. This option allows the brand owner to launch production quickly and cheaply, usually with small minimum order quantities (MOQs).

When using the PL model under the “White label” scheme, the manufacturer performs most of the regulatory work: developing the formulation, conducting research and safety assessment of the product, providing the ready part “A” of the cosmetic product safety report (CPSR), GMP compliance statements, and animal testing. This documentation will be the same for all products under the “white label.” However, part “B” of the CPSR must be signed by an expert regarding the specific trade name, and then the branded product undergoes separate notification.

In the second option, the manufacturer allows the development of unique formulations that will be exclusive to the brand, or the selection of certain settings in a semi-finished formulation. This approach allows creating personalized products but is usually more expensive, requires more time for production, and demands larger minimum order quantities.

Making even minor changes to a ready formulation or packaging requires conducting of finished product testing and updating the CPSR.

Each brand owner chooses their model for product manufacturing based on their needs and tasks, considering the advantages and disadvantages.

At the same time, the brand owner faces another choice—what role, duties, and responsibilities they will have if the production is carried out by a third party. Additionally, which company’s name will be indicated on the product labeling, and therefore, who will be known to consumers and competitors.

There are three main approaches: the brand owner can act as a virtual manufacturer, the Responsible Person, or has no regulatory status.

To understand the legal intricacies, let’s start with the definition of a manufacturer according to the Technical Regulation on cosmetic products (Cabinet of Ministers of Ukraine Resolution No. 65 dated January 20, 2021):

 
The Brand Owner has no regulatory status

This approach relieves the brand owner of almost all duties and responsibilities, leaving them to the contract manufacturer. In fact, the brand owner acts as a distributor for the cosmetic products produced under their own trademark.

From the above definition, it is clear that trademark ownership is a characteristic of the manufacturer, and therefore the trademark must be transferred to the manufacturer for non-exclusive temporary use. To this end, a license agreement must be concluded between the PL owner and the manufacturer, among other legal documents. Such an agreement usually includes provisions prohibiting the production of products under this brand for third parties and allowing the trademark rights to be revoked at any time.

With this approach, the contract manufacturer performs all functions and bears full responsibility for the product on the market, and it is their name and address that are indicated on the labeling. The manufacturer also prepares the product information file (PIF), signs the CPSR, conducts notification, and handles post-marketing.

The brand owner, in addition to the mandatory information about the contract manufacturer-responsible person, may indicate themselves on the labeling as an exclusive distributor, official representative, etc., including name, address, website, and so on.

The obvious advantages are the speed of implementation and the shift of not only production issues but also all regulatory aspects onto the manufacturer. The disadvantages include the disclosure of manufacturer’s name on the labeling and significant dependence of the brand owner from manufacturer.

 
The Brand Owner is the Responsible Person

According to the Technical Regulation, only those cosmetic products for which a legal or natural person is designated as the “Responsible Person” can be placed on the market. The Regulation does not define the Responsible Person, but it is clear from the text that such a person bears full responsibility for compliance with regulatory procedures, safety, and product quality requirements.

The name and address of the manufacturer are not required on the labeling. Instead, the name and address of the Responsible person are required.

By default, for domestically produced cosmetic products, the Responsible Person is the manufacturer, and for imported products, the Responsible Person is the importer. In both cases, the manufacturer or importer may appoint a third party to be the Responsible Person, namely the brand owner.

In this scenario, the brand owner-Responsible Person must enter into a license agreement with the manufacturer to eliminate the risk of being recognized as the manufacturer and must also sign a Quality Agreement and ensure compliance with all requirements of the Technical Regulation: evaluate the compliance of production with GMP requirements, develop appropriate labeling, compile and sign the cosmetic product safety report, create the product information file, carry out notification, and subsequently store and provide access to documentation in case of inspections, monitor adverse effects, and ensure the manufacturer’s compliance with GMP requirements, etc.

On the cosmetic product label, the consumer will only see information about the brand owner, who is the Responsible Person for their product. The manufacturer’s details will be indicated in the product file, which is closed to consumers, market operators, and competitors.

Although the Responsible Person plays a primary role in matters of quality, safety, and regulatory compliance, there are no specific requirements for such a person. The legislation does not require the establishment of a quality system according to GMP or another standard, nor does it require permits or licenses—provided that all approved requirements are met.

This approach to PL is identical in terms of implementation speed to the previous option, allowing the labeling to display only the name and address of the brand owner and distributing responsibilities by assigning the main responsibility for the product to the brand owner.

 
The Brand Owner is a Virtual Manufacturer

According to the definition of a manufacturer, they can entrust the development or manufacture of cosmetic products “turnkey” to a third party. The Technical Regulation requires that production complies with Good Manufacturing Practices (GMP), and the documentation for cosmetic products must include a corresponding statement. The DSTU EN ISO 22716:2015 standard “Cosmetics. Good Manufacturing Practices (GMP)” contains a section “Types of Subcontracting,” which provides for the possibility of outsourcing production, packaging, and quality control functions.

Therefore, the manufacturer can be virtual—being the owner of the trademark, having a quality management system according to GMP requirements, managing and controlling the production and quality of products from the office, without having their own production facilities.

With this approach, there are two manufacturers: one virtual, who is the brand owner and Responsible Person, and the other real, who performs the manufacturing function. The labeling will indicate the virtual manufacturer-Responsible Person.

This approach allows the virtual manufacturer to be the owner of the formulations and documentation, have an ISO 22716 (GMP) certificate—which opens up opportunities for contract manufacturing for other brands, is an important prerequisite for entering other markets, and also allows better management of the confidentiality of documentation and developments.

 
Conclusion

The use of Private Label in the cosmetics market is becoming increasingly popular, allowing brands to quickly and efficiently bring new products to market. At the same time, the Technical Regulation on cosmetic products imposes new, stricter requirements on the entire supply chain, which will be monitored by the state market surveillance authority.

To build a successful and sustainable business, the PL owner should thoroughly understand the variety of cooperation options with the contract manufacturer as well as their own duties and responsibilities.

A manufacturer developing contract manufacturing should establish a convenient and transparent system of cooperation with brand owners, develop a quality system and product documentation that meet the best regulatory requirements and practices. 

 Oksana Oliynichuk, Head of FMCG Department
Maksym Bagrieiev, Managing partner

Cratia offers services for the conformity assessment of cosmetic products in Ukraine and the EU. We are well-versed in Ukrainian and European legislation, have extensive experience, and are results-oriented. We are ready to develop documentation “turnkey” or refine existing product and production documents, organize necessary testing, and comply with the requirements of Technical Regulation No. 65 or Regulation (EC) 1223/2009.

We invite you to a training webinar “Private Label: Manufacturing Medical Devices, Cosmetics, and Dietary Supplements under PL. How to do PL correctly?” Event is in Ukrainian language only, details by the link.