Actually, contrary to the implication in the previous post, private label brands are not the same things as "irregulars" or "seconds." I would be shocked if Freestyle agreed to market under its private label a product that was rejected by a manufacturer. Certainly not without disclosing it. I'm not even sure that would be legal under U.S. law. To the contrary, Freestyle is marketing this product as high quality. So I just don't think that's the case.
One reason a manufacturer would choose to relabel some of its product for private label sale would be to sell extra product it makes but doesn't think it can sell at full price. Think of Freestyle's Arista Premium film. I assume the manufacturer has to make a certain number of feet of film per run, but believes it cannot sell the entire run at full price. So it is willing to sell the remainder for private label use.
Another common reason a manufacturer turns to private label sales is to guarantee a larger production run. If, for example, a manufacturer can get an order for 10,000 boxes of paper for private label sale, its initial sales are increased, creating cash flow and giving creditors confidence, as well as keeping the lines running. That's a great way to start a business, in fact. Especially when you're not sure what your initial sales will be.
-Laura