They have become a force in their own right and make up about 21% of sales in the $1.7 trillion U.S. grocery industry, according to IRI.
But the origin of the store brand remains largely a mystery.
Retailers are generally not forthcoming about the companies that make their brands. And manufacturers, likewise, have little incentive to disclose that they are making products similar to their name brands sold cheaply under different labels.
Although store brands obviously compete with manufacturers’ national brands, manufacturers often have excess capacity in their production lines. To generate additional profits, some will use that extra capacity to create private labels.
Other brand manufacturers will create private labels as an incentive for retailers, hoping that they will be rewarded with better shelf space and placement for their own national labels.
“Most manufacturers are not open about it,” said Jan-Benedict EM Steenkamp, a marketing professor at the University of North Carolina who studies private labels and branding. “Manufacturers don’t want it to be known because it dilutes the strength of their own brand.”
Eight o’clock coffee and Kenmore
Macy’s sold stoneware whiskey jugs under its own name. Consumers can return the jugs for refills, according to Christopher Durham, president of the Velocity Institute, a trade association for private brands.
Montgomery Ward produced its own line of aspirin in wooden containers, while Great Atlantic & Pacific Tea Co. (aka A&P) sold branded spices with the slogan “Take Grandma’s Advice, Use A&P Spices.” A&P later created Eight O’Clock Coffee, one of the most famous private labels of the time.
In 1925, Sears created the Allstate brand of car tires. A few years later, Sears introduced its first artisan wrench, according to Durham. Its Kenmore line, which began as a sewing machine brand in 1913 before branching into vacuums and other home appliances, became the leading home appliance brand in the United States.
These private labels were the exception though.
Most consumers were highly loyal to specific brands, not retailers. A store that didn’t carry the big labels would probably get crushed, which gave manufacturers a lot of leverage.
Additionally, many store brands were considered dull, cheap knockoffs of national brands.
The low point for private labels came in the 1970s, Durham said, when stores were looking to cut costs and rolled out generics with white backgrounds and black lettering to identify the product — beer, soap, cola, beans and other staples.
Customer loyalty
Retailers create private label brands for a variety of reasons, including to increase profitability and sometimes as a tool to negotiate against the brand.
Private brands often carry profit margins that are 20% to 40% higher than national brands because stores do not have to pay advertising, distribution or other markup costs that are attached to major brand prices.
In the mid-20th century, many retailers began to develop their own labels to regain bargaining power from dominant suppliers and control their prices. As the US retail industry has consolidated in recent decades, the power dynamics between retailers and suppliers have reversed. Now, stores have more leverage to introduce their own labels — whether the name brands like it or not
“Forty years ago, Walmart taking the piss out of P&G would have been a risky situation. Now, Walmart is much bigger than P&G,” said Steinkamp, the marketing professor.
Today, stores’ private brand operations are more sophisticated than ever and a much bigger focus for chains
Shops today are more likely to develop a distinct private brand or product to stand out against competitors and build customer loyalty, says Krishnakumar Devi, president of client engagement at IRI.
The US House Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon uses data from sellers to build its own brand and illegally advocates its own brand on its website.
Most stores start small with their own brands. For example, grocers often introduce a shelf-stable product such as pasta, flour, sugar or rice that is easy to manufacture and where brand loyalty within the category is not strong.
“You don’t start with the hardest thing,” Steenkamp said. “As stores build more experience and success, they enter new categories.”
How to Find Out Who Makes a Store Brand
So how do you tell who’s behind your favorite store brand?
Product recalls are often the most revealing way to find out which brand manufacturers are behind certain private labels.
Last year, for example, Dole recalled fresh salads and vegetables from Walmart, Kroger and HEB’s private brands.
Some major retailers also produce their own private labels. For example, Kroger makes about 30% of its own personal products.
Perhaps the strangest store brand manufacturers are retailers who produce private brands for their…Competitors: Safeway-owned Lucerne Foods produces private labels for Safeway’s competitors.
