They have become forces in their own right, accounting for about 21% of sales in the US grocery industry, valued at $1.7 trillion, according to IRI.
But the origins of private labels remain largely secret.
Retailers are often not forthcoming about the companies that make their brands. And manufacturers, likewise, have little incentive to reveal that they are creating products similar to their brands under a different label that are sold at low prices.
Although private label brands ostensibly compete with manufacturers’ national brands, manufacturers often have excess capacity on their production lines. To generate extra profit, some will use that extra capacity to do private labeling.
Other brand manufacturers will produce private labels as an incentive for retailers, hoping 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 label and branding. “Manufacturers don’t want it known because it undermines the power of their own brands.”
Eight o’clock cafe and Kenmore
Macy’s sold stoneware whiskey decanters under its own name. Customers can bring the jugs in for refills, according to Christopher Durham, president of the Velocity Institute, a private label trade association.
Montgomery Ward developed its own line of aspirin in wooden containers, while the Great Atlantic & Pacific Tea Co. (also known as A&P) sold brand-name spices with the slogan “Follow Grandma’s advice, use A&P spices.” A&P later developed Eight O’Clock Coffee, one of the most famous private label brands of the time.
In 1925, Sears created the Allstate brand for automobile tires. A few years later, Sears released its first Craftsman wrench, according to Durham. Its Kenmore line, which began as a brand of sewing machines in 1913 before evolving into vacuum cleaners and other appliances, became the leading brand of home appliances in the United States.
However, these private labels were the exception.
Most customers were fiercely loyal to specific brands, not retailers. A store that didn’t stock the major brands would likely be squashed, giving the manufacturers huge leverage.
In addition, many private label brands were also considered boring and cheap imitations of national brands.
The nadir of private label came during the 1970s, Durham said, when stores looking to cut costs launched generics with basic white backgrounds and black lettering identifying the product: beer, soap, cola, beans and others. basic products.
Retailers manufacture private labels for a variety of reasons, including to increase profitability and sometimes as a negotiating tool against brands.
Private label brands often have profit margins that are 20% to 40% higher than national brands because stores don’t have to pay advertising, distribution, or other margin costs that are built into retail prices. the main brands.
In the mid-20th century, many retailers began developing their own labels to take back bargaining power from dominant suppliers and keep their prices in check. As the US retail industry has consolidated in recent decades, the power dynamic between retailers and suppliers has been reversed. Now, stores have more clout to introduce their own labels, whether brands like it or not.
“Forty years ago Walmart upsetting P&G would be a risky situation. Now Walmart is much bigger than P&G,” said Steenkamp, the marketing professor.
Today, store private label operations are more sophisticated than ever and a much greater focus for chains.
Stores today are more likely to develop a private label or distinctive product to stand out from the competition and build loyalty among shoppers, said Krishnakumar Davey, president of customer engagement at IRI.
The US House Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon uses seller data to create its own brands and illegally favors them on its website.
Most stores start small with their own brands. Grocery stores, for example, often introduce a shelf-stable product such as pasta, flour, sugar, or rice first that is easier to make and where brand loyalty within the category is not strong.
“You don’t start with the hardest things,” Steenkamp said. “As stores build more experience and success, they enter new categories.”
How to find out who makes private label brands
So how do you know who’s behind your favorite store brands?
Product recalls are often the most revealing way to find out which brand manufacturers are behind specific private labels.
Last year, for example, Dole recalled fresh salads and vegetables, including Walmart, Kroger and HEB private label brands.
Some large retailers also manufacture their own private labels. Kroger, for example, manufactures about 30% of its own private products.
Perhaps the strangest private label makers are the retailers that make private labels for their… competitors: Lucerne Foods, owned by Safeway, makes private labels for Safeway’s rivals.