According to IRI, they have become in-house and account for about 21% of the US food industry’s $ 1.7 trillion sales.
But the origins of the store brands remain largely mysterious.
Retailers are generally reluctant to voice opinions about the companies that make up their brands. Likewise, manufacturers have little incentive to disclose that they create products similar to their brands under a different brand, sold cheaply.
While store brands allegedly compete with domestic manufacturers’ brands, manufacturers often have overcapacity on their production lines. In order to generate additional profit, some will use this additional ability to create their own brands.
Other brand manufacturers will produce their own brands as an incentive for retailers, hoping to be rewarded with better shelf space and displaying their own national labels.
“Most manufacturers are not open to this,” said Jan-Benedict EM Steenkamp, a marketing professor at the University of North Carolina who studies proprietary brands and branding. “Producers don’t want this to be known because it undermines the strength of their own brands.”
Coffee at eight and Kenmore
Macy sold stoneware whiskey jugs under her own name. According to Christopher Durham, president of Velocity Institute, the private label trade association, customers could bring back the jugs to refill.
Montgomery Ward developed its own line of aspirin in wooden containers, while Great Atlantic & Pacific Tea Co. (aka A&P) was selling brand name spices with the slogan “Take the Grandmother’s Advice, Use A&P Spices.” A&P later developed Eight O’Clock Coffee, one of the most famous private labels of the time.
In 1925, Sears created the Allstate brand for car tires. A few years later, Sears released its first Craftsman key, Durham claims. Its Kenmore line, which began as a sewing machine brand in 1913 before branching off into vacuum cleaners and other household appliances, has grown to become the leading home appliance brand in the United States.
However, these private labels were an exception.
Most customers were fiercely loyal to certain brands, not sellers. A store that did not have big brands would likely be crushed, which gave manufacturers a huge advantage.
In addition, many store brands were also found boring cheap fakes of domestic brands.
Private label’s weakest point came in the 1970s, Durham said as stores tried to cut costs and launched generics with a basic white background and black product identification letters – beer, soap, cola, beans and other basic products.
Retailers create private labels for a variety of reasons, including to increase profitability and sometimes as a negotiating tool with brands.
Private brands often achieve profit margins that are 20% to 40% higher than domestic brands because stores do not have to pay for advertising, distribution, or other margin-related costs that are included in the pricing of major brands.
In the mid-20th century, many retailers began to develop their own labels to regain bargaining power from dominant suppliers and control prices. With the consolidation of the US retail industry in recent decades, the power dynamics between retailers and suppliers has reversed. Now stores have a greater say in introducing their own labels – whether they like it or not.
“Forty years ago, Walmart pissing off P&G would have been a risky situation. Now Walmart is much bigger than P&G, ”said Steenkamp, a marketing professor.
Today’s private label retail operations are more sophisticated than ever and are more chain-driven.
These days, stores are more likely to develop a distinctive private brand or product to differentiate themselves from the competition and inspire customer loyalty, said Krishnakumar Davey, president of IRI’s Customer Engagement.
The U.S. House of Representatives Judiciary Commission and other lawmakers and regulators around the world investigated whether Amazon uses data from sellers to create its own brands and unlawfully favors its own brands on its website.
Most stores start out as small private label stores. Grocery stores, for example, often first introduce a shelf stable product such as pasta, flour, sugar or breed that is easier to make and where brand loyalty within the category is not strong.
“You don’t start with the hardest things,” said Steenkamp. “As stores gain more experience and success, they enter new categories.”
How to find out who is creating store brands
So how do you recognize who is behind your favorite store brands?
A product recall is often the most revealing way to find out which brand manufacturers are behind specific private labels.
For example, last year, Dole brought up fresh salads and vegetables, including private labels for Walmart, Kroger and HEB.
Some large retailers also develop their own private labels. For example, Kroger produces about 30% of its own private products.
Perhaps the weirdest in-store brand manufacturers are retailers who create private labels for their … competitors: Safeway’s Lucerne Foods produces private labels for Safeway’s rivals.