They have become forces in their own right and account for about 21% of the US food industry’s $1.7 trillion sales, according to IRI.
But the origins of private labels remain largely secret.
Retailers are generally not forthcoming about the companies that make their brands. Similarly, manufacturers have little incentive to reveal that they create products similar to their brands under a different label sold at a low price.
Although house brands ostensibly compete with manufacturers’ national brands, manufacturers often have excess capacity on their production lines. To generate additional profits, some will use this extra capacity to manufacture private labels.
Other brand manufacturers will produce private labels to incentivize retailers, hoping they will be rewarded with better storage space and location for their own national labels.
“Most manufacturers aren’t 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 this known because it undermines the power of their own brands.”
Eight o’clock coffee and Kenmore
Macy’s sold stoneware whiskey jugs under its own name. Customers could return the jugs for refills, according to Christopher Durham, president of the Velocity Institute, a trade association for private labels.
Montgomery Ward developed its own line of aspirin in wooden containers, while the Great Atlantic & Pacific Tea Co. (aka A&P) sold branded spices with the slogan “Take the Grandmother’s Advice, Use A&P Spices”. A&P then 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 wrench, according to Durham. Its Kenmore line, which began as a brand of sewing machines in 1913 before branching out into vacuum cleaners and other home appliances, has become the leading home appliance brand in the United States.
These private labels, however, were the exception.
Most customers were fiercely loyal to specific brands, not retailers. A store that didn’t carry large labels would likely be crushed, giving manufacturers immense leverage.
Additionally, many store brands were also considered boring and cheap knockoffs of national brands.
Private label’s low point came in the 1970s, Durham said, when stores seeking to cut costs and rolled out generics with basic white backgrounds and black lettering identifying the product — beer, soap, cola, beans and other commodities.
Loyalty of buyers
Retailers manufacture private label for a variety of reasons, including to increase profitability and sometimes as a bargaining tool against brands.
Private labels often make profit margins 20-40% higher than national brands because stores don’t have to pay the advertising, distribution, or other mark-up costs that are built into the prices of big brands. .
In the mid-twentieth century, many retailers began to develop their own labels to reclaim bargaining power from dominant vendors and control their prices. As the retail industry in the United States has consolidated over the past few decades, the power dynamic between retailers and suppliers has reversed. Now, stores have more clout to introduce their own labels, whether the big brands like it or not.
“Forty years ago, Walmart pissing off P&G would be a risky situation. Today, Walmart is much bigger than P&G,” said marketing professor Steenkamp.
Today, store private label operations are more sophisticated than ever and a much bigger focus for chains.
Stores these days are more likely to develop a private label or a distinctive product to stand out from competitors and build customer loyalty, said Krishnakumar Davey, president of customer engagement at IRI.
The U.S. House Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon uses seller data to create its own brands and unlawfully promotes its own brands on its website.
Most stores start small with their own brands. Grocers, for example, often first introduce a shelf-stable product such as pasta, flour, sugar or rice that is easier to prepare and where brand loyalty within the category is not strong.
“You don’t start with the hard stuff,” Steenkamp said. “As stores gain experience and success, they move into new categories.”
How to find out who manufactures private labels
So how do you know who’s behind your favorite store brands?
Product recalls are often the most telling way to find out which brand manufacturers are behind specific private labels.
Last year, for example, Dole recalled salads and fresh vegetables, including private labels for Walmart, Kroger and HEB.
Some large retailers also manufacture their own private labels. Kroger, for example, makes about 30% of its own private products.
Perhaps the weirdest private label makers are retailers that make private labels for their…competitors: Lucerne Foods, owned by Safeway, makes private labels for Safeway’s rivals.