They’ve become forces in their own right and make up about 21% of sales in the $1.7 trillion US grocery industry, according to IRI.
But the origins of in-store brands remain largely secretive.
Retailers don’t usually talk about the companies that make their brands. Likewise, manufacturers have little incentive to reveal that they are making products similar to their brand name under a different brand that sells cheaply.
Although department store brands ostensibly compete with manufacturers’ national brands, manufacturers often have overcapacity on their product lines. To make an extra profit, some will use this extra capacity to make private labels.
Manufacturers of other brands will produce private labels as an incentive for retailers, hoping that they will be rewarded with better shelf space and a place for their patriotic labels.
“Most manufacturers aren’t open about it,” said Jean Benedict E.M. Steenkamp, a professor of marketing at the University of North Carolina who studies private labels and branding. “Manufacturers don’t want to be known because it undermines the strength of their brands.”
Eight O’Clock Coffee and Kenmore
Macy’s whiskey jugs are sold under their own name. Customers can return the jugs to be refilled, according to Christopher Durham, president of the Velocity Institute, a trade association for private label brands.
Montgomery Ward developed its own line of aspirin in wooden containers, while Great Atlantic & Pacific Tea Co. (also known as A&P) branded spice with the slogan “Take the Grandmother’s Advice, Use A&P Spices”. A&P later developed Eight O’Clock Coffee, one of the most popular private label brands of the period.
In 1925, Sears created the Allstate tire brand. A few years later, Sears released their first literal key, according to Durham. The Kenmore line, which began as a sewing machine brand in 1913 before branching out into vacuum cleaners and other home appliances, has become the leading home appliance brand in the United States.
However, these special signs were the exception.
Most customers were fiercely loyal to certain brands, not retailers. A store without major labels would likely be crushed, giving manufacturers enormous leverage.
In addition, many store brands have also been considered faint and cheap imitations of national brands.
Durham said the low point of private labeling came during the 1970s, when stores sought to cut costs and roll out generics with basic white backgrounds and black lettering identifying the product — beer, soap, cola, beans and other staples.
Retailers create private brands for a variety of reasons, including to enhance profitability and sometimes as a negotiation tool against brands.
Private brands often carry 20% to 40% more profit margins than national brands because stores do not have to pay for advertising, distribution, or other label costs that are included in the prices of major brands.
In the mid-20th century, many retailers began developing their own labels to regain bargaining power from dominant suppliers and keep their prices in check. With the consolidation of the US retail industry in recent decades, the power dynamic between retailers and suppliers has reversed. Now, stores have more leverage to offer their own labels — whether brands like it or not.
“Forty years ago, Walmart’s resentment of Procter & Gamble was a precarious situation. Now, Walmart is much bigger than P&G,” said Steenkamp, professor of marketing.
Today, stores’ private brand operations are more complex than ever and there is a much greater focus on chains.
Krishnakumar Devi, Head of Customer Engagement at IRI, said stores are more likely these days to develop a special brand or distinctive product to stand out against competitors and create loyalty for shoppers.
The US House of Representatives Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon uses data from sellers to create its own brands and illegally favors its own brands on its website.
Most stores start small with their own brands. For example, grocers often first offer a shelf-stable product such as pasta, flour, sugar or sweat that is easy to make and where brand loyalty within this category is not strong.
“Don’t start with the hardest things,” Steenkamp said. “As stores build more experience and success, they are entering new categories.”
How do you know who makes brand stores
So how do you find out who is behind your favorite store brands?
Product recalls are often the most revealing way to discover which brand manufacturers are behind specific private labels.
Last year, for example, Dole recalled fresh salads and vegetables, including Walmart’s own brands, Kroger and HEB.
Some major retailers also make their own labels. Kroger, for example, makes about 30% of its own products.
Perhaps the strangest of store brand manufacturers are the retailers who make private labels for their competitors: Safeway-owned Lucerne Foods makes private labels for Safeway’s competitors.