They have become a force in their own right, accounting for about 21% of sales in the $1.7 trillion U.S. grocery industry, according to IRI.
But the origins of store brands remain largely secret.
Retailers are usually unpredictable about companies that create their own brands. Manufacturers are also less inclined to discover that they are creating products similar to their own name brands under a different label that are sold at a lower price.
Although store brands ostensibly compete with manufacturers’ national brands, manufacturers often have excess capacity on their production lines. Some will use this additional opportunity to create private labels to generate additional income.
Other brand manufacturers will produce private labels as an incentive for retailers, who hope to be rewarded with better shelf space and positioning for their national labels.
“Most manufacturers are not open about it,” said Jean-Benedict EM Steenkamp, a marketing professor who studies private labels and branding at the University of North Carolina. “Manufacturers don’t want this to be recognized because it undermines the strength of their brand.”
Eight O’Clock Coffee and Kenmore
Macy’s sells stoneware whiskey stills under its name. According to Christopher Durham, president of the Velocity Institute, a trade association for private brands, customers can bring the jugs back for refills.
While Montgomery Ward produced aspirin in wooden containers, the 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 developed Eight O’Clock Coffee, one of the most popular private brands of the era.
In 1925, Sears created the Allstate brand for automobile tires. A few years later, Durham said, Sears introduced the first Craftsman wrench. Its Kenmore line became a leading home appliance brand in the United States in 1913 as a sewing machine brand before branching out into vacuum cleaners and other appliances.
But these private labels were the exception.
Most customers were very loyal to specific brands rather than retailers. A store that didn’t carry the major labels was likely to be crushed, which gave manufacturers great leverage.
In addition, many store brands were also considered dull, cheap rip-offs of national brands.
The low point for private label came in the 1970s, Durham said, when stores wanted to cut costs and roll out generics — beer, soap, cola, beans and other staples — with basic white backgrounds and black letters identifying the product.
Retailers create private label brands for a variety of reasons, including increasing profitability and sometimes as a bargaining chip against brands.
Private brands often carry 20% to 40% higher profit margins than national brands because stores don’t have to pay for advertising, distribution or other markup costs that are included in mainstream brand prices.
In the mid-20th century, many retailers began to develop their own labels in order to take back the bargaining power of dominant suppliers and keep prices under control. As the US retail industry has consolidated in recent decades, the power dynamic between retailers and suppliers has reversed. Stores now have more opportunities to introduce their own labels — whether name brands like it or not.
“Forty years ago, Walmart would have been a risky situation to hurt P&G. Now Walmart is bigger than P&G,” said Steenkamp, a marketing professor.
Today, the private brand operations of stores are more complex than ever, and more of a focus for chains.
Krishnakumar Davey, IRI’s president of customer relations, said stores these days are more likely to develop a distinctive private brand or product to differentiate themselves from competitors and build customer loyalty.
The U.S. House Judiciary Committee and other lawmakers and regulators around the world are investigating whether Amazon uses sellers’ data to build its own brands and illegally favors its own brands on its website.
Most stores start small with their brands. Grocers, for example, will often offer a shelf-stable product such as pasta, flour, sugar or rice that is easier to prepare and brand loyalty within the category is not strong.
“You don’t start with the hardest things,” Steenkamp said. “As stores gain more experience and success, they enter new categories.”
How to find out who made store brands
But how do you determine who is behind your favorite store brands?
Product recalls are often the most obvious way to find out which brand manufacturers are behind specific private labels.
Last year, for example, Dole recalled fresh salad and vegetables, including private brands, for Walmart, Kroger and HEB.
Some large retailers also develop their own private labels. For example, Kroger produces about 30% of its own products.
Perhaps the strangest store brand manufacturers are retailers that create private brands for their competitors: Safeway-owned Lucerne Foods produces private labels for Safeway’s competitors.