They have become forces 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 not forthcoming about the companies that make their brands. And manufacturers similarly have little incentive to disclose that they are creating similar products to their name brands under a different label that is sold cheaply.
Although store brands ostensibly compete with manufacturers’ national brands, manufacturers often have excess capacity on their production lines. To generate additional profit, some will use the extra capacity to make private label products.
Other brand manufacturers will produce their own brands as an incentive for retailers, hoping that they will be rewarded with better shelf space and placement for their own national brands.
“Most manufacturers are not open about it,” said Jan-Benedict EM Steenkamp, a marketing professor at the University of North Carolina who studies private labels and branding. “Manufacturers don’t want it to be 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 can take the jugs back for refills, according to Christopher Durham, president of the Velocity Institute, a trade association for private brands.
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 later developed Eight O’Clock Coffee, one of the best-known private labels of the period.
In 1925, Sears created the Allstate brand of car tires. A few years later, Sears launched its first Craftsman wrench, according to Durham. Its Kenmore line, which started as a sewing machine brand in 1913 before branching out into vacuum cleaners and other home appliances, became the leading home appliance brand in the United States.
However, these private labels were the exception.
Most customers were strongly loyal to specific brands, not retailers. A store that didn’t carry major brands was likely to be crushed, giving manufacturers enormous leverage.
In addition, many store brands were also considered dull, cheap knockoffs of national brands.
The low point for private label came in the 1970s, Durham said, when stores trying to cut costs rolled out generics with basic white backgrounds and black letters identifying the product — beer, soap, Coke, beans and other staples.
Retailers produce private label products for a variety of reasons, including to increase profitability and sometimes as a bargaining tool against brands.
Private labels often have profit margins that are 20% to 40% higher than national brands because stores don’t have to pay advertising, distribution or other mark-up costs embedded in big brand prices.
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 over the past few decades, the power dynamic between retailers and suppliers has reversed. Now stores have more leverage to introduce their own labels – whether name brands like it or not.
“40 years ago, Walmart cursing P&G would be a risky situation. Now Walmart is much bigger than P&G,” said Steenkamp, a marketing professor.
Today, stores’ private label operations are more sophisticated than ever and a much greater focus for the chains.
Stores are more likely these days to develop a distinctive private brand or product to stand out from competitors and create shopper loyalty, says Krishnakumar Davey, director of client engagement at IRI.
The US House Judiciary Committee and other lawmakers and regulators around the world have been investigating whether Amazon uses seller data to create its own brands and illegally favors its own brands on its website.
Most stores start small with their own brands. Grocers, for example, will often first introduce a shelf-stable product such as pasta, flour, sugar or rice 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 move into new categories.”
How to find out who makes store brands
So how do you know who is 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 private brands for Walmart, Kroger and HEB.
Some major retailers also make their own private labels. Kroger, for example, makes about 30% of its own private label products.
Perhaps the strangest store-brand manufacturers are retailers that make private labels for their…competitors: Safeway-owned Lucerne Foods makes private labels for Safeway’s rivals.