The Mysterious Firms Behind Costco’s Kirkland Signature and Dealer Joe’s O’s The Hidden Firms Behind Retailer Manufacturers Like Kirkland Signature The Actual Story Behind Retailer Manufacturers

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.

Many leading national brand manufacturers create own brands for multiple retailers. In the late 1990s more than half of the branded manufacturers were also estimated to manufacture private goods.
Trader Joe's first private label product in the 1970s was granola.  As the food business grew, it switched to mainly own brands.

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.”

But there are some exceptions. Kimberly-Clark (CMB)the maker of Huggies diapers, makes Kirkland Signature diapers for Costco and Duracell makes Kirkland Signature batteries, Costco (COST) managers have said.
Georgia-Pacific, maker of Brawny and Dixie, also produces store brands. So do manage (HENKY)the maker of Purex and Dial.

Eight O’Clock Coffee and Kenmore

Store labels have been around since the early days of retail and the rise of consumer brands In the 1800s.

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.

Eight O'Clock Coffee was sold by The Great Atlantic And Pacific Tea Company (A&P) in 1949.
Yet no American retailer was more successful develop their own brands than Sears, Roebuck.

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.

For most of the 20th century, national brands such as Jell-O, HJ Heinz, Campbell soup (CPB) and Johnson & Johnson (JNJ) had power over stores. These manufacturers flooded the airwaves and newspapers with advertisements extolling the benefits of their products.

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.

Shopper loyalty

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.

Great Value is Walmart's largest store brand.

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.

Costco (COST)for example, will decide to make a Kirkland Signature product because a leading brand will not sell to the retailer. Or Costco believes that the name brand prices have become too high and that they can make their own product of similar quality and sell it for 20% less.
Costco has not lost any relationships with suppliers through launches its own Kirkland productsbut those brands usually aren’t happy when Costco introduces one, the company’s chief financial officer Richard Galanti said in an interview earlier this year.
Costco generates nearly a third of its sales from its Kirkland Signature label.
Retailers have been sued for creating products that too closely resemble national brands. The owner of the golf ball brand Titleist Costco sued for patent infringement, while Williams-Sonoma (WSM) sued Amazon (AMZN) to sell “knockoffs” under their own brand. Both cases were settled.

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.

Amazon has said it does not use data from individual third-party sellers to inform the development of its own private brands and does not favor its own products on the Site.

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.

JM Smucker (SJM) recalled some Jif peanut butter products this year, as well as store-brand items it made for Giant Eagle, Wawa and Safeway. Large companies such as Conagra (CAG) and McCain Foods have recalled products from Trader Joe’s.
Then there are the dedicated private label manufacturers, such as Treehouse Foods (THS), which makes snacks under the brands of supermarkets, big-box chains and other retailers. Almost a quarter of the company’s $4.3 billion in sales last year, for example, came from Walmart (WMT).
Target has dozens of its own brands, such as Cat & Jack, Universal Thread and up & up.
James Walser, who led the launch of Target’s (TGT) up & up household basics and personal care brand in 2009, said Target tried to move away from national brand manufacturers during up & up’s development to more nimble suppliers that focused solely on producing private labels.

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.

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