They have become forces in their own right, accounting for approximately 21% of sales in the $1.7 trillion US grocery industry, according to IRI.
But the origins of store brands remain largely secret.
Retailers tend not to be candid about the companies that make their brands. And manufacturers also have little reason to reveal that they make similar products to their name brands under a different label that is sold cheaply.
While store brands ostensibly compete with manufacturers’ national brands, manufacturers often have overcapacity on their production lines. To generate extra profit, some will use that extra capacity to make private labels.
Other brand manufacturers will start producing private labels as an incentive for retailers, in the hopes that they will be rewarded with more shelf space and placement 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 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 pitchers under its own name. According to Christopher Durham, the president of the Velocity Institute, a private label trade association, customers were able to return the jugs for refills.
Montgomery Ward developed his own line of aspirin in wooden containers, while the Great Atlantic & Pacific Tea Co. (aka A&P) branded spices sold with the tagline “Take the Grandmother’s Advice, Use A&P Spices.” A&P later developed Eight O’Clock Coffee, one of the best-known house brands of the period.
In 1925, Sears created the Allstate brand for car tires. A few years later, Sears launched its first Craftsman wrench, according to Durham. The Kenmore line, which started in 1913 as a sewing machine brand 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 an exception.
Most customers were very loyal to specific brands, not retailers. A store that didn’t carry big labels would likely be crushed, giving manufacturers huge leverage.
In addition, many store brands were also considered boring, cheap counterfeits of national brands.
The low point of private label came in the 1970s, Durham said, when stores seeking to cut costs rolled out generics with a simple white background and black lettering identifying the product — beer, soap, cola, beans and other staples.
Retailers create private label brands for a variety of reasons, including to increase profitability and sometimes as a bargaining tool against brands.
Private brands often have profit margins that are 20% to 40% higher than national brands because stores do not have to pay the advertising, distribution or other markup costs embedded in the prices of major brands.
In the mid-20th century, many retailers began developing their own labels to reclaim the bargaining power of dominant suppliers and control their prices. As US retail has been consolidated in recent decades, the power dynamics between retailers and suppliers have reversed. Now stores have more leverage to introduce their own labels – whether name brands like it or not.
“Forty years ago, Walmart pissing P&G would be a risky situation. Now, Walmart is much bigger than P&G,” said Steenkamp, the marketing professor.
Today, stores’ private label operations are more sophisticated than ever and a much greater focus for chains.
Today, stores are more likely to develop a distinctive private label or product to differentiate themselves from competitors and create customer loyalty, said Krishnakumar Davey, the president of customer engagement at IRI.
The US House Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon is using seller data to create its own brands and unlawfully favoring its own brands on its website.
Most stores start small with their own brands. For example, grocers will often first introduce a shelf-stable product, such as pasta, flour, sugar or variety, 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.
For example, Dole recalled fresh salads and vegetables last year, including private labels for Walmart, Kroger and HEB.
Some major retailers also make their own private labels. Kroger, for example, makes about 30% of its own privately owned products.
Perhaps the strangest store brand manufacturers are retailers that make private labels for their… competitors: Lucerne Foods, owned by Safeway, produces private labels for Safeway’s rivals.