Kirkland’s signature. Two-bit Chuck. Simple truth. Cat and Jack. Great value. Basics on Amazon. Store brands have never been this popular.
They have become fully fledged forces and account for about 21% of sales in the US $ 1.7 trillion food industry, according to the IRI.
As prices rise, store brands – also known as private labels, white labels, or generic brands – have become an even more attractive option for inflation-weary shoppers who are looking to switch from more expensive brands. Store brands can cost 10% to 50% less.
But the origins of the store brands remain largely secret.
Retailers are generally unavailable regarding the companies that produce their brands. And manufacturers, likewise, have little incentive to disclose that they are creating products similar to their brands with a different label that are sold cheaply.
Many of the major national brand manufacturers create private labels for multiple retailers. It is estimated that in the late 1990s, more than half of brand manufacturers also produced private goods.
Although store brands apparently compete with domestic manufacturer brands, manufacturers often have excess capacity on their production lines. To generate additional profits, some will use that extra capacity to create private labels.
Other brand manufacturers will produce private labels as an incentive for retailers, hoping they will be rewarded with better shelf space and positioning for their national labels.
“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 brands. “Manufacturers don’t want it to be known because it undermines the power of their own brands.”
But there are exceptions. Kimberly-Clark (KMB), the Huggies diaper manufacturer, produces Kirkland Signature diapers for Costco (COST) and Duracell produces Kirkland Signature batteries, Costco (COST) executives said.
Georgia-Pacific, the maker of Brawny and Dixie, also produces store brands. So does Henkel (HENKY), the producer of Purex and Dial.
Store labels have existed since the early days of retail and the emergence of consumer brands in the 19th century.
Macy’s sold stoneware whiskey jugs under their own name. Customers could bring back the jugs for refills, according to Christopher Durham, president of the Velocity Institute, a trade association for private labels.
Montgomery Ward developed their own line of aspirin in wooden containers, while Great Atlantic & Pacific Tea Co. (aka A&P) sold branded spices with the slogan “Listen to grandma’s advice, use A&P spices.” Later A&P developed Eight O’Clock Coffee, one of the most famous private labels of the time.
Yet no US retailer has been more successful in developing their brands than Sears, Roebuck.
In 1925, Sears created the Allstate brand for car tires. A few years later, Sears launched its first Craftsman wrench, according to Durham. Its Kenmore line, which began as a sewing machine brand in 1913 before expanding into vacuum cleaners and other home appliances, has become the leading home appliance brand in the United States.
However, these private labels were the exception.
For most of the 20th century, national brands like Jell-O, HJ Heinz, Campbell Soup (CPB), and Johnson & Johnson (JNJ) had power over the stores. These manufacturers flooded the airwaves and newspapers with advertisements extolling the benefits of their products.
Most customers were fiercely loyal to specific brands, not retailers. A shop that didn’t carry major labels would likely be squashed, which gave the producers huge influence.
In addition, many store brands were also considered boring and cheap imitations of domestic brands.
Private label’s low point came during the 1970s, Durham said, when stores tried to cut costs and launched generics with basic white backgrounds and black letters identifying the product: beer, soap. , cola, beans and other staple foods.
Retailers produce private label brands for a variety of reasons, including to increase profitability and sometimes as a bargaining tool against brands.
Private brands often carry profit margins ranging from 20% to 40% higher than domestic brands because stores don’t have to pay for advertising, distribution or other markup costs built into the pricing of major brands.
In the mid-20th century, many retailers began developing their own labels to reclaim bargaining power from dominant suppliers and keep prices in check. With the consolidation of the US retail industry over the past few decades, the dynamics of power 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 off would have been a risky situation. Now, Walmart is much bigger than P&G, ”said Steenkamp, the marketing professor.
Today, the store’s private label operations are more sophisticated than ever and a much bigger focus on chains.
Stores are now more likely to develop a distinctive private brand or product to stand out from the competition and retain shoppers, said Krishnakumar Davey, president of customer 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 (COST) believes the brand’s prices have gotten too high and can produce their own product of similar quality and sell it for 20% less.
Costco hasn’t lost any relationship with suppliers by launching their Kirkland products, but those brands are usually not happy when Costco introduces one, company CFO Richard Galanti said in an interview earlier this year.
Retailers have been sued for creating products that look too much like domestic brands. Golf ball brand owner Titleist is suing Costco for patent infringement, while Williams-Sonoma (WSM) is suing Amazon (AMZN) for selling “knockoffs” under their own brand. Both cases have been resolved.
The US House Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon uses seller data to create its brands and illegally favors its brands on its website.
Amazon said it does not use data from individual third-party sellers to inform the development of its private brands and does not favor its products on the site.
Most stores start small with their own brands. Grocery stores, for example, will often first introduce a stable shelf product such as pasta, flour, sugar or rice that is easier to prepare and where brand loyalty within the category is not strong.
“You don’t start with the hardest things,” said Steenkamp. “As stores accumulate more experience and success, they enter new categories.”
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 the private labels of Walmart, Kroger, and HEB.
JM Smucker (SJM) this year recalled some Jif peanut butter products, as well as store-branded items made for Giant Eagle, Wawa, and Safeway. Large companies like Conagra and McCain Foods have withdrawn products from Trader Joe’s.
Then there are the dedicated private label manufacturers, such as Treehouse Foods (THS), which makes snacks under the labels of supermarkets, big-box chains, and other retailers. Nearly a quarter of the company’s $ 4.3 billion in sales last year, for example, came from Walmart (WMT).
James Walser, who spearheaded the launch of Target’s (TGT) brand up & up for personal care and basic household products in 2009, said Target sought to move away from domestic brand manufacturers while developing up & up towards more agile suppliers focused exclusively on the production of private labels.
Some large retailers also produce their own private labels. Kroger, for example, makes about 30% of its own private products.
Perhaps the strangest store brand manufacturers are retailers who produce private labels for their … competitors: Lucerne Foods, owned by Safeway, produces private labels for Safeway’s rivals.