Costco generates nearly a third of its sales through its Kirkland Signature brand. As prices rise, private label – also known as private labels, white labels or generic brands – have become an even more attractive option for inflation-weary shoppers looking to ditch the bigger brands. dear. (David Paul Morris, Bloomberg/Getty Images)
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ATLANTA—Kirkland Signature. Two dollar chuck. Simple truth. Cat and Jack. Great value. Amazon basics. Private labels have never been so popular.
They have become forces in their own right and account for about 21% of the US food industry’s $1.7 trillion sales, according to IRI.
As prices rise, private label – also known as private labels, white labels or generic brands – have become an even more attractive option for inflation-weary shoppers looking to ditch the bigger brands. dear. Private labels can be 10% to 50% cheaper.
But the origins of private labels remain largely secret.
Retailers are generally not forthcoming about the companies that make their brands. Similarly, manufacturers have little incentive to disclose that they create products similar to their brands under a different label sold at a low price.
Many leading national brand manufacturers create private labels for multiple retailers. In the late 1990s, it was estimated that more than half of branded manufacturers also manufactured private goods.
Although house brands ostensibly compete with manufacturers’ national brands, manufacturers often have excess capacity on their production lines. To generate additional profits, some will use this extra capacity to manufacture private labels.
Other brand manufacturers will produce private labels to incentivize retailers, hoping they will be rewarded with better storage space and location 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 label and branding. “Manufacturers don’t want this known because it undermines the power of their own brands.”
But there are exceptions. Kimberly-Clark, the maker of Huggies diapers, produces Kirkland Signature diapers for Costco and Duracell produces Kirkland Signature batteries, Costco executives said.
Georgia-Pacific, the maker of Brawny and Dixie, also produces private label. The same goes for Henkel, the maker of Purex and Dial.
Eight o’clock coffee and Kenmore
Store labels have been around since the beginnings of retail and the emergence of consumer brands in the 19th century.
Macy’s sold stoneware whiskey jugs under its own name. Customers could return the jugs for refills, according to Christopher Durham, president of the Velocity Institute, a trade association for private labels.
Montgomery Ward developed its own line of aspirin in wooden containers, while Great Atlantic & Pacific Tea sold branded spices with the slogan “Take the Grandmother’s Advice, Use A&P Spices”. A&P then 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 its own brands than Sears, Roebuck.
In 1925, Sears created the Allstate brand for car tires. A few years later, Sears released its first Craftsman wrench, according to Durham. Its Kenmore line, which began as a brand of sewing machines in 1913 before branching out into vacuum cleaners and other home appliances, has become the leading home appliance brand in the United States.
These private labels, however, were the exception.
For most of the 20th century, national brands such as Jell-O, HJ Heinz, Campbell Soup, and Johnson & Johnson ruled stores. These manufacturers flood the airwaves and newspapers with advertisements extolling the benefits of their products.
Most customers were fiercely loyal to specific brands, not retailers. A store that didn’t carry large labels would likely be crushed, giving manufacturers immense leverage.
Additionally, many store brands were also considered boring and cheap knockoffs of national brands.
Private label’s low point came in the 1970s, Durham said, when stores seeking to cut costs and rolled out generics with basic white backgrounds and black lettering identifying the product — beer, soap, cola, beans and other commodities.
Loyalty of buyers
Retailers manufacture private label for a variety of reasons, including to increase profitability and sometimes as a bargaining tool against brands.
Private labels often make profit margins 20-40% higher than national brands because stores don’t have to pay the advertising, distribution, or other mark-up costs that are built into the prices of big brands. .
In the mid-twentieth century, many retailers began to develop their own labels to reclaim bargaining power from dominant vendors and control their prices. As the retail industry in the United States has consolidated over the past few decades, the power dynamic between retailers and suppliers has reversed. Now, stores have more clout to introduce their own labels, whether the big brands like it or not.
“Forty years ago, Walmart [upsetting] P&G would be a risky situation. Today, Walmart is much bigger than P&G,” said Steenkamp, a marketing professor.
Today, store private label operations are more sophisticated than ever and a much bigger focus for chains.
Stores these days are more likely to develop a private label or a distinctive product to stand out from competitors and build customer loyalty, said Krishnakumar Davey, president of customer engagement at IRI.
Costco, for example, will decide to make a Kirkland Signature product because a leading brand won’t sell to the retailer. Or Costco thinks the brand’s prices have gotten too high and they can make their own product of similar quality and sell it for 20% less.
Costco hasn’t lost any relationships with its suppliers by launching its own Kirkland products, but those brands are generally unhappy when Costco introduces one, the company’s chief financial officer Richard Galanti said in an interview earlier this year. .
Retailers have been sued for creating products that look too much like national brands. The owner of the Titleist golf ball brand sued Costco for patent infringement, while Williams-Sonoma sued Amazon for selling “counterfeits” under its own brand. Both cases have been settled.
The U.S. House Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon uses seller data to create its own brands and unlawfully promotes its own brands on its website.
Amazon said it does not use data from individual third-party sellers to inform the development of its own private brands and does not promote its own products on the site.
Most stores start small with their own brands. Grocers, for example, often first introduce a shelf-stable 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 hard stuff,” Steenkamp said. “As stores gain experience and success, they move into new categories.”
How to find out who manufactures private labels
So how do you know who’s behind your favorite store brands?
Product recalls are often the most telling way to find out which brand manufacturers are behind specific private labels.
Last year, for example, Dole recalled salads and fresh vegetables, including private labels for Walmart, Kroger and HEB.
JM Smucker recalled certain Jif peanut butter products this year, as well as branded items it made for Giant Eagle, Wawa and Safeway. Major companies such as Conagra and McCain Foods have recalled Trader Joe’s products.
Then there are the dedicated private label manufacturers, such as Treehouse Foods, 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.
James Walser, who spearheaded the launch of Target’s up&up basics and personal care brand in 2009, said Target tried to move away from national-brand manufacturers during up&up’s development toward more nimble suppliers focused solely on private label manufacturing.
Some large retailers also manufacture their own private labels. Kroger, for example, manufactures about 30% of its own private products.
Perhaps the weirdest private label makers are retailers that make private labels for their…competitors: Lucerne Foods, owned by Safeway, makes private labels for Safeway’s rivals.