The Mysterious Companies Behind Costco’s Kirkland Signature and Trader Joe’s O’s The Hidden Companies Behind Store Brands Like Kirkland Signature The Real Story Behind Store Brands
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 secretive.
Retailers are usually not privy to the companies that make their brands. And manufacturers similarly have little incentive to disclose that they make 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 extra profits, some will use the extra capacity to create private labels.
Other brand manufacturers will produce private labels 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 bring back the jugs for refills, according to Christopher Durham, the president of the Velocity Institute, a private label trade association.
Montgomery Ward developed its own line of aspirin in wooden containers, while 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 brands 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. The Kenmore line, which began 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 boring, cheap knock-offs of national brands.
The low point for private label came in the 1970s, Durham said, when stores looking to cut costs rolled out generic drugs with basic white backgrounds and black letters identifying the product — beer, soap, Coke, beans and other staples.
Shopper loyalty
Retailers create private label brands 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 built into 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 prices in check. As the US retail industry has consolidated in recent decades, the power dynamic between retailers and suppliers has reversed. Now stores have more opportunity to introduce their own labels – whether name brands like it or not.
“Forty years ago, Walmart upsetting P&G would be a risky situation. Now Walmart is much bigger than P&G,” said Steenkamp, the marketing professor.
Today, retail private label operations are more sophisticated than ever and a much greater focus for chains.
Stores these days 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 client engagement at IRI.
The US House Judiciary Committee and other lawmakers and regulators around the world have been investigating whether Amazon uses merchant data to create its own brands and illegally favors its own brands on its website.
Most stores start small with their own brands. Grocery, 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 in the category is not strong.
“You don’t start with the hardest things,” Steenkamp said. “As stores build more experience and success, they enter new categories.”
How to find out who makes store brands
So how can you tell who’s 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 labels for Walmart, Kroger and HEB.
Some major retailers also create their own private labels. Kroger, for example, makes around 30% of its own private products.
Perhaps the strangest manufacturers of store brands are retailers that create private labels for their…competitors: Safeway-owned Lucerne Foods produces private labels for Safeway’s rivals.
