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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.

Many leading national brand manufacturers create private labels for multiple retailers. In the late 1990s, more than half of brand manufacturers were estimated to make private goods as well.
Trader Joe's first private label product in the 1[ads1]970s was granola.  As the grocer grew, it transitioned to mainly own brands.

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.”

But there are some exceptions. Kimberly-Clark (KMB)the maker of Huggies diapers, makes Kirkland Signature diapers for Costco and Duracell makes Kirkland Signature batteries, Costco (COST) leaders have said.
Georgia-Pacific, the maker of Brawny and Dixie, also produces store brands. It does too handle (HENKY)the manufacturer 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 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.

Eight O'Clock Coffee sold at The Great Atlantic And Pacific Tea Company (A&P) in 1949.
Yet no American retailer was more successful in developing its 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. 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.

For most of the 20th century, national brands such as Jell-O, HJ Heinz, Campbell soup (CPB) and Johnson & Johnson (JNJ) had power over shops. 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 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.

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 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.

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 prices of the brand have become too high and that they can make their own product of similar quality and sell it for 20% less.
Costco hasn’t lost any relationships with suppliers by launching its own Kirkland products, but those brands aren’t usually happy when Costco introduces one, the company’s CFO Richard Galanti said in an interview earlier this year.
Costco generates nearly a third of its sales from the Kirkland Signature brand.
Retailers have been sued for making products that are too similar to national brands. The owner of golf ball brand Titleist sued Costco for patent infringement, while Williams-Sonoma (WSM) defendant 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 merchant 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. 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.

JM Smucker (SJM) recalled certain 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 producers, such as e.g Treehouse Foods (THS), which makes snacks under the labels of supermarkets, big box chains and other retailers. Almost a quarter of the company’s turnover of 4.3 billion dollars last year came from, for example 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 the 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 exclusively on creating private labels.

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.



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