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Private label

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Two brands of aspirin. Left: a national brand made by Bayer. Right: a private-label brand. Note the price difference and similar boxes.

A private label, also called a private brand or private-label brand, is a brand owned by a company, offered by that company alongside and competing with brands from other businesses.[1][2] A private-label brand is almost always offered exclusively by the firm that owns it, although in rare instances the brand is licensed to another company.[3] The term often describes products, but can also encompass services.

The most common definition of a private label product is one that is outsourced, in which a firm is contracted to make a product under another name.[4][5][6] However, it can also define products made in retailer-owned firms.[7][8] For example, in 2018, The Kroger Company had 60% of its private brands produced by third parties; the remaining 40% was manufactured internally by plants owned by Kroger.[9] Private-label producers are usually anonymous, sometimes by contract. In other cases, they are allowed to mention their role publicly.[10][11]

Etymology

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The term private label originated in retail,[12] but has since been used in other industries as well. Probably the best known private-label brands are store brands, which are managed by supermarket and grocery store chains. Examples are Simple Truth by Kroger and Great Value by Wal-Mart.[13] Store brands compete with national brands or name brands, like Coca-Cola or Lay's.[14][15][16]

The term private-label product overlaps with the term white-label product. They are sometimes used interchangeably, but they don't mean the same thing. A private-label product is created exclusively for a client, who sets specific demands on what the product or service must contain.[17] A white-label product is not created exclusively for one company, and although white-label manufacturers might offer customizations to their products, these are usually limited.[18] The specifications of a private-label product are set out by the client, whereas a white-label product is more generic and already designed.[19][20]

Store brands

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νώμα (noma, "remembrance, memory"), a private-label trademark of Lidl for its Greek branch. Around 80% of the products in a Lidl store are private labels.[21]
Shelves in a Swedish grocery store showing both private label and international brands.

In the supermarket and grocery store industry, the term private label/brand is almost always used, even if the same product is sold non-exclusively to multiple retailers with different packaging (white label/brand).

A store brand, also called a house brand[22] or, in British English, an own brand,[23] is a private-label brand trademarked and managed by a retailer.[1] This brand is almost always offered exclusively at the chain store that owns it, although in rare instances the brand is licensed to another company.[24] Examples of store brands are Simple Truth by Kroger, Great Value by Wal-Mart, Clover Valley by Dollar General, Market Pantry by Target, and Specially Selected by Aldi.[13][25] Store brands can also be eponymous, or named after the store, such as Joe's O's cereal by Trader Joe's.[26] Store brands compete with national brands, also called premium brands or name brands,[14][15][16] with its items sometimes being called brand-name products.[27] Examples are Coca-Cola, Lay's, and Kellogg's. The general appeal of store-brand products is that they are usually offered at a lower price than their name-brand counterparts.[1]

Most private-label store brand products are manufactured by third parties, but some are made by companies owned by the retailer.[8] For instance, a vice-president of The Kroger Company stated in 2018 that approximately 60% of their private-label products are outsourced. The remaining 40% is manufactured internally: in 2018, Kroger owned 38 plants, including 19 dairy farms, 10 bakeries, and 2 butcheries, strategically spread across the US.[9] Similarly, Safeway Inc. owned 32 plants as of 2012.[28] Most retailers prefer to keep the identity of their suppliers private, and accordingly have non-disclosure clauses in their contracts, making it difficult to determine the producer of a private-label product.[10][11] In a few cases though, the manufacturer is allowed to mention it publicly,[29] is revealed through a product recall, or in rare instances, is stated on the product itself. For example, the bags of Kirkland Signature coffee by Costco feature the text "Custom roasted by Starbucks".[30][31]

Private-label brands emerged in the 19th century.[12] Until the early 20th century, their general focus was on delivering quality at a price below that of the national brands. In the first half of the 20th century, the quality of private brands diluted and their standards dropped. In their competitive struggle against national brands, low prices were considered more important than quality. In the second half of the century, this trend gradually reversed.[32] As quality and visual appearance improved, private labels rose to prominence in the 1970s and '80s.[33] By the 1990s, they were increasingly seen as a threat to the established brands.[34] Also, from the '90s onwards, a premiumization of store brands began to occur,[35] giving rise to more expensive premium private labels.[36][37]

Generic brands are often associated with store brands. Generic products were first introduced in the United States in 1977,[38][39][40] quickly winning market share from national and private-label brands.[41] A 1981 academic article described them as products "without brand names, in very plain packages with simple labels and usually sold at prices below both the national and private brands with which they compete".[38] Packages of generic products often feature only the name of the type of product it contains, e.g. "Cola" or "Batteries".[39] Nowadays, the terms generic brand and store brand are sometimes used interchangeably.[14][42][43] The term generic can be used as a pejorative toward store brand items that are perceived as bland or cheap.[44][45]

A private-label brand is often produced by the same company that manufactures the national brand of that product.[46] Different brands target different consumers. For instance, Kimberly-Clark makes Huggies diapers, but also produces a Walmart budget version.[47] Allegedly, some store-brand items are identical to their name-brand counterparts: they are said to be literally the same product, except for the packaging and price.[42] In other cases, a manufacturer can have multiple formulas for one product, creating a private-label version using one method and the national-label version using another.[48] In 2007, a mass-recall of contaminated pet food products brought to light that more than 100 different brands of pet food, both premium- and private-label, were in fact produced by a single company: Menu Foods Inc. in Ontario, Canada. The ingredients and recipes they used differed substantially among brands, depending on what their clients specified.[47]

In the United Kingdom, supermarkets have been criticised for "fake farm" private label brands.[49][50]

In fast food

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Fast food restaurant chains sell their products under their private-label brands. Their core items are usually fries and meat-based items, but they might also offer brownies, muffins, cookies, and salads. These private-brand products are offered alongside national-brand products, such as soft drinks by Coca-Cola or Pepsi, and ice creams co-branded with Oreo or M&M's.[51]

In finance

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A private-label credit card (PLCC) is a type of credit card that can only be used at a specific company or chain of companies. Since this is virtually always a retail business, they are also called store cards.[52][53] The retailer partners with a bank that issues the cards, funds the credits, and collects payments from customers. The cards themselves are branded with the logo of the store, but not the bank.[54] Examples are the Target Debit RedCard (issued by TD Bank, N.A.),[55] the Walmart Reward Card (issued by Capital One),[56] and the Amazon Store Card (issued by Synchrony Bank).[57] PLCCs also do not carry the logo of the payment network (e.g. Visa or Mastercard), but they do use that network for transactions.[52]

Private-label store credit cards are sometimes compared to but not the same as co-branded credit cards. These cards usually feature the logo of the payment network, and sometimes the logo of the bank.[58] Unlike PLCCs, co-branded cards work like 'normal' credit cards, usable at any place where that type of card is accepted.[59] For instance, warehouse chain Nordstrom offers a Nordstrom Store Card (private label) and a Nordstrom Credit Card (co-branded), both issued by TD Bank, N.A. and using Visa's network.[52]

Benefits of private label

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  • Cost savings– Private label products are often priced lower than their branded counterparts, providing cost savings for consumers.[60]
  • Quality control– Retailers have greater control over the quality of private label products since they work closely with manufacturers to meet their specific requirements. Retailers can ensure that their private label products meet their quality standards and customer expectations.
  • Flexibility and agility– Retailers have greater flexibility and agility in introducing new products and responding to changing market trends with private label products. They can quickly adapt to consumer preferences, experiment with different product offerings, and capitalize on emerging market opportunities.[61]
  • Higher profit margins– Private label products offer higher profit margins for retailers compared to branded products. Since private label products are manufactured directly for the retailer, there are no intermediary brand costs involved.[62]

See also

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References

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  1. ^ a b c Hargrave, Marshall. "How Private Brands Matter". Investopedia. Archived from the original on 28 March 2022.
  2. ^ Fitzell (1982), p. 9: "Any time a product is packaged under a label owned by a retailer, it can be called private label."
  3. ^ Fitzell (1982), p. 4.
  4. ^ Morrison, Stella. "How Private Labeling Works". business.com. Archived from the original on 2 May 2022.
  5. ^ MBA Skool Team. "Private Label Meaning & Definition". MBA Skool. Archived from the original on 18 September 2020.
  6. ^ Mahmoud, Rasha (31 May 2020). "Private Label: Definition, Example, Pros & Cons". Retail Dogma. Archived from the original on 2 May 2022.
  7. ^ "What is Private Labeling?". Ecommerce CEO. Orbit Local LLC. Archived from the original on 4 March 2022.
  8. ^ a b Fitzell (1982), p. 10: "The label owner may manufacture his own private label products or have them manufactured and packaged to certain specifications by outside sources, including imports."
  9. ^ a b Aylward, Lawrence (23 February 2018). "Crowning Kroger". Store Brands. Archived from the original on 9 October 2021.
  10. ^ a b Hirsh, Sophie (4 January 2022). "How Trader Joe's, Whole Foods, and Kroger Make Their Store-Brand Products". Green Matters. Archived from the original on 7 April 2022.
  11. ^ a b Dixon, Vince (9 August 2017). "What Brands Are Actually Behind Trader Joe's Snacks?". Eater. Archived from the original on 11 April 2022.
  12. ^ a b Fitzell (1982), pp. 28–40, Chapter 2: History of Private Labels.
  13. ^ a b Biscotti, Louis (2 May 2019). "Private Label Brands Roar At Retail". Forbes. Archived from the original on 2 December 2020.
  14. ^ a b c Chron Contributor. "Store Brand Vs. National Brand". Chron. Archived from the original on 24 March 2022.
  15. ^ a b Hamm, Trent (28 July 2012). "The Only Difference Between Brand Names And Generic Groceries Is The Mental Block". Business Insider. Archived from the original on 2 May 2022.
  16. ^ a b Laurin (23 April 2015). "Generic vs Name Brand Foods – Is there really a difference?". The Dinner Daily. Archived from the original on 10 April 2021.
  17. ^ Starr, Rob (7 April 2022). "White Label vs. Private Label Products: What's the Difference?". Small Business Trends. Archived from the original on 10 May 2021.
  18. ^ "White Label vs Private Label – What's the Difference?". That Company. 11 April 2020. Archived from the original on 26 May 2020. In a white label relationship, while the provider or manufacturer may offer a range of customizations to fit specific needs, they specify the design, parts, ingredients, or offerings.
  19. ^ Henneberry, Brittany. "What is Private Label Branding? Private Label Definition and How it Works". Thomasnet.com. Thomas Publishing Company. Archived from the original on 3 May 2022.
  20. ^ Ellis, Matt (11 March 2021). "Beginner's Guide to Private Labeling and White Labeling". Ecomdash. Archived from the original on 14 April 2021.
  21. ^ Hamstra, Mark (6 January 2023). "Lidl rolls out private label produce". Supermarket News. Archived from the original on 6 June 2023.
  22. ^ "house brand". Dictionary.com Unabridged (Online). n.d.
  23. ^ "Own brand definition". CollinsDictionary.com. HarperCollins.
  24. ^ Fitzell, Philip B. (1982). Private Labels: Store Brands & Generic Products. Westport, Connecticut: AVI Publishing Company. p. 4. ISBN 978-0-87055-415-5.
  25. ^ "One more way Aldi maintains its low-price reputation: Specially Selected products". brick meets click. 29 March 2021. Archived from the original on 31 March 2021.
  26. ^ Baker, Katherine (26 April 2017). "15 Healthy Cereals You Can Get Your Hands on at Trader Joe's". Spoon University. Archived from the original on 22 August 2017.
  27. ^ Bhasin, Hitesh (8 May 2020). "Generic Brand Definition – Difference from Brand Name". Marketing91. Archived from the original on 20 September 2020.
  28. ^ Canning, Kathie (4 January 2012). "Is Self-Manufacturing Right For You?". Store Brands. Archived from the original on 3 May 2022.
  29. ^ Tuder, Stefanie (28 October 2016). "How La Boulangerie Bounced Back and Into Trader Joe's and Costco". Eater. Archived from the original on 31 March 2021.
  30. ^ Louis, Serah (23 December 2021). "These are the big brands hidden behind Costco's Kirkland label". MoneyWise. Archived from the original on 12 April 2022.
  31. ^ Willcox, Laura (22 February 2022). "The Untold Truth Of Costco's Kirkland Brand". Mashed. Static Media. Archived from the original on 19 March 2022.
  32. ^ Fitzell (1982), pp. 40–41, Chapter 2: History of Private Labels.
  33. ^ Fitzell (1982), p. IX + 4.
  34. ^ Quelch, John; Harding, David (January–February 1996). "Brands Versus Private Labels: Fighting to Win". Harvard Business Review. Archived from the original on 24 May 2016.
  35. ^ Dunne, David; Narasimhan, Chakravarthi (May–June 1999). "The New Appeal of Private Labels". Harvard Business Review. Archived from the original on 21 April 2021.
  36. ^ Shoup, Mary Ellen (19 June 2020). "Deloitte report: What does the future hold for the food retail sector?". FoodNavigator-USA. William Reed Ltd. Archived from the original on 21 June 2020.
  37. ^ "The rise of premium private label and its impact on discount retailers". nielseniq.com. Nielsen Corporation. 2 August 2019. Archived from the original on 3 May 2022.
  38. ^ a b Wheatley, John J. (1981). Monroe, Kent B.; Abor, Ann (eds.). "The Effect of Generic Products on Consumer Perceptions and Brand Choice". Advances in Consumer Research. 8. Association for Consumer Research: 166–169. Archived from the original on 20 October 2020.
  39. ^ a b McEnally, Martha R.; Hawes, Jon M. (January 1984). "The Market for Generic Brand Grocery Products: A Review and Extension". Journal of Marketing. 48 (1): 75–83. doi:10.2307/1251313. JSTOR 1251313.
  40. ^ Fitzell (1982), p. 6.
  41. ^ Yao, Margaret (10 August 1979). "Clorox vs. Chlorine Bleach: Generic Products Are Winning Noticeable Shares Of Market From National Brands, Private Labels". The Wall Street Journal. p. 6. ProQuest 134427702.
  42. ^ a b Tuttle, Brad (1 November 2012). "Brand Names Just Don't Mean as Much Anymore". Time. Archived from the original on 20 January 2022.
  43. ^ Heller, Laura (29 June 2011). "10 Secrets About Store Brands". Forbes. Archived from the original on 3 September 2011.
  44. ^ Dixon (2017): "Similar stores like Aldi ... have a private-label concept but have not transcended the stigma of "generic" as Trader Joe's has, nor have they mastered the art of brand deception (or perception)."
  45. ^ Heneghan, Carolyn (7 November 2016). "Generic no more: How private label products compete with national brands". Grocery Dive. Industry Dive. Archived from the original on 3 May 2022. While national brands had colorful packages with pictures and words describing product quality, private label brands were called "generic," with bland packaging and branding. Consumers then often considered private label products to be of inferior quality compared to the national brands they stood next to.
  46. ^ Laurin (23 April 2015). "Generic vs Name Brand Foods - Is there really a difference?". The Dinner Daily. Archived from the original on 24 November 2021. Another interesting piece of information: generics are often made by that national brand, in the same plant, from the same farm, the same dairy etc, but just packaged in a less flashy way.
  47. ^ a b Byron, Ellen (9 May 2007). "101 Brand Names, 1 Manufacturer". The Wall Street Journal. Vol. CCXLIX, no. 108. p. B1. Archived from the original on 3 April 2015.
  48. ^ Dixon (2017): Sometimes suppliers have multiple formulas for one product; they might produce a private-label version using one formula and the brand label with another.
  49. ^ Smithers, Rebecca (13 December 2017). "Tesco faces legal threat over marketing its food with 'fake farm' names". The Guardian. Retrieved 5 July 2023.
  50. ^ White, Kevin; Quinn, Ian. "Tesco takes flak over 'misleading' Farm brands". The Grocer. Retrieved 5 July 2023.
  51. ^ Fitzell (1982), p. 9
  52. ^ a b c Kagan, Julia. "Guide to Store Credit Cards". Investopedia. Archived from the original on 26 April 2022.
  53. ^ Huffman, Lee; Adams, Dia (3 January 2021). "What's The Difference Between A Store Card And A Credit Card?". Forbes. Archived from the original on 10 May 2021.
  54. ^ Irby, Latoya (9 June 2021). "What Is a Private Label Credit Card?". The Balance. Archived from the original on 16 March 2022.
  55. ^ "Target REDcard". U.S. News & World Report. Archived from the original on 7 February 2022.
  56. ^ Johnson, Holly D. "Walmart Rewards Card Review". The Balance. Archived from the original on 16 April 2021.
  57. ^ Harkness, Brendan (6 January 2020). "Review of the Amazon.com Store Card". Credit Card Insider. Archived from the original on 26 September 2020.
  58. ^ kyle (25 February 2022). "Private Label vs Co Branded Credit Cards: What Is The Difference?". Via Travelers. Archived from the original on 3 March 2022.
  59. ^ Gravier, Elizabeth. "How co-branded credit cards work and the 5 most unique ones we found". CNBC. Archived from the original on 4 June 2020. Like a store card or a loyalty card, using a co-branded card lets you access discounts and special deals. However, since the card is backed by a major issuer and/or network, you can use it anywhere that type of card is accepted.
  60. ^ Kumar, Nirmalya; Steenkamp, Jan-Benedict E. M. (2007). Private Label Strategy: How to Meet the Store Brand Challenge. Harvard Business Press. ISBN 978-1-4221-0167-4.
  61. ^ "The potential for powerhouse Private Brands: an updated view | McKinsey". www.mckinsey.com. Retrieved 2023-05-19.
  62. ^ Barnes, Jo (2023-04-25). "What Is Amazon FBA Private Label?". Your Lifestyle Business. Retrieved 2023-05-19.
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