They have become forces in their own right and account for about 21% of sales in the $1.7 trillion US grocery industry, according to IRI.
But the origins of boutique brands remain largely secret.
Retailers are usually not aware of the companies that make their brands. And manufacturers, likewise, have little incentive to disclose that they are creating products similar to their brand names under a different label that are sold over the counter.
Although store brands appear to compete with manufacturers’ national brands, manufacturers often have excess capacity on their production lines. To generate additional profit, some people will use that extra capacity to do private labels.
Other brand manufacturers will produce private labels as an incentive to retailers, hoping to be rewarded with better shelf space and placement for their own 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 branding. “Manufacturers don’t want it to be known because it undermines the power of their own brands.”
Eight O’Clock Coffee and Kinmore
Macy’s sold a stoneware whiskey jug 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 brands.
Ward Montgomery developed its own line of aspirin in wooden containers, and the Great Atlantic & Pacific Tea Co. sold it. (aka A&P) branded spices with the slogan “Take Grandma’s Advice, Use A&P Spices.” A&P later developed Eight O’Clock Coffee, one of the most famous private labels of the period.
In 1925, Sears created the Allstate brand for car tires. A few years later, Sears shipped its first Craftsman wrench, according to Durham. Its Kenmore line, which began as a sewing machine brand in 1913 before branching out into vacuums and other home appliances, was the leading home appliance brand in the United States.
However, these private labels were an exception.
Most customers were fiercely loyal to specific brands, not retailers. A store that didn’t have major labels was likely to go bankrupt, giving manufacturers huge leverage.
In addition, many store brands were considered to be knock-offs, free of national brands.
The low point for private label came during the 1970s, Durham said, when stores were trying to cut costs and generic types with basic white backgrounds and black lettering identified the product — beer, soap, cola, beans and other staples.
Retailers do private label brands for a variety of reasons, including to increase profitability and sometimes as a negotiating tool against brands.
Private brands often carry profit margins that are 20% to 40% higher than national brands because stores do not have to pay the advertising, distribution or other markup costs embedded in the prices of major brands.
In the middle of the 20th century, many retailers began to develop their own labels in order to withdraw bargaining power from dominant suppliers and keep their prices under control. As the US retail industry has consolidated in recent years, the power dynamic between retailers and suppliers has reversed. Now, stores have more leverage to bring in their own labels—whether name brands like it or not.
“Forty years ago, Walmart pissing off P&G would have been a dangerous situation. Now, Walmart is much bigger than P&G,” said Steenkamp, the marketing professor.
Today, private brand store operations are more sophisticated than ever and a much greater focus for chains.
These days, stores are more likely to develop a distinctive private brand or product to stand out from competitors and create shopper loyalty, said Krishnakumar Davey, president of client engagement at IRI.
The US House Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon uses data from sellers to create its own brands and illegally favors its own brands on its website.
Most of the small shops start with their own brands. Grocers, 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 within the category is not strong.
“You don’t start with the hardest things,” said Steenkamp. “As stores build more experience and success, they enter new categories.”
How to find out who makes store brands
So how do you tell who’s behind your favorite boutique brands?
Product recalls are often the most revealing way to find out which brand manufacturers are behind particular private labels.
Last year, for example, Dole recalled salads and fresh vegetables, including private brands for Walmart, Kroger and HEB.
Some major retailers also produce their own private labels. Kroger, for example, makes about 30% of its own private label products.
Perhaps the strangest store brand manufacturers are retailers that make private brands for their…competitors: Safeway-owned Lucerne Foods makes private labels for Safeway’s competitors.