The Mysterious Firms Behind Kirkland Signature Costco’s and Dealer Joe’s O’s The Hidden Firms Behind Retailer Manufacturers Like Kirkland Signatur The Actual Story Behind Retailer Manufacturers

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.

Many leading national brand manufacturers create private labels for multiple retailers. In the late 1990s it was estimated that more than half of the brand manufacturers also made private goods.

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.”

But there are some exceptions. Kimberly-Clark (KMB)the maker of Huggies diapers, Kirkland Signature produces diapers for Costco and Duracell produces Kirkland Signature batteries, Costco (COST) executives said.
Georgia-Pacific, maker of Brawny and Dixie, also produces store brands. So it does handling (HENKY)the Purex and Dial manufacturer.

Eight O’Clock Coffee and Kinmore

Store labels have been around since the early days of retail and the the emergence of consumer brands in the 19th century.

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.

Eight Clock Coffees were sold by The Great Atlantic And Pacific Tea Company (A&P) in 1949.
But no US retailer was more successful develop its own brands than Sears, Roebuck.

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.

For most of the 20th century, national brands such as Jell-O, HJ Heinz, Campbell’s soup (CPB) and Johnson & Johnson (JNJ) there was power over shops. These manufacturers flooded 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 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.

Shopper loyalty

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.

Great Value is Walmart's largest store brand.

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.

Costco (COST)for example, will decide to make a Kirkland Signature product because a dominant brand will not sell to the retailer. Or Costco believes that the name brand prices have become too high and it can make its product of similar quality and sell it for 20% less.
Costco has not lost any relationships with suppliers through launching its own Kirkland productsBut those brands aren’t usually happy when Costco introduces one, company CFO Richard Galanti said in an interview earlier this year.
Costco generates nearly one-third of its sales from its Kirkland Signature label.
Retailers have been sued for creating products that are too similar to national brands. The owner Titleist golf ball brand Costco sued in relation to patent infringement, and Williams-Sonoma (WSM) sue Amazon (AMZN) for selling “knockoffs” under its own brand. Both cases were settled.

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.

Amazon has said does not use the data from individual third party vendors to inform the development of its own private brands and does not favor its own products on the site.

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.

JM Smour (SJM) it recalled certain Jif peanut butter products this year, as well as store-branded items it made for Giant Eagle, Wawa and Safeway. Large companies like Conagra (CAG) and McCain Foods has recalled products from Trader Joe’s.
Then there are the dedicated private label manufacturers, for example Treehouse Foods (THS), which makes snacks under the labels of supermarkets, big box chains and other retailers. Almost a quarter of the company’s $4.3 billion in sales last year, for example, came from it Walmart (WMT).
Target has many of its own brands, such as Cat & Jack, Universal Thread and up & up.
James Walser, who was in charge of launching the Goals (TGT) In 2009, he said Target tried to move away from national brand manufacturers during the development of Up & Up to nimbler suppliers that focused entirely on making private labels.

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.

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