Once dismissed as the poor version of branded products, private labels now enjoy a certain cachet. And the benefits – and savings – they offer are real, experts say.
With rising grocery prices, consumers are changing their habits. Earnings report after earnings report, companies say consumers are turning to private label products. These are store-made brands – think Great Value from Walmart and 365 from Whole Foods Market. In 2021, private label sales increased by nearly $2 billion.
How did private labels become such a big market? To answer that question, you have to go back to the late 1970s. Inflation had been raging for more than a decade, the economy was coming out of a recession, and an aisle of unsuitable foods was growing in grocery stores.
The products were called generics – imitation versions of branded foods. Their packaging was bright yellow or white and looked a bit cartoonish, with cans and boxes simply labeled “Beans” or “Dog Food.”
“It wasn’t very appealing, but people were looking for ways to save money. And for retailers, they saw it as a way to meet consumer demand for cheaper products,” said Jan-Benedict Steenkamp, who has written two books on private label. “Neither side really liked them that much.”
To the stores, the generics screamed “poor quality” and shoppers were a bit embarrassed to buy them.
“Honestly, you don’t feel very good if you have this stuff in your basket if you consume it. So when the economic times came back, people moved away from those generics,” Steenkamp said.
Generics almost died out until sometime in the 1990s when stores changed their approach and became experts in making better quality copiers. Eventually, they turned into a way of life. Think of Aldi and Trader Joe’s enthusiasts.
“Often, consumers don’t think of Trader Joe’s private label as a private label,” said Kusum Ailawadi, professor of marketing at Dartmouth College. “They see exclusive products in it that I can’t find anywhere.”
Generics have evolved so much that we don’t even call them generics anymore. Private label is what the industry prefers.
And that’s kind of fitting, because the way they’re made is very private — mysterious, even. Peggy Davies, president of the Private Label Manufacturers Association, said private label is sometimes made by the big brands that make the original product. And there are a lot of theories on the internet about who does what. A popular rumor has it that Gray Goose distills Costco’s Kirkland Signature Vodka.
“Could, could be,” laughed Davies. “But, you know, Kirkland won’t tell you who did it, and Gray Goose won’t say he did it.”
When asked if it makes Kirkland vodka, Gray Goose’s parent company Bacardi sent a strongly worded email saying it didn’t. Kirkland also won’t say who does.
What about other imitation products? For example, does Mondelēz International, the maker of Oreo cookies, make the eerily similar Wegmans version?
“[The manufacturer is] not necessarily a supplier I would shout out to,” said Jeff Wishengrad, VP of Wegmans Brand.
Mondelēz International did not respond to a request for answers.
But often it is name brands that make similar products for store brands. And it’s a win for both parties. The big manufacturer gets more business and a lower price for their own ingredients because they buy in bulk. And the store makes money. Wishengrad said more than half of Wegmans’ sales came from its own brand.
Private label consultant Christopher Durham says private label can also generate higher profit margins because retailers can avoid the costs of running a national brand – things like product development, advertising, marketing and distribution.
And these savings are passed on to the customer. On average, house brands cost 30% less than major brands.
But not all consumers are influenced solely by price. Steenkamp said the more emotional a shopper is about a particular type of product, the less likely they are to purchase the store’s brand. This is especially true for hair products, baby formulas and some treats.
Ultimately, we are emotional buyers. And our feelings sometimes convince us that the dupe isn’t as good as the real thing.
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