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The evolution of private labels at retail

Half of consumers now say they seek out private brands over traditional ones.

The evolution of private labels at retail

By Lewis Paine, senior vice president of retail marketing consultancy GfK Consumer

The continued importance of so-called Private Label products to leading retailers is undeniable. Based on the most recent reports, these products are continuing to generate more growth than traditional national brands among major chains for nearly every category. Perhaps more importantly, more than half of all consumers believe that retailer-sponsored products are “at least as good as” nationally branded products and 48 percent say they actually prefer and seek out private brands.

Where did it start?
Private Label Products are not new to the retail scene. The great Atlantic & Pacific Tea Company (A&P) was partially built upon its freshly ground (in-store) 8 O’Clock Coffee in the early 1900’s. The growth of Sears-Roebuck was in part driven by a strategy of purchasing and developing its own brands (Craftsman, Kenmore, etc.) which remain key American brand institutions. In Europe, Migros, Aldi and Tesco all built successful retail empires based solely on the development and proliferation of their own brands.

Why did it start?
There are three fundamental reasons for the development and growth of store brands:

1. The shift of power from national brand marketers to national retailers. Prior to the days of modern distribution capabilities and multi-market promotional capabilities, national brand marketers had the edge and the muscle to divide and conquer retailers who were not able to amass large amounts of purchasing power to demand lower prices. In the U.S., even leading retail chains such as Kroger and Safeway were mostly unable to mount successful corporate purchasing efforts due to their lack of national presence and their local, ground-up organization.

In the U.S., Walmart (in fact, following the Sears model) forever altered the landscape by leveraging massive buying power through a single point of purchasing. The same phenomenon occurred even earlier in Europe when Carrefour opened SuperCenters in France and Migros in Switzerland, leading the drive for national, rather than local, dominance.

2. The ready availability of high quality, low priced private label production capacity. Most of the early private label sales did not come at the expense of nationally branded, highly marketed products. Private Label fed on regional or under promoted price brands. As “own brands” increasingly encroached upon these businesses, company owners quickly offered up their manufacturing capacity for private label products (such as Royal Crown Cola switching its capacity to President’s Choice). Once retailers found they could usurp the placement of third, fourth and fifth brands – not to mention their production capacity – they became more aggressive about seeking more of these opportunities. As global logistics came to the fore, this added inexpensive and high quality capacity for everything from food to automobiles.

3. The third key driver for the growth of private label is the historical perspective of key retailers that a strong “house brand” that consumers could only purchase at their store would drive loyalty (i.e., the aforementioned Sears and Tesco). Tesco reasoned that if it marketed its own full line of quality, great value products, it would attract customers to shop there and build greater loyalty than to other retail chains. Ultimately, any retailer wants to maximize customer loyalty (share of retail visits) and revenue (share of wallet). Brands that can be purchased exclusively at their stores can accomplish both those objectives, many times in tandem with enhanced profitability.

Retailers develop and market their “own” brands or “private label” as the ultimate guarantee of obtaining customer loyalty in a highly competitive market, resulting in more trips and an increased share of wallet.

Where Is It Now?

That being said, private label brands are in the midst of a major retail transformation for which the ultimate end-game has not yet been determined. Leading retailers of nearly all but the smallest sizes are investing more of their time and marketing dollars in the development of “private label” brands. The goal of this increased focus is both a growth (loyalty building) and survival tactic (owning an equity or line of products that differentiates them from larger competitors). Most retailers are either in the process of refining their “own brand” strategies or focusing on positioning their lines to maximize loyalty, competitive differentiation and share of wallet.

The most that can be said with certainty is that the retail and brand landscape, particularly with the exponential growth and purchase influence of the Internet, will continue to be extremely fluid and dynamic and will drive winners and losers. Those without a clearly articulated strategy – supported by the appropriate levels of investment and organizational support – will suffer greatly.

What to Do About It?

1. Eliminate the use of the term “private label.” It is a mostly irrelevant term increasingly not used or applied by consumers. In place of stating that “Kirkland” is Costco’s private label brand, consumers are more likely to state that “Kirkland” is very good brand that one can only seem to find at Costco.

2. No more doing it on the cheap. If consumers perceive little or no difference between national and “exclusive” brands, they will hold your retail organization to the same standard as for national brands. This means that in most cases there is no more “doing it on the cheap.” A brand recall, inconsistent quality, lack of follow-on product support, poor brand positioning, bloated lines with distracting SKUs have an increasing impact on the image of and loyalty to your chain, not just for your “private label.” The two are inextricably linked. The result is that you must manage your “own” brands as if they are truly national brands with the same level of expertise and sophistication.

3. Develop a holistic brand marketing and merchandising strategy. It is vital to create a compelling holistic brand strategy that considers current industry trends. Many national brands sell 25 percent or more of their products to just one or two retailers. Will all of them survive in their current format? Consider your options. If the retail world is moving to its own brands, should you consider stronger strategic alliances with national brands that hold high brand equity but which are under significant retail pressure?

4. Think Internet and distribution. If you have created a brand with strong individual equities, it may have a larger profit opportunity outside the walls of your stores. Brands are sold in more channels, particularly on Internet sites.,, E-Bay and other internet retailers are the sales agents for more brands than you might think – and that won’t change. It’s important to understand how to take advantage of this fact instead of being a victim of it.

5. Keep in mind that history repeats itself. Leading retailers such as A&P, Kroger and Sears have all experienced challenging periods over the past 50 years – some of which was specifically attributed to an overreliance on their “own” brands (primarily due to perceived advantageous profit margins) versus national brands that innovate and, most importantly versus customer service. At times they were considered outlets for their own brands more than consumer-centric retailers dedicated to fulfilling customer needs.

In order to get ahead and stay ahead of the “private label” evolutionary curve, it is key to develop a coherent holistic strategy that takes into account the current market fluctuations and as well as the yet-to-be defined outcomes. If you are going to be your own brand marketer, you must adopt the more sophisticated techniques of SKU optimization, line management, brand equity evaluation, consumer emotional and rational feelings and innovation to compete on a parallel basis with the best and most innovative brand marketers – because your customers expect you to. The changing landscape will generate sometimes surprising winners and losers because marketing is a combination of discipline and creative innovation – some of which fits within the context of a retail environment and some of which is antithetic to it.

Photo by Lisa Brewster.


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