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Private Label
What is Private Label?

What exactly is Private Label? Chances are they are already in most consumers' homes; surveys consistently reveal that nearly every shopper buys the products with some regularity. They are most likely in the refrigerator, pantry, medicine cabinet, even in the basement and garage.

For many shoppers, Private Label have come to represent better selection, value and savings. Simply put, they are products that stores put their own names or brands on. They may also be called store brands, house brands, own brands or retailer brands, but they all have one thing in common they are manufactured and brought to market in much the same way as the familiar national brands they sit next to on store shelves. Years ago, they might have been called generics but that name doesn't fit any more. Today, they are brands like any other.

Private label products encompass all merchandise sold under a retail store's private label. That label can be the store's own name or a brand name created exclusively by the retailer for that store. In some cases, a store may belong to a wholesale buying group that owns labels which are available to the members of the group. These wholesaler-owned labels are referred to as controlled labels.

Private label items are available in just about every food and non food category: fresh, frozen and refrigerated food, canned and dry foods, snacks, ethnic specialties, pet foods, health and beauty care, over-the-counter drugs, cosmetics, household and laundry products, lawn and garden chemicals, paints, hardware, auto aftercare, stationery and house wares, among other sections of the store.

Retail chains of all sizes develop and market store brands in various ways. They may create a line around a particular feature of the products such as Safeway's O Organics and Eating Right offerings, or Kroger's Private Selection and Albertsons Wild Harvest organic lines. In other cases, nearly all of the store brand items in a chain carry the same name such as Costco's Kirkland or Wal-Mart's Great Value.

As good as or better than
When it comes to product quality, most consumers see virtually no difference between private label and familiar national brands. In a 2010 GfK study half the respondents said they had recently switched to the store's brand in categories where they had previously only bought a national brand. Nearly all who did switch were pleased with their decision: nine in ten compared store brands "favorably" to their previous national brand choice.

The Hartman Group said it's no surprise private label give national brands a run for their money: "In many instances, shoppers no longer can distinguish between national and private label brands. What's most interesting is not so much the fact that it's happening, but that people don't really care that they don't know the difference. The importance of branding and the badge value of brands in the past are giving way to a greater emphasis on the product and the overall experience controlled by the retailer."

Consumer Reports gave a ringing endorsement to store brands quality and value. In a study, "It Pays to Buy Store Brands," it said if concern about taste has kept consumers from trying store brand foods, they should hesitate no more. In blind tests, professional tasters compared a leading national brand with a store brand in 29 categories. The store brand tasted "equally good or better" than the national brand in 23 categories.

Private Label: Where do they come from?
More and more store brands are appearing on the shelves of stores throughout the country. But how do they get there, why are they there and who makes them?

For many consumers, store brands have become an important ally when it comes to providing their families with high quality, every day products at good value. Store brands have also become very important to retail chains. And that's another reason they have grown so quickly. Store brands give the chains a way to set themselves apart from the competition and they enable them to offer customers more choice.

Historically, store brands signified good value for consumers while national brands were usually seen as the premium item in a category. That is no longer true. Store brands have come to mean more than value. Many chains now offer a wide range of products that are not solely focused on value. They offer premium products just like the national brands. As they become more than just a place to buy products, stores are actively involved in finding and developing new items they can put their own name or brand on.

To produce those products for them, they turn to store brand manufacturers. When they do, they make it clear that high quality across the board from ingredients to the supply chain, from the packaging and labeling to the final product itself -- is their number one requirement.

Store brand manufacturers who meet those high standards are companies like any other in the country. They come in all sizes. They borrow capital from banks, and many have shareholders and are listed on familiar stock exchanges. There are thousands of companies in hundreds of categories that produce the products in partnership with retailers.

Manufacturers of store brand products fall into four general classifications:
  • They are large national brand manufacturers that utilize their expertise and excess plant capacity to supply store brands.
  • They are small, quality manufacturers that specialize in particular product lines and concentrate on producing store brands almost exclusively. Often these companies are owned by corporations that also produce national brands.
  • They are major retailers and wholesalers that own their own manufacturing facilities and provide store brand products for themselves
  • And they are also regional brand manufacturers that produce private label products for specific markets

These companies make certain that the products they supply meet the same exacting standards and requirements as all the major national brands. Just like national brands, store brand products are tested and analyzed for quality and safety by independent companies before they reach the shelves.

Another task manufacturers carry out is to package and label the product to meet the store's specifications. Each store has its own unique identity and the packaging reflects that. Developing good packaging was the first frontier in making store brands more successful. One of the primary reasons store brands have grown is the recognition of the importance of functional and attractive packaging. This means not only design but how the package opens, closes, and sits on the store shelf and in the pantry or refrigerator.

The special challenge when it comes to store brand packaging is retailers have created a single look that is similar in many items throughout the store. In many cases, up to 500 items have to be packaged alike to represent one retailer brand.

But while packaging is important as the consumer's first image of a product, the ingredients and quality of the product remain paramount. With most consumers believing store brands are as good as or better than national brands the next step is to be more innovative. Innovative products can be found all over, from fresh-frozen products in supermarkets to off-patent medicines in drugstores to household cleaning products in discount stores. Another area of innovation is the development of multiple tiers of products targeted to different consumer segments. Consumers know they can buy a national brand anywhere but they can only buy their favorite store brand at their favorite store.

Private label: The smarter choice
For the consumer, store brands represent choice and the opportunity to regularly purchase high quality food and non-food products at considerable savings compared to buying national brands. Because the store's name or symbol is on the package, the consumer is assured that the product is manufactured to the store's highest quality standards and specifications. Retailers and their private label suppliers abide by the Nutrition Labeling and Education law which requires standard nutrition labeling and that content and health claims meet FDA regulations.

To make a stronger impression with their own customers, stores have become actively involved in finding and developing new and better products they can call their own. They are products available only at their store and carry the store's name or brand. At the same time, they also represent better value. And when it comes to the importance of value, it's not just about price it's also about what the shopper gets for her money.

By comparison, national brands operate on a completely different playing field. One that is far more costly. Their goal is to be in every store in the country. That means they spend huge sums of money on widespread advertising and merchandising and promotion. Store brands are not cheaper they are just less expensive to market than the national brands are. That's the good news for consumers.

Exactly how much do consumers save? As a whole, American shoppers who reached for the store brand version of their favorite grocery products rather than the national brand enjoyed an estimated $32 billion in annual savings. On an individual basis, research by PLMA reveals that shoppers consistently save about 35% off their grocery bill by choosing store brands over national brands.

On a trip to a typical supermarket to buy 25 basic grocery and household items, consumers saved an average of $33 when compared to the purchase of national brands in the same categories. The difference is the so-called marketing tax, which consists of advertising and promotional costs incurred by national brand makers that are then passed on to consumers in the form of higher prices. Major national brand companies spent about $20 billion last year on advertising media. They devote about 25 cents of every dollar to build brand equity. They do this to satisfy shareholders and Wall Street analysts who place a high premium on the perceived value of their brands.

A store brand manufacturer does not have these costs. But it buys the same high quality ingredients and runs the same state of the art manufacturing line. There is not much else that isn't exactly what the national brand item has.

Habit and familiarity are reasons consumers have traditionally been drawn to national brands. But many of those formerly national brand-loyal consumers are reaching instead for store brands. In the process they are building new habits and making new friends. With top quality, unique items and solid savings, store brands can add up to a smarter choice for consumers.
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