Saturday, November 26, 2022

Retailer’s own brand building production chain open to the public

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Kirkland Signature, Two-Buck Chuck, Simple Truth, Cat & Jack, Great Value, Amazon Basics, these brands may be familiar to you, but you may have bought products under its name.

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According to IRI, they have become mainstream in the retail sector. This accounts for about 21 percent of the $1.7 trillion in US grocery sales.

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As prices have risen, store-owned brands have become a more attractive option for shoppers who have abandoned higher-priced brands due to inflation. Private labels are usually 10% to 50% cheaper.

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But the rise of the private label generally remains a mystery.

retail sellerIt is usually not disclosed which businesses create their own brands for them. Similarly, there is little incentive for manufacturers to reveal that they are selling products under different names, but in affordable manufacturing, with ingredients similar to well-known brands.

Several major national brand manufacturers create private labels for multiple retailers. In the late 1990s, it was estimated that more than half of branded manufacturers also produced private label products.

While private labels clearly compete with manufacturers’ authentic brands, manufacturers tend to have more capacity in their own production lines. To generate additional profit, some will use the excess capacity to create private labels.

Other brand makers are producing private labels as an incentive for retailers to provide more shelf space and display their national brands.

“Most manufacturers don’t want to be public about it,” said Jan-Benedict EM Steenkamp, ​​a marketing professor at the University of North Carolina who studies private labels and brands. “Manufacturers don’t want people to know, because it will reduce the selling power of their own brand.”

But there are some exceptions as well.costcoHuggies diaper maker Kimberly-Clark makes Kirkland Signature diapers for Costco, and Kirkland Signature batteries for the Duracell retailer, officials said.

Georgia-Pacific, makers of Bronie’s and Dixie’s, also makes retail-owned brands. Henkel, makers of Purex and Dial, do the same.

Coffee and Kenmore at eight

Store-owned brands have existed since the early days of retailing and the advent of consumer brands in the 19th century.

Macy’s used to sell jugs of Stoneware whiskey under its own name. According to Christopher Durham, president of the Velocity Institute, a private-label trade association, customers can bring the molasses back for refills.

Montgomery Ward develops its own line of aspirin in wooden boxes, while Great Atlantic & Pacific Tea Company sells branded fragrances under the slogan “Like your grandmother, use A&P fragrances.” A&P later developed Eight O’clock Coffee, one of the most well-known private labels of the time.

Yet any U.S. The retailer has never been more successful than Sears and Roebuck in developing private labels.

In 1925, Sears created the Allstate brand for automotive tires. A few years later, Sears introduced the first Craftsman wrench, according to Dunham. Its Kenmore line began as a sewing machine brand in 1913, then expanded into vacuum cleaners and other home appliances, becoming the leading home appliance brand in the United States.

However, these are private label exceptions.

For much of the 20th century, national brands such as Jell-O, HJ Heinz, Campbell Soup and Johnson & Johnson had an influence in stores. These manufacturers flood the broadcast media and newspapers with advertisements touting the benefits of their products.

Most customers are very loyal to specific brands, not retailers. A store without a big brand is likely to be overwhelmed, giving a huge profit to the manufacturer.

In addition, many private labels are also considered replicas of national brands, cheap knock-offs.

Dunham said that the down to private label came in the 1970s, when stores sought to cut costs and knocked out beer, soap, cola, beans and other staples with white packaging and black lettering logos. .

shopkeeper loyalty

Retailers create private labels for a variety of reasons, including to improve profitability and sometimes as a tool for negotiating with brands.

Private-label brands typically earn 20% to 40% higher margins than national brands because stores do not have to pay advertising, distribution, or other costs added to the price of major brands.

In the mid-20th century, many retailers began to develop private labels to gain back bargaining power from major suppliers and to control prices. As the US retail industry has consolidated in recent decades, the power dynamic between retailers and suppliers has reversed. Now, stores have more leverage to offer their brands, regardless of the name brand or not.

“Forty Years Ago,” Says Marketing Professor SteinkampwalmartAnnoying Baoji is a risky act. But now, Walmart is much bigger than Polk. ,

Today, private label operations in stores are more complex than ever, and chains are paying more attention.

Krishnakumar Davy, President, Customer Engagement at IRI, said stores today are more likely to develop unique private labels or products to differentiate themselves from competitors and build shopper loyalty.

For example, Costco decided to make Kirkland Signature products because the major brand would not ship to the retailer. Or Costco thinks the name brand is priced too high, and can make its own products of similar quality and sell them for 20% less.

The company’s chief financial officer, Richard Galanti, said in an interview earlier this year that Costco has not lost any ties with suppliers by launching its Kirkland product, but that when Costco launches a new product, these brands are usually But not happy.

Retailers also sued for making products similar to national brands. The parent company of golf brand Titleist sued Costco for patent infringement, while Williams-Sonoma sued Amazon for selling “counterfeit goods” under its own brand. Both the cases were settled and a settlement was reached.

The US House of Representatives Judiciary Committee and other congressional and regulatory agencies around the world have investigated whether Amazon used seller data to create private labels and illegally favor private brands on its website.

Amazon said it does not use the data of individual third-party sellers to inform the development of its private label and does not endorse private products on the site.


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