Private Labeling Law & Legal Definition


Private labeling is the interesting story of a how a segment of products, originally introduced as low-price alternatives to high-priced brands, is gradually evolving a new brand identity in its own right—increasingly deployed to build loyalty to stores that have plenty of brand identity of their own (e.g., Kroger, CVS, Rite-Aid, and many others). Private-label products, often referred to as "store brands," are made by manufacturers for stores but carry the store's rather than the producer's label. Sometimes the manufacturer produces solely for the PL market, distributing the same product with unique labels for different retailers; sometimes the manufacturer has a well-known brand of its own but sells a portion of its production under private label. When all else is equal, e.g., the identical product is sold under an established brand and under one or more private labels, the only real difference between the two is that the branded product carries all the costs of brand promotion and the PL product carries no such costs at all. The two products, of course, will have slightly different packaging too, for differentiation. PL products, for this reason, initially emerged as a way of exploiting a cost differential. They are typically sold at prices below that of their brand-bearing counterparts. All manner of variations on this theme exist and have been present. Thus the PL product may be indistinguishable, somewhat inferior, and (of late) even superior to a branded equivalent. Packaging in the past has ranged from deliberately unattractive to deliberately eye-catching, including imitative of the leading brand with which it competes.

Private labeling emerged visibly in the 1980s and, in those days, ranged from versions carrying store labels to so-called "generics" which came in bland, usually white packaging—including canned goods bearing the product identification and labeling, but no brand whatsoever, on white wrappers. The recession of the late 1980s helped to establish this new category. It continued to thrive even as the economy rebounded in the 1990s and proceeded to finish the 20th century with a great spurt of growth.

The situation in the mid-2000s is summed up by Private Label Buyer succinctly as follows: "Store brands have evolved from merely the generic low-priced product to a wide selection of items that have a brand identity of their own. Today, a store brand can be a premium, high-quality item that competes with national brands on image. Consumers have changed into value seekers—even those at the higher end of the economic scale consider themselves savvy shoppers looking for the best value." Trade statistics bear out the fact. Store brands slightly out-pace the growth of branded products. This is not surprising in that PL products tend to be lower priced; but it testifies at least to the adequacy and possibly to the increasing quality of private-label goods.

Quality is important, but, as Jill Rivkin pointed out, also writing for Private Label Buyer, price remains the most important factor. "When asked to rank the private label attributes of price, quality and package design in order of importance," Rivkin wrote, "about 60 percent of primary grocery shoppers surveyed put quality in the top spot. But just moments later, when asked if they would purchase a private label item only if there is a significant price difference between it and the comparable national brand item, 64.7 percent agreed."

Although private labeling is widespread and can be found in most consumer categories (ranging quite widely from plastics sacks on up to lawnmowers), it tends to dominate in the grocery and in the drugs and sundries categories. Major retailers in these categories are most active in exploiting the possibilities of private label by fusing low-price store-branding and store-identity into a promotional approach intended to build store loyalty. Thus in advertising and in issuing coupons, higher discounts are offered for store-branded items in order to attract and to keep the clientele.

PL and Small Business

Producing for the private label market has been a valued strategy by small business in the middling-size category, especially those that have established recognized brands of their own in grocery categories (e.g., preserves, sauces, condiments, etc.). Plant expansions can be rationalized by adding a substantial private-label production run. A certain size is necessary because private label distribution must satisfy a mass market. Distributing privately labeled product to many small stores, each requiring its own unique labeling and packaging—combined with the need for low pricing—makes the approach less than cost-effective.

Some small businesses look for opportunities exclusively to satisfy a large private-label market by producing for it a regional supply of some product the specifications for which are set for all participating manufacturers by the buying retailer.

Private Labels and E-Commerce

A still emerging trend in private labels is the rapid adoption of these brands by firms involved in Internet commerce. "While supermarkets and department stores in the brick-and-mortar world can take years before they venture into private label merchandise, e-tailers—in a development that echoes the rapid emergence of the medium itself—are developing private label programs as they approach the starting gate," Elaine Underwood wrote in Brandweek.

According to Underwood, some electronic retailers are attracted by the higher margins typically offered by private-label merchandise. Others see it as a way to offer unique merchandise that helps differentiate them from competitors. For example, the online toy retailer eToys sold special cabinets and stands for customers to display their collections of toys under their own brand name. Some experts claim that offering private-label merchandise gives substance to online brand names and reminds customers of e-commerce Web sites. Electronic retailers must be careful not to offend big name manufacturers by copying their products and packaging too closely, however, because they lack the leverage in the chain of distribution that is enjoyed by regular retail stores.

SEE ALSO Brands and Brand Names

BIBLIOGRAPHY

"Building Shopper Loyalty with Store Brands." Private Label Buyer. March 2006.

Murray, Barbara. "Private Labels Pushed as Solutions." Supermarket News. 14 February 2000.

"PL Continues to Expand Its Market Share." Chain Drug Review. 13 March 2006.

"Private Label. At Long Last, Respect: Price becomes less important as consumers reach for quality." Stagnito Communications. Available from http://www.stagnito.com/fbr_pl.asp. Retrieved on 2 May 2006.

Rivkin, Jill. "Price Is Still Priority: Consumer research shows a commitment to private label, as long as the price is right, and a continuing need for consumer education." Private Label Buyer. March 2006.

Rivkin, Jill. "Reevaluating the Competition: National brands are paying more attention to private label, now considered a 'threat'." Private Label Buyer. March 2006.

Underwood, Elaine. "Store Brands, Without the Store." Brandweek. 19 June 2000.

Walden, Geoff. "Drug Chains Aim to Make Category Their Own." Chain Drug Review. 27 March 2006.

                              Hillstrom, Northern Lights

                               updated by Magee, ECDI