Do National Brands Have a Bigger Private Label Opportunity?

A university study concluded that national brands stand to benefit from producing more private labels for grocers, although doing so brings “complex trade-offs” that carry some risks.

The research from marketing professors at Canada’s McGill University, New Hampshire’s Dartmouth College, and Universidad de Salamanca in Spain found that the suppliers of private-label products to grocers remain a “well-kept secret.”

However, their study exploring private label suppliers to six of the largest grocery retailers in Spain found that “manufacturers with a large national brand business” were the primary suppliers of private label supply, particularly at retailers where private label is not heavily discounted. They also believe the practice of national brand manufacturers also making store brands will “become even more commonplace” with robust growth trends toward private-label growth.

The Private Label Manufacturers Association’s 2024 Private Label Report found that private label sales in the U.S. grocery space grew 4.7% in dollars in 2023 and have expanded 34% since 2019, driven by consumers seeing savings with high food inflation. Other studies continue to show improved taste and quality to be reducing the stigma around purchasing store brands.

As far as benefits, the university study concluded that when a manufacturer starts supplying private labels to a retailer, its national brands see a “significant increase in relative distribution depth at that retailer,” including more items being stocked with better visibility. The benefit is “even more pronounced” for national brands that had been losing shelf space.

The researchers wrote in a press release, “Manufacturers see private label supply as a way to exploit scale and try to gain influence with retailers to benefit their national brands.”

Nonetheless, the increased in-store presence was found to offer “no corresponding boost” in the share of national brands, with growth ultimately tied to consumer demand. The researchers wrote, “While supplying private labels can be a strategic move, it is not a cure-all for struggling national brands.”

In a Harvard Business Review article from 1999, researchers from the University of Toronto and Washington University were already touting the margin opportunities brand manufacturers could gain by helping stores develop premium private labels without the costs involved in advertising, promotions, and slotting fees.

They also cited the benefits of developing “slightly lower quality” private labels for their national brands to fend off rivals making a similar move. Further, developing closer relationships with a retailer by helping with private label development was cited as a way for a supplier to “get special privileges,” including greater access to consumer information as well as influence over shelf allocation and promotions in their category.

National brands are widely assumed to be making a majority of private labels, although most only talk about their challenges in competing against private labels. Costco’s co-branded Kirkland lines with Starbucks for coffee and Hormel for bacon are two rare instances of identified partnerships.